Transformation and realisation – no problem

The annual London Historical Materialism conference is not just or even mostly about Marxist economics.  As its name suggests, the sessions are about Marxist analyses of all social phenomena.  But obviously for me, the issues in Marxist economics are what matters.  And there are two issues or themes (for me) that arose at this year’s conference.

They are not new and have been debated and discussed for over a hundred years.  But old issues die hard (as do older Marxists).  The first is the so-called transformation problem, namely, can Marx’s theory of labour value explain or be consistent with actual market prices in a capitalist economy?  The second is whether crises, slumps in production in the capitalist mode of production, can be explained or are caused by a problem in the production for profit (as per Marx’s law of profitability) or whether crises emerge because capital cannot ‘realise’ its production of surplus value in the market place through sales.  In other words, are capitalist crises due to insufficient surplus value or  too much surplus value that cannot be ‘realised’ in the market, i.e. ‘disproportion’ or ‘overproduction’?

This year’s HM continued yet again the debate on these issues.  On the first issue, Fred Moseley presented his new book, Money and Totality, which I have reviewed before on this blog.

In his book, Fred aims to put to bed the ‘transformation problem’.  And he succeeds.  He shows that Marx solved Ricardo’s problem: namely that market prices of individual commodities do not reflect their value measured in labour time.  The discrepancy is solved through the competition between individual capitals that leads to an equalisation of profit rates and an average rate of profit for the whole system.  Market prices fluctuate around prices of production measured in money, based on the cost of capital invested in money terms and the average rate of profit.  So capitalists start with money and invest in labour and means of production measured in market prices (which revolve around prices of production).  In the circuit of capital and the accumulation process, it is prices of production that rule, not individual labour values for commodities.  So no ‘transformation’ of values into prices is necessary.  Prices are given in money.

Moseley’s book refutes the critique of mainstream economics and what are called the ‘neo-Ricardians’ like Piero Sraffa who either say that the labour theory of value is irrelevant to market prices or that Marx’s solution needs correcting for logical inconsistency.  Moseley is not the first to do this, but his book provides a clear and comprehensive defence of Marx’s value theory.  The debate at the HM session was partly around some ‘Marxist’ solutions that Moseley rejects and about whether Marx’s prices of production can be considered ‘long-term equilibrium’ prices or not.  I won’t go into those controversies here, because I want to discuss that other non-problem, realisation.

I presented the basic ideas of my book, The Long Depression, in one HM session.  One of the discussants, Jim Kincaid, then presented his critique of my work, the substance of which was outlined in a previous post.  But Jim’s underlying criticism, and that was repeated by several senior Marxist economists from the floor, is that Marx’s law of the tendency of the rate of profit to fall cannot be considered the sole underlying cause of crises under capitalism, and in the case of the Great Recession was not the cause at all.  In particular, it is charged that I ignore the ‘problem of realisation’ of surplus value in the market and see the cause of crises only in the drive for profit in production – and yet there are two sides to the circuit of capital: production and realisation.

Jim Kincaid made this part of his critique and, in his new and excellent book, Francois Chesnais, the eminent French Marxist economist, also chided me for failing to recognise in any meaningful way the ‘realisation’ problem. I quote Chesnais from his book: “macroeconomic conditions shaping the capital-labour relations of power prevent the whole of the surplus value produced globally from being realised. Capital is faced by a roadblock at C′ of the complete accumulation process  (M-C . . . P . . . C′-M′)” …The fact that a ‘realisation problem’ exists alongside the insufficient rate of profit is now recognised somewhat reluctantly by Michael Roberts”.   

Actually, I am not sure that I do recognise, even reluctantly, that there is a realisation problem as posed by Chesnais and others.  Let me explain. I also participated in a session at HM on a critique of Keynesian policies like quantitative easing and fiscal stimulus to overcome the Long Depression.  There was an excellent paper on the failure of QE by Maria Ivanova and Tony Norfield presented a lucid account of the continued build-up of global debt that threatens a new financial crash that Keynesians ignore or dismiss.

In my paper (the-crisis-and-keynesian-policies) dealing comparing the efficacy of Keynesian fiscal stimulus solutions to a slump with the Marxist explanation (the Keynesian multiplier versus the Marxist one), I likened the Keynesian explanation of crises as due to “a lack of effective demand” as really like a weather man telling us that it is raining because there is water coming down from the sky.  The ‘lack of demand’ explanation is no explanation at all but merely a description of slump (falling investment and consumption).  For this analogy, I was picked up Pete Green for, again, not recognising the ‘realisation problem’ – namely the cause of crises is not (just) to be found in the capitalist mode of production but also in the distribution of surplus value and thus in an inability to ‘realise’ all the surplus value produced.

So it seems many wish to continue to reject Marx’s law of profitability as the main or ultimate cause of crises and seek alternative or eclectic explanations.  Chesnais reckons crises have multi-causes, following the views of David Harvey (see my debate with Harvey on this here).  “Marx discusses a range of issues, not simply the LTRPF but also the over-accumulation of capital and the accompanying overproduction of commodities, as well as raising the hypothesis of the ‘absolute over-production of capital’ which is hardly ever mentioned in today’s debates. So I agree with Harvey that there is no single causal theory of crisis formation”, p23 Finance Capital Today.

Pete Green apparently (at least according to the title of his HM paper) looks to ‘long forgotten’ theories of disproportionality between accumulation and consumption (due to the anarchy of capitalist production); between the expansion of capitalist production and the ‘limits of the market’ for a crisis theory.  This is an idea that comes originally from the 19th century Russian economist, Tugan Baranovsky (who actually argued that there was no ‘realisation problem’) and Marxist Rosa Luxemburg (who did think there was one). Jim Kincaid looks to the idea of too much surplus being created to be absorbed and a lack of ‘profitable investment opportunities’ (akin to the position of Sweezy and Baran).  Chesnais wants to combine Marx’s law with the idea of a crisis of ‘overproduction’, suggesting that falling profitability and overproduction are not connected but are separate (and combined?) causes of crises. “the financial events of 2007–8 were typically an integral part of a crisis ‘in the sphere of money and credit’, the underlying causes of which are overproduction and over-accumulation at a world level along with (my emphases) an effective play of the tendency of the rate of profit to fall.”

None of these alternative explanations or eclectic melanges is new and in my opinion has been dealt with effectively by a succession of Marxist economists.  G Carchedi looked at all these alternative explanations in his seminal work of 1990s (now apparently ‘long forgotten’), Frontiers of Political Economy.  http://digamo.free.fr/carchedi91.pdf. Carchedi comments: “The disproportionality thesis submits that the root of crises lies in the difference between the technologically determined demand for specific use values as inputs of some branches and the technologically determined supply of the same use values as outputs of other branches. Marx’s answer is that those “ price fluctuations, which prevent large portions of the total capital from replacing themselves in their average proportions … must always call forth general stoppages”, due to “ the general interrelations of the entire reproduction process as developed in particular by credit” . However, these are only “ of a transient nature”.  (Marx, 1967c, pp. 483-4).  Thus disproportions can either be determined by price fluctuations, and in this case they are self-correcting and cannot explain crises, or by lack of purchasing power, and in this case it is the latter, rather than disproportions, which explain crises. The disproportionality and underconsumption theories cannot account for the inevitability of crises; but, as we have seen, these theories do account for the inevitability of temporary and self-correcting disturbances. Only the approach linking insufficient production of (surplus) value with technological innovations can provide such an explanation.”

It is no accident that ‘underconsumption’ as such has not been revived as an alternative theory to Marx’s law of profitability.  That’s because the idea that crises are caused by the inability of workers to pay for the goods they have produced has been so thoroughly discredited both theoretically and empirically.  But the theory of ‘overproduction’ beyond ‘the limits of the market’ is really just the other side of the coin of underconsumption.  Overproduction is when capitalists produce too much compared to the demand for things or services.  Suddenly capitalists build up stocks of things they cannot sell, they have factories with too much capacity compared to demand and they have too many workers than they need.  So they close down plant, slash the workforce and even just liquidate the whole business.  That is a capitalist crisis.

Overproduction is the very expression of a capitalist crisis.  Before capitalism, crises were ones of underproduction (namely famine or scarcity).  But to say overproduction is the form that a capitalist crisis takes is not to say it is the cause of the crisis.  To say that crises are like a thunderstorm does not explain why we are wet.  If it were the cause, then capitalism would be in permanent slump because workers can never buy back all the goods they produce.   After all, the difference between what the workers get in wages and the price of the goods or services they produce that are sold by the capitalists are the profits.  By definition, that value is not available to workers to spend, but is in the hands of the capitalist owners.

Marx devastatingly criticised those capitalist economists who claimed that there could never be a crisis of overproduction because every sale that a capitalist makes means that there will be purchaser.  As Marx said, that there is purchaser for every seller is a tautology, the very definition of exchange. Sure, “no one can sell unless someone else purchases.  But no one is forthwith bound to purchase just because he has sold”. The money from a sale can be hoarded (saved) and not used to buy.  That alone raises the possibility of overproduction and crisis.

But the possibility of crisis in the process of capitalist exchange using money does not mean it will happen and provides no explanation of when or how.  So Marx went further and explained that what will decide whether capitalists make purchases for investing in plant or new technology and to buy labour power to produce is the profitability of doing so.  “The rate of profit is the motive power of capitalist production.  Things are produced only so long as they can be produced with a profit”.

And this is where Marx’s law of the tendency of the rate of profit to fall comes in. Marx shows that the profitability of capitalist production does not stay stable, but is subject to an inexorable downward pressure (or tendency).  That eventually leads to capitalists overinvesting (overaccumulating) relative to the profits they get out of the workers.  At a certain point, overaccumulation relative to profit (ie a falling rate of profit) leads to the total or mass of profit no longer rising.  Then capitalists stop investing and producing and we have overproduction, or a capitalist crisis.  So the falling rate of profit (and falling profits) causes overproduction, not vice versa.

As Henryk Grossman explained so well, a falling rate of profit does not directly lead to a crisis as long as the mass of profit can rise.  When a falling rate of profit eventually leads to a fall in the mass of profit and thus overaccumulation of investment and overproduction of goods and services (that are profitable), then the crisis ensues.

As Marx put it: “the so-called plethora (overaccumulation) of capital always applies to a plethora of capital for which the fall in the rate of profit is not compensated by the mass of profit… and “overproduction of commodities is simply overaccumulation of capital”.  It is precisely when the mass of profit stopped rising that the Great Recession ensued.

Thus the so-called realisation problem is the result of the production problem.  Falling profitability and falling mass of profits lead to collapsing investment, wages and employment and then swathes of companies cannot sell their goods or services at existing prices and workers cannot buy them.  This is a crisis of overproduction and underconsumption.

Indeed, only Marx’s law of profitability can explain the cycle of boom and slump, while overproduction or disproportion cannot do so.  See Paul Mattick Jnr’s excellent account of Marx’s law and the business cycle pp48-51 in the best short account of the Great Recession so far, Business as usual.

And there is a political implication from the discussion of alternative theories of capitalist crises.  For example, if we think capitalist crisis is caused by overproduction (or underconsumption) relative to the ability of workers to buy the goods produced, as Keynesians do, then the policy answer may be just to boost spending by government or make tax cuts (as Donald Trump plans now, it seems).  Problem solved.  Only, as our session at HM showed – the ‘problem of realisation’ is not solved by these measures, as Trump and the American people will find out precisely because it is not a problem of realisation but of profitability.

On the other hand, if we think it is caused by lack of profit, then there is only one solution for capitalism: destroying the value of existing capital (plant, machines and employees) in order to cut costs and so restore profitability.  Only that will get capitalism going again (for a while), but at the expense of the rest of us.  Thus the inherent contradiction of capitalism is exposed.  Only its abolition will stop the cycle of boom and slump.  The problem of production for profit is a real problem that cannot be resolved.

In my view, ‘too much surplus’, ‘disproportion’, ‘overproduction’ or ‘underconsumption’ are not Marx’s theory of crises.  But more important, they are very weak alternatives to Marx’s law of profitability as an explanation.  They are weak theoretically and even worse, empirically unverifiable.  What are we measuring when we look at ‘disproportionality’ or ‘underconsumption’?  Does consumption fall before a slump?  No, the evidence is clearly to the contrary, unlike profits and investment.  Will disproportionate investment growth compared to consumption lead to overproduction and periodic crises?  Well no, as Andrew Kliman has shown for the US in his book, The failure of capitalist production, chapter 8.  Historically, business investment always grows faster than workers’ consumption – that is the result of capitalist accumulation.  But this does not create a chronic slump or permanent stagnation because investment creates its own demand (capitalist demand).  Indeed, investment drives the productivity of labour and thus drives economic growth.  The problem is when investment collapses, not when it grows ‘too fast’.

Everybody in Marxist economic circles seems to agree that the crises of the 1970s and early 1980s were the result of falling profitability rather than overproduction or underconsumption.  But you see, the argument now goes, each crisis can have a different cause because capitalism metamorphoses into new forms or structures (neoliberalism or financialisation) that change the causal contradictions.  So we are now being told that, because profitability rose after 2001 up to the Great Recession, Marx’s law does not apply and we need to consider that the GR was the result of either financial instability, excessive credit, rising inequality and falling wage share, or weak demand and secular stagnation.

Well, none of these alternatives seems convincing to me.  As Alan Freeman recently said in his paper in the book on the crisis, The Great Financial Meltdown: Marx’s law remains “the only credible competitor left in the contest to explain what is going wrong with capitalism”.

Rejoinder:

Francois Chesnais has kindly sent me a rejoinder to my comments on his view of the current Long Depression and its causes:

“One is faced with a situation where has been a continuous drive by capital to raise the rate of exploitation in the course of the crisis yet the conditions of profitability and new investment have not been restored.

In the explanation offered the starting notion is that of “fresh fields of accumulation” (Luxemburg) as necessary to end a long recession, a further one the function of crisis in capitalism and the key central one that of “dearth of actual surplus value”.

One must start by looking at were the “fresh fields” that ended the two previous world long recessions or depressions. In the case of the 1880s it was a combination of an extension of the world market, a reach out to the many regions not properly include or not included at all, and of the opening for profitable investment over a long time span of the major industries of the “Second industrial revolution”. In the case of the 1930s it was as you said very clearly in one of your talks it was the Second war world.

Then one must look at whether a crisis is allowed to play its function of destroying existing productive and fictitious capital, of clearing the deck for new investment. This was the case in 1929 and the 1930s.

So what is the picture today? We have a situation which combines the fact that the crisis was not allowed to play its function of destroying existing productive and fictitious capital, of clearing the deck for new investment on any significant scale and that since a World war is not in preparation the only candidate as a “fresh field” would have to be new technologies associated with the emergence of whole new industrial sectors with strong new employment creation effects. The ones there are do not have this quality, on the contrary.

A low level of investment means a low creation of surplus value.  “Virtuous cumulative accumulation process” are one where profit expectation drives investment of a strong enough employment effect as to generate both surplus creation and demand permitting the completion of the accumulation cycle M-C-P-C’-M’.

Today not enough surplus value is being produced to re-launch the accumulation process and the amount that is serves to consolidate the accumulation of dividend and interest bearing assets by banks, funds and individuals (financial accumulation) and so the claims on this already very insufficient amount of surplus value. This has led both to the dead-end of the quasi-zero long term interest rate regime, which not simply the outcome of quantitative-easing and to the endless small shocks in the global financial system.

Of course government debt and the resulting pro-rentier, pro-cyclical austerity policies only aggravate this situation but they do not explain it and their reversal would not solve capitalism’s basic problem.”

 

53 Responses to “Transformation and realisation – no problem”

  1. Edgar Says:

    “And there is a political implication from the discussion of alternative theories of capitalist crises. For example, if we think capitalist crisis is caused by overproduction (or underconsumption) relative to the ability of workers to buy the goods produced, as Keynesians do, then the policy answer may be just to boost spending by government or make tax cuts (as Donald Trump plans now, it seems). Problem solved.”

    And if the problem is one of profit rates then restore profit, problem solved! The important political battle is one of raising levels of consciousness. If workers are happy to be exploited and only respond to events then I don’t think a revolutionary transformation of society can take place. Rather the response to such policies of restoring profit will lead in the other direction.

    In fact the rate of profit explanation of the crisis helps the ruling class because it says to workers you are problem, and attacks on you are justified. So workers think, yes we need austerity so the businesses can thrive again.

    What a revolutionary class should be saying is that we don’t have a debt problem but an inequality problem. Your profit rates are not the issue but the system itself, and that goes for whether we are in a crisis or not!

    • Dave Says:

      One major difference between TRPF and overproduction/under consumption is that TRPF is both intrinsic and fatal. Any solving of TRPF is inherently temporary. A world war can spur a golden age, but competition leads only downward.

      TRPF is how the fundamental antagonism between the relations of production and the means of production is expressed.

      You’re right, the falling rate of profit says that workers are the problem. That the “attacks are justified” is your interpretation.

      We have a debt problem, inequality problem, poverty problem, domestic and international war problem, environment problem, racism/misogyny problem, ad infinitum. In short, we have a capitalism problem.

    • Edgar Says:

      “That the “attacks are justified” is your interpretation.”

      Incorrect for a number of reasons:

      1) I don’t think the attacks are justified
      2) I was explaining that workers will think the attacks are justified given their current level of class consciousness.

      If the TRPF is fatal then the death agony has been taking a long long time, hasn’t it? So when is the patient likely to die? Afatalistic view of the TRPF ignores the human capacity for problem solving!

    • Virgens Kamikazes Says:

      “And if the problem is one of profit rates then restore profit, problem solved! The important political battle is one of raising levels of consciousness.”

      Difference being that the tendency of the profit rate to fall explains everything, while the overproduction/underconsumption theory not only doesn’t explain nothing, but is empirically wrong and leads to the wrong economic and public policies – which will only demoralize the political Left and, therefore, socialism.

      Besides, as Dave posted, the TPRF puts capitalism in its adequate historical context/specificity, while the keynesian variants (including these pseudo-Marxists that Roberts quoted in this article) put capitalism as a law of physics, as an eternal and incontestable system.

      And the working class is not “happy” with being exploited. If exploitation wasn’t a problem, there wouldn’t be Marxism in the first place. As Marx himself one wrote, humans only try to find solutions for problems that exist in their concrete reality. There is no thing as an imaginary problem – even when it is disguised as one.

      • Edgar Says:

        “Difference being that the tendency of the profit rate to fall explains everything”

        It doesn’t really does it.

        “while the overproduction/underconsumption theory not only doesn’t explain nothing, but is empirically wrong ”

        Except we agree that underconsumption is a permanent feature of capitalism to one degree or another. Not to be scoffed at and can explain a great deal!!

        Wasn’t it Marx who said:

        “The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way, that only the absolute power of consumption of the entire society would be their limit”

        So much for not explaining anything!

        “If exploitation wasn’t a problem, there wouldn’t be Marxism in the first place.”

        Sorry but Marxism is not being kept alive by the working class, Wake up and smell the coffee!

        What I meant by problem solving is that instead of the TRPF being fatal humans will find a way to mitigate against it.

  2. fosforos Says:

    The flaw is that “prices of production” and the “average rate of profit {average rate of interest]” incorporated in them simply do not exist in the “modern” (century old) economic system of state monopoly capitalism. Prices and revenues are largely determined by positions of economic *power* and those are not even influenced by such things as supply, demand, profit, and all the categories of “economics.” They are determined on the one hand by political power and on the other by the impending global environmental catastrophe. Without the most radical updating a theory that adequately described 19th century competitive capitalism has nothing to offer as a theory of 21st century State-monopoly (and its Chinese counterpart, Monopoly-state) capitalism. The crisis is real. It is environmental. It has nothing to do with “realization” or “profit rates.”

    • raved Says:

      On the contrary, state monopoly capital arose as a counter-tendency to the TPRF and consequent chronic overproduction in the European capitalist powers in the late 19th century. Despite “power” plays to monopolise ownership through globalisation of the means of production, including colonial and world wars, simple theft of existing value cannot supplant the need to produce more and more value to valorise the mass of accumulated capital. The structural crisis since the 1980s which cannot be resolved without further massive destruction of both human and physical capital, along with the threat of human extinction posed by nuclear destruction and global climate change, are evidence that capitalism as a mode of production has exhausted its historic capacity to grow without violently destroying its conditions of existence.

    • Virgens Kamikazes Says:

      Monopoly doesn’t change one bit the TPRF. Everything you stated as novelty of capitalism already existed since Marx’s times. In fact, Marx approached every single issue you highlighted in your post (environment, monopoly).

      And China is not a capitalist country, it a socialist one. Of course Marx didn’t wrote about socialist China: he was a scientist, not a psychic.

  3. fosforos Says:

    As you may have noticed, we live in the 21st century, not the late 19th century.

  4. sartesian Says:

    I think Marx truly distinguished overproduction from underconsumption– not always, but his analysis consistently rejects “underconsumption” as the source of capital’s impairment. In his Economic Manuscripts 1857-1864, if I recall correctly, Marx points out that “underconsumption” is literally a “non-starter” for capitalism, for if workers were compensated to the degree that they could “buy back” all that they produce, there would be no surplus value in the first place.

    So we have a condition, underconsumption, that is a permanent feature of capital. Now I’m certain there are those who want to say “You see, it’s “dialectical.” A little underconsumption goes a long way, but then there’s too much underconsumption, quantity turns into quality, and capital is in crisis.” Except that’s not a dialectic, that’s an oxymoron.

    The “dialectic” is supposed to reside in the social organization of labor, in the conflict between labor, and its condition– i.e. as wage-labor, i.e in the appropriation of surplus value by the accumulation of capital. The “dialectic” or conflict resides in the inability to appropriate surplus value sufficient to the accumulation of capital. Consumption, “realization.” has nothing to do with it.

    The reproduction of capital i.e. the relation between the living and congealed labor, between the technical and human proportions required in production is determined by that conflict in the organization of labor as value-producing. I think Marx refers to the conflict between the labor-process and the valorization process as expressing the limit to capital.

    Overproduction is always the overproduction of capital, “overproduction” of the means of production as capital which triggers the tendency of the rate of profit to decline.

    I think it’s evident from the study, for example, of the oil extraction industry over the last 40 years, how the “dislocation” or impairment, or disruption in the markets is preceded by a change in the relation between the technical and living components, impacting the rate of profit, leading to contraction, followed, or even coincident with new techniques brought into production, creating what appears as a “glut,” when in reality it is the attempt to capture more of the shrinking mass of surplus value.

  5. Boffy Says:

    “The ‘lack of demand’ explanation is no explanation at all but merely a description of slump (falling investment and consumption). For this analogy, I was picked up Pete Green for, again, not recognising the ‘realisation problem’ – namely the cause of crises is not (just) to be found in the capitalist mode of production but also in the distribution of surplus value and thus in an inability to ‘realise’ all the surplus value produced.”

    Actually, Marx explains such a realisation problem, and lack of demand not as a result of a condition of slump, but the opposite, as a consequence of conditions of boom. As he says, crises of overproduction most often arise when things are going swimmingly, rates of profit are high, encouraging more capital to be invested, wages and other revenues being high, so that levels of consumption are at record high levels.

    It is basically because levels of consumption are at record high levels that the problem of realisation then occurs. In orthodox economic terms, the price elasticity of demand is then high, so that to bring about the required further increase in demand that all of this increase in production encouraged by high rates and masses of profits encourages, market prices have top fall by ever larger levels, and as production increases and the average rate of profit has increased, thats ame process causes the profit margin to get squeezed (even more so as those boom conditions cause wages to rise and so the rate of surplus value to fall, as he describes in Chapter 15 of Vol III.

    With squeezed profit margins, but a rising annual average rate of profit encouraging additional investment and production, but with these high levels of consumption causing the price elasticity of demand to fall, it becomes more likely that large masses of profit due to very high volumes of sales with low margins, is quickly turned into large losses, due to that same large volume of sales only being possible with market prices that are lower than the price of production, so that each unit of output rather than making a small profit, makes a small loss.

    As Marx puts it,

    ““The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.” (TOSV3 p 118-9)

    The idea you are putting forward, ironically is the same argument that there is no problem of realisation that was put forward by Ricardo, who took it from Mill and Say. In other words it is a version of Say’s Law, that supply creates its own demand, which marx demonstrates is only true under systems of barter, and which ends as soon as a money economy is established.

    As Marx puts it in rejecting the argument you have put forward here:

    “At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.” (TOSV2 p 505)

    As Marx describes, this condition is most likely to arise not during conditions of slump, but during conditions of boom, when revenues are at high levels, leading to high levels of consumption, and where those that have those high levels of revenue reach a point whereby those that have these revenues find it “quite unintelligible why (they) should buy six knives because (they) can get them for the same price that (they) previously paid for one.” Consequently, their demand for the general commodity, money, becomes greater than their requirement to convert that money back into other commodities, other than at increasingly lower and lower market prices, so instead they simply hoard their revenues.

    • Virgens Kamikazes Says:

      Your quotes reinforce the TPRF rather than the underconsumption/overaccumulation theory.

      As the first of your quotes clearly states, the relation between use values and values are irrelevant to the capitalist: if six knives cost 1 and one knife cost 1, it is 1 for the capitalist either way: but for the worker it makes all the difference, since he buy the same use-value for one-sixth of the value in the first case relative to the second. And vice-versa. What will determine the crisis will be the profit rate, the relation between capital advanced and capital recovered, not the unitary price (and thus, indirectly, value).

      The TPRF states that the profit rate is more likely to be lower in the first case than in the second, because more investment rises the organic composition of capital. The underconsumption/overaccumulation theory says nothing: you can’t know which case is underconsumption and which case is overaccumulation – you can only know after the crisis happens. Either way, as Roberts explained, this division is cosmetic, since a crisis of overaccumulation (from the side of the capitalist) is a crisis of underconsumption from the point of view of the working class.

      • Boffy Says:

        Your argument here makes no sense. A capitalist that has invested capital so as to expand production, and in the process reduces the value of knives, still needs to sell all of the six knives. That is Marx’s point. If the capitalist expends capital to produce 6 knives, but finds that there is only demand for 1, or maybe 2 at the much lower price, they will be unable to reproduce the capital consumed in the production of the six knives. Demand/consumption may have doubled from 1 knife to 2 knives, and yet there will be overproduction of 4 knives.

        In order to sell these knives the capitalist may have to reduce the market price not down to its new price of production (1/6 its former market price), but down to 1/10. 1/20 of its previous price, a price that may then be not just below the price of production, but also below the cost of production.

        And, in fact, it may be the case that the rate of profit in producing six knives rather than 1 is actually higher, but this will have absolutely no relevance, as Marx sets out in Capital III, Chapter 15, if he can only sell 1 or 2 of these knives rather than the whole six, because not only will he not then realise the produced surplus value, but he will not even be able to reproduce the consumed capital!.

        “The creation of this surplus-value makes up the direct process of production, which, as we have said, has no other limits but those mentioned above. As soon as all the surplus-labour it was possible to squeeze out has been embodied in commodities, surplus-value has been produced. But this production of surplus-value completes but the first act of the capitalist process of production — the direct production process. Capital has absorbed so and so much unpaid labour. With the development of the process, which expresses itself in a drop in the rate of profit, the mass of surplus-value thus produced swells to immense dimensions. Now comes the second act of the process. The entire mass of commodities, i.e. , the total product, including the portion which replaces the constant and variable capital, and that representing surplus-value, must be sold. If this is not done, or done only in part, or only at prices below the prices of production, the labourer has been indeed exploited, but his exploitation is not realised as such for the capitalist, and this can be bound up with a total or partial failure to realise the surplus-value pressed out of him, indeed even with the partial or total loss of the capital. The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society. But this last-named is not determined either by the absolute productive power, or by the absolute consumer power, but by the consumer power based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits.” (Capital III, Chapter 15)

  6. Boffy Says:

    “Market prices fluctuate around prices of production measured in money, based on the cost of capital invested in money terms and the average rate of profit. So capitalists start with money and invest in labour and means of production measured in market prices (which revolve around prices of production). In the circuit of capital and the accumulation process, it is prices of production that rule, not individual labour values for commodities. So no ‘transformation’ of values into prices is necessary. Prices are given in money.”

    This is wrong for two basic reasons.

    Firstly, marx makes clear that actually existing industrial capital does NOT start with money and invest in means of production. That is only true for some newly establishing firm, as he describes in Capital Volume II. For all existing capitals they start with a quantity of productive-capital (in the case of producers) or commodity-capital (in the case of merchant capital). The fundamental circuit of these existing capitals starts from that premise, and the premise that this existing physical capital must be at least reproduced, and preferably expanded via accumulation. It is the same point that Marx makes in relation to social reproduction, following on from the analysis of the Physiocrats as set out in the Tableau Economique.

    Consequently, Marx makes clear that in analysing this reproduction the use of money prices is only a use of money as “unit of account”, as a means of performing a rational calculation of the extent to which the capital has self-expanded. It is not a matter at all of the amount of money expanding – which in itself is meaningless in terms of an expansion of the actual capital, and its ability to create larger or smaller future surplus by expanding or contracting its scale of operation, by employing more or less labour-power.

    Marx makes clear that what is significant is not these money prices, where money fulfils only this role as unit of account, but the actual values of the capital consumed in production, and which must thereby be reproduced as he states later in Chapter 49 of Volume III, physically “on a like for like basis”.

    If we have:

    c £1000 + v £1000 + s £1000 = £3000,

    these money prices may change as a result of a rise in social productivity. Let’s assume the £1,000 represents 1,000 kilos of cotton that is spun by 10 workers. If the price of cotton falls, then as marx says, irrespective of the “historic price” paid for that cotton of £1,000, its actual value in production might fall to say £800 as a result of this rise in social productivity, and the money prices that Marx then uses are not the historic price, but the current value of that 1,000 kilos of cotton expressed in £’s as unit of account.

    In that case, we would have:

    c £800 + v £1,000 + s £1,000 = £2,800.

    But the rate of profit will have risen from 50% to 55.56%. That is illustrated by the fact that previously the £1,000 of surplus value would have bought an additional 500 kilos of cotton, and an additional 5 workers to process it, but now the £1,000 of surplus value enables an additional 555 kilos of cotton to be bought, and an additional 5.5 workers to be employed to process it.

    Previously, the additional 5 workers would have produced an additional £500 of surplus value, whereas now the additional 5.5 workers produce an additional £550 of surplus value.

    But, secondly it is wrong because it assumes that market prices are equal to prices of production, and that these market prices are somehow imminently equal to that price of production, which fails to describe how this condition is arrived at. In fact, looking at Marx’s theory of rent, he begins from the position that agricultural products (mining products etc) sell not at prices of production, but at their values. It is in fact, he says, because they sell at their values (which are higher than their prices of production), which creates the basis for the payment of rent, i.e. the difference between the individual price of production, and the market value.

    Moreover, Marx makes clear that this condition, which applies to agricultural products, and other products of the land, such as minerals etc. applies also to all other commodities. In other words, the initial condition for any commodity is that it is sold at its value, and not at its price of production. It is only subsequent competition, which drives the price of such commodities down, as additional capital enters production in search of the higher rate of profit in that sector, which thereby brings about an average rate of profit, and reduces these commodities market prices to the price of production.

    The difference between industrial production, and agricultural/primary product production, is that where in industry capital moves into these new areas of production, where commodities sell at their values, and the rate of profit is high, so as to bring about this equalisation, in agriculture that process is frustrated because of the monopoly of land ownership, which appropriates the surplus profit as rent.

    But, the same thing can be seen in nearly all new lines of production. If we take something like personal computers, when they were first sold, they sold at high prices, and produced high rates of profit, because absent large scale competition, and capital intrusion into that sphere, computers sold at their values. In a way, first mover advantage, and technological frictions acted in a similar manner as land ownership does to prevent the market price being driven down to the price of production. Subsequently, however, capital moves into the production of personal computers in search of these high rates of profit. The production of personal computers expands, and the market price is thereby driven down until it reaches the price of production, so that capital in that area then only obtains the average rate of profit.

  7. Boffy Says:

    Clarification:

    It is true that the money prices are money prices based upon prices of production not values, but those money prices as Marx and Engels describe in Capital III, are not necessarily prices of production.

    In other words, taking the example of the PC, the prices of the materials used in its construction will be prices of production for plastics, printed circuit boards and so on. Similarly, the wages of workers will be based upon prices of production for wage goods.

    All this means is, as Marx sets out in Capital III, that the costs of production are now expressed in this modified form rather than as exchange values. But, that is rather like the peasant producer, described by Marx in Capital III, who continues to sell on the basis of the value added by their labour, but who has to take into consideration the fact that their materials, produced by capitalists, now sell to them at prices of production.

    But, that does not change the way the peasant producer looks at their production, as opposed to the way the capitalist producer looks at it.

    So, a producer of PC’s that are a new type of commodity, will buy materials at the market prices, which are determined by prices of production. They will buy labour-power at market rates of wages similarly determined. But, the value produced by those workers may be very high, resulting in a high rate of surplus value, and subsequently high rate of profit. The initial market prices of such PC’s would then be more like the modified value of the peasant producer. It is only when the high rate of profit in that particular sphere encourages capital to move into it, and raise the level of supply, that the market prices of PC’s falls to the price of production, so that no further incentive for capital to enter this sphere is provided.

    But, this is precisely the historical process by which Marx and Engels explain the means by which values are transformed into prices of production. Prices of production do not somehow magically present themselves as the market price of commodities, but only as a result of this process of transformation continually occurring via competition in the market.

    • Virgens Kamikazes Says:

      You’re posting no sense. You are mixing prices of production, price, value, with equivalent value form, relative value form etc.

      • Boffy Says:

        No I’m not. The only “mixing” is the same mixing that Marx undertakes in explaining the process by which exchange values become modified exchange values once capitalist production enters some spheres, and by which market prices come to fluctuate around prices of production for commodities that are capitalistically produced.

        The only other “mixing” here is the same mixing that Marx sets out in relation to agricultural and primary products that sell at their market value rather than at their price of production, because landed property is able to restrict the entry of capital into that production, and appropriates the surplus profit as rent.

        We could also refer to Marx’s explanation of the fact that commodities do not sell at market prices approximating their price of production, wherever monopoly conditions act in a similar way to prevent the free entry of capital to expand production in high profit areas, and thereby reduce market prices to prices of production.

        That does not change the application of the Law of Value at the level of total social production, however, because as Marx says, the surplus profit obtained by such a monopoly simply means that a proportion of surplus value is drained from other industrial sectors, so that the average profit in those other sectors is thereby reduced.

  8. Paul Cockshott Says:

    ” Market prices fluctuate around prices of production measured in money, based on the cost of capital invested in money terms and the average rate of profit. ” Except that 30 years of empirical marxist econometrics shows that the hypothesis is false.

    • Virgens Kamikazes Says:

      Source(s)?

      • fosforos Says:

        What sources are needed when something is obvious. Is the F-35 fighter plane being “sold” at its price of production? Pharmaceutical products? “Smart” technology? Concert tickets? Trips on Amtrak? Price of production (Marshallian long-run cost of production) cannot be formed without free movement of capital and competitive markets. If you open your eyes you will see that price formation under monopoly capitalism is… monopolistic.

      • citizencokane Says:

        @fosforos:

        I believe that Anwar Shaikh’s new book demonstrates quite convincingly that, empirically, monopolies and oligopolies are transient even under modern capitalism because investors can see the above-average profits that are being made and, within a few decades at most typically find a way to invade that market, overcoming whatever regulatory and intellectual-property obstacles there might be. Sure, I’m sure that there are exceptions where an industry remains monopolistic for decade upon decade, but those would be the exception, and they are no more prevalent than they ever were (contra the Monthly Review school) and are not responsible for the changes in the dynamics of world capitalism.

    • Charles A. Says:

      The main point from Marx, Moseley, and reality on the so-called transformation problem has been left out of the blog post and these comments: Many influences act on prices, and they jump all over the place; conservation holds nonetheless. The sum of prices equaling the total value (which can be taken as a tautology), the sum of profits equals the total surplus value.

      Paul C. argues that prices follow individual values more closely than they follow prices of production. That opens up problems of measuring individual labor values. In any case, the big conclusions about the accumulation of capital, the inevitability of crises, and the new stage of capital accumulation we are in use the noted conservation, not any statement about congeries of individual prices.

      • fosforos Says:

        “The sum of prices equaling the total value (which can be taken as a tautology), the sum of profits equals the total surplus value.” The first clause is true (and not in the least tautological) *only* once the currency unit has been converted to a quantity of productive-labor time, ie., the net product expressed as a sum of money prices having been converted into a quantity of units of socially necessary labor time (time being an unchanging metric, unlike prices that constantly fluctuate over time). As for the second clause, it is totally untrue. The sum of profits never is equal to the total surplus value. Rents and Interest and “executive salaries” are enormous diversions of surplus value from profit. Yet in Marx’s 19th-century FTRP model they do not even exist–profit of enterprise is the only form of surplus value considered for the good reason that it is the only form of surplus value determining the profitability of new investment and therefore the mathematical limit (less than the real environmental limit) to the expansion of capital.

      • Boffy Says:

        “The sum of prices equaling the total value (which can be taken as a tautology), the sum of profits equals the total surplus value.”

        The first part as fosforos says is true but the second is false for a reason other than that set out by fosforos. Marx points out that as soon as capitalist production starts in some sectors, all exchange values become modified, because in those sectors dominated by capitalist production, capital floods in in search of the higher rate of profit, so that market prices in these areas are reduced down to prices of production.

        But, Marx says, this capitalist production of various outputs is simultaneously a production of inputs for other producers whether they be capitalist producers, peasant producers or slave producers – or for that matter for a communist society. The buyers of these inputs buy them, Marx says not at their values but at these prices of production. The consequence is that even a peasant producer that simply adds the amount of new value produced by their labour to the cost of their inputs – which would normally result simply in the commodity selling at its exchange value – now sells at this modified exchange value, because the cost of its inputs are no longer themselves equal to their exchange value.

        “The foregoing statements have at any rate modified the original assumption concerning the determination of the cost-price of commodities. We had originally assumed that the cost-price of a commodity equalled the value of the commodities consumed in its production. But for the buyer the price of production of a specific commodity is its cost-price, and may thus pass as cost-price into the prices of other commodities. Since the price of production may differ from the value of a commodity, it follows that the cost-price of a commodity containing this price of production of another commodity may also stand above or below that portion of its total value derived from the value of the means of production consumed by it. It is necessary to remember this modified significance of the cost-price, and to bear in mind that there is always the possibility of an error if the cost-price of a commodity in any particular sphere is identified with the value of the means of production consumed by it. Our present analysis does not necessitate a closer examination of this point.”

        (Capital III, Chapter 9)

        But, the consequence of this is also that in relation to wage goods, their prices may be higher or lower when determined by prices of production rather than exchange value. If wage goods are produced in sectors where the organic composition of capital is high, or where the rate of turnover of capital is lower than the average, then the price of production of wage goods will be higher than were the prices of those wage goods determined by their exchange value – because capital will leave this sector where the rate of profit is lower than the average, and move to those sectors where the rate of profit is higher. As capital leaves this sector producing wage goods, the supply of those commodities falls relative to the demand, pushing their prices up to their price of production.

        But, Marx points out, the consequence of this is then clear. If workers have to pay more for these wage goods under a regime of prices of production than would have been the case had wage goods sold at their exchange value, then the value of labour-power rises. Workers then have to spend a larger proportion of the working-day reproducing their labour-power, so the rate of surplus value falls, and the quantity of surplus value produced, also thereby falls.

        “We have seen how a deviation in prices of production from values arises from: 1) adding the average profit instead of the surplus-value contained in a commodity to is cost-price; 2) the price of production, which so deviates from the value of a commodity, entering into the cost-price of other commodities as one of its elements, so that the cost-price of a commodity may already contain a deviation from value in those means of production consumed by it, quite aside from a deviation of its own which may arise through a difference between the average profit and the surplus-value.

        It is therefore possible that even the cost-price of commodities produced by capitals of average composition may differ from the sum of the values of the elements which make up this component of their price of production. Suppose, the average composition is 80c + 20v. Now, it is possible that in the actual capitals of this composition 80c may be greater or smaller than the value of c, i.e., the constant capital, because this c may be made up of commodities whose price of production differs from their value. In the same way, 20v might diverge from its value if the consumption of the wage includes commodities whose price of production diverges from their value; in which case the labourer would work a longer, or shorter, time to buy them back (to replace them) and would thus perform more, or less, necessary labour than would be required if the price of production of such necessities of life coincided with their value.”

        (Capital III, Chapter 12)

        As a result the rate of profit under a regime of prices of production would then be lower, Marx says, than under a regime of exchange values. Marx never said that the amount of profit or rate of profit was the same under prices of production as under exchange values, and in fact, for the reasons he sets out, its clear that it almost certainly will not be.

        Marx only stipulates that the total of exchange values equals the total of prices of production. Moreover, in the later chapters of volume III, he tightens down on this further to talk not about the theoretical profits based upon the produced surplus value, but instead talks about the actual profits based upon the realised prices.

      • Boffy Says:

        Incidentally, the points made by Marx in the quotes above about the effect of prices of production modifying the input prices of other producers, illustrates the nonsense talked by those who claim that Marx did not realise that what is an output for one capital is simultaneously an input for some other capital so that the transformed exchange value of the first capital becomes a transformed input cost for the second that uses it in its own production, and also that for the same reason these transformed output costs impact the value of labour-power used by all capitals, and consequently have further consequences on the distribution of surplus value, and formulation of prices of production.

        All that Marx says having set out the basic rules and framework for this transformation is “Our present analysis does not necessitate a closer examination of this point.” Because it is more relevant to a further more detailed analysis of market prices he intended when dealing with competition in future volumes of his work.

      • Boffy Says:

        Fosforos says,

        “The sum of profits never is equal to the total surplus value. Rents and Interest and “executive salaries” are enormous diversions of surplus value from profit. Yet in Marx’s 19th-century FTRP model they do not even exist–profit of enterprise is the only form of surplus value considered for the good reason that it is the only form of surplus value determining the profitability of new investment and therefore the mathematical limit (less than the real environmental limit) to the expansion of capital.”

        That is wrong. Marx spends a great deal of time illustrating that interest as well as rent is a deduction from the profit – which is the term Marx uses for the total surplus value related to the laid-out capital that produced it, prior to the deduction of the rent and interest.

        But Marx also did note that as capital stops being privately owned capital and becomes socialised capital, in respect of the joint stock company, the recipients of interest as dividends, i.e. the shareholders, continue to exercise a role in controlling the capital, and in order to achieve this they appoint higher boards of management, Boards of Directors, above the actual “functioning capitalists”, and this reflects the contradictory interests of this interest-bearing capital (shareholders) as against the actual productive-capital, represented by the functioning-capitalists. The former seek to maximise their revenues (or capital gain), from their shares, whilst the latter seeks to accumulate capital and maximise profit of enterprise to that end.

        As current discussions over the question of corporate governance show, the shareholders have no more logical, or economic justification for exercising control over the productive-capital than does say a bondholder, or a bank that lends money to a productive-capital. It is merely a question of political power that enables them to achieve this.

        Marx recognised that and the role of these higher boards of directors in promoting the interests of the interest-bearing capital as against he productive capital. He writes,

        “On the basis of capitalist production a new swindle develops in stock enterprises with respect to wages of management, in that boards of numerous managers or directors are placed above the actual director, for whom supervision and management serve only as a pretext to plunder the stockholders and amass wealth. Very curious details concerning this are to be found in The City or the Physiology of London Business; with Sketches on Change, and the Coffee Houses, London, 1845.

        “What bankers and merchants gain by the direction of eight or nine different companies, may be seen from the following illustration: The private balance sheet of Mr. Timothy Abraham Curtis, presented to the Court of Bankruptcy when that gentleman failed, exhibited a sample of the income netted from directorship … between £800 and £900 a year. Mr. Curtis having been associated with the Courts of the Bank of England, and the East India House, it was considered quite a plum for a public company to acquire his services in the boardroom” (pp. 81, 82).

        The remuneration of the directors of such companies for each weekly meeting is at least one guinea. The proceedings of the Court of Bankruptcy show that these wages of supervision were, as a rule, inversely proportional to the actual supervision performed by these nominal directors.”

        (Capital III, Chapter 23)

  9. rielmiller Says:

    What I find striking as I read through these debates, some 40 years after my first round, is the lack of interest in the underlying issue of the emergence of new sources of surplus-value beyond the industrial service economy. This is a discussion that I started with Anwar Shaikh in the early 1980s when it already seemed evident that the issue of new activities that engage “productive labor” needed to be addressed. TRPF is a terrific story and it can be a secular base for many other kinds of economic disturbance (let’s not talk about crisis, which is as empty as the term revolution) but it does have counter-tendencies. Not all of which are cyclical or related to the fluctuating and ultimately declining profitability of existing production systems. See my fairly recent paper: Why Learning Productivity Matters (Paper No. 2 Section 1) for an initial discussion of some of the issues that might emerge from efforts to account for productive labor in a learning intensive capitalist economy https://www.researchgate.net/publication/270276792_Learning_Productivity_It_is_Time_for_a_Breakthrough_Promethean_Thinking_Deeper_Research_Paper_No_2

  10. Virgens Kamikazes Says:

    The only reason I see these “Marxists” defending these variants of Keynesian (under-consumption, over-accumulation et al) is that they are reluctant in admitting they were wrong.

    It’s easy to understand that: they have careers and reputations to protect. Also, it must be painful to see decades of intellectual work being discarded. But I urge those intellectuals who still insist in destroying Marxism from within to swallow their pride and stop.

  11. citizencokane Says:

    Marx clearly distinguished between “underconsumption” and “overproduction.” As others have said “underconsumption” is, strictly speaking, a necessity under capitalism, and is in fact no problem at all. What workers fail to consume, other capitalist businesses are then free to consume as investment goods. Decreasing the living standards of the working class will shift demand around from consumer goods (Department II) to industrial goods (Department I), but on the whole it evens out in its effect on aggregate demand. So, underconsumption is no problem at all.

    Not the case at all with overproduction! Overproduction does not mean the overproduction of consumer goods for the working class (which is what it would mean if the concept were applied strictly as the flip-side to underconsumption). Overproduction means an overproduction of all commodities (Departments I and II combined) with respect to an underproduction of the money commodity (Department III). The more that overproduction gathers steam, the more we find that capitalists attempt to overcome the “metallic barrier” with resort to credit to fill the shortfall in purchasing power (since, contrary to what J.B. Say thought, commodities are not purchased with other commodities, but with the money commodity, or token currency representing the money commodity or credit promising payment of that token currency representing the money commodity). As reliance on credit increases, the rate of interest eats up the rate of profit and produces a crisis.

    Therefore, the TRPF is not a separate and contradictory causes of crisis compared to overproduction. They are synergistic. The TRPF is constantly at work throughout the business cycle, creating a long-term tendency towards a lower rate of profit. But it is only during crises of overproduction that the full force of the TRPF becomes apparent. The real crux of the TRPF is that it determines how long overproduction and the over-expansion of credit can go on, and/or how brutally the prior overproduction must be corrected in each crisis (if, for example, credit is expanded even more recklessly in lieu of a lower profit rate and an earlier onset of overproduction), because ultimately the rate of interest cannot sustainably surpass the rate of profit and leave no profit of enterprise to incentivize industrial investment and capital.

    In other words, a lower rate of profit will provide less “wiggle room” for overproduction and/or will make crisis of overproduction snap in a more brittle fashion if overproduction proceeds regardless. The TRPF and overproduction are not at odds with one another. Overproduction is the seasonal flu. TRPF is the AIDS that steadily weakens the immune system of capitalism.

    • Boffy Says:

      “Decreasing the living standards of the working class will shift demand around from consumer goods (Department II) to industrial goods (Department I), but on the whole it evens out in its effect on aggregate demand. So, underconsumption is no problem at all.”

      Actually, in Capital Volume II, and elsewhere, marx shows why this is actually not possible. If, workers consume less (and Marx actually shows why this is limited by the value of labour-power, anyway, i.e. workers need to consume a given quantity of wage goods to be reproduced), and this results in the production going instead to increased production of producer goods, the question arises what is the reason for increasing the production of production goods?

      As marx describes, the only reason for increasing the production of means of production, is to thereby increase the production of consumption goods. But, increasing the production of means of production, so as to yet further increase the production of consumer goods, is the most obvious way of creating a crisis of overproduction!

      Nor, Marx says can this simply be addressed by suggesting that the capitalists themselves could simply make up the difference by consuming more themselves. That is so Marx says, because it then fails to understand the motive of capitalist production as being driven by the need to produce profits and to accumulate capital, and instead turns it into a subjective drive of the capitalist to become richer and be able to consume more.

      Its undoubtedly true, as capitalism develops that, as marx says, the individual capitalists become torn, because they are led by this inherent drive, whilst also being drawn to enjoy the same kinds of conspicuous consumption that previous ruling classes enjoyed. However, even allowing for the conspicuous consumption of the top 0.001%, it cannot compete in terms of capitalist mass production of commodities in providing a market for all of the commodities that are produced, and must seek a mass market for their consumption.

    • Boffy Says:

      “As reliance on credit increases, the rate of interest eats up the rate of profit and produces a crisis.”

      This is actually one of the causes of a falling rate of profit that Marx specifically argues against in Theories of Surplus Value Chapter 17, and in Capital III. It is based upon the Ricardian/Malthusian misunderstanding of the falling rate of profit as arising from conditions that actually squeeze profits.

      Ricardo following Malthus thought that the process would mean that food prices would rise, causing wages to rise, causing profits to shrink. Others argued that it involved an inevitable rise in rents that squeezed profits, whilst others argued the point you suggest here of rising interest rates squeezing profits.

      Marx is at pains to show that whilst the “profit of enterprise” may be reduced by any of these factors at particular times, they have nothing to do with the law of the tendency of the rate of profit to fall, which is a law relating to profits that already incorporate the amounts for rent and interest. The law of the tendency for the rate of profit to fall, requires Marx says, contrary to these theories of Malthus, Ricardo and other bourgeois economists, that the mass of profit rises not falls! It is a lw of a rising mass of profit that falls relative to an ever larger growth in the mass of capital laid-out to produce it, i.e. falling profit margins.

      ” Overproduction does not mean the overproduction of consumer goods for the working class (which is what it would mean if the concept were applied strictly as the flip-side to underconsumption).”

      Marx also dismisses that argument in Capital III, Chapter 15, saying that it bizarre that any economist could claim an overproduction of capital, whilst denying an overproduction of commodities!

    • Edgar Says:

      “As others have said “underconsumption” is, strictly speaking, a necessity under capitalism, and is in fact no problem at all. ”

      Spoken like a true mouthpiece of the bourgeoisie!

      Taking a working class view for a minute, it isn’t just under consumption that impacts on the working class it is a lack of control over what gets produced. The market mechanism stands as an authoritarian force over human beings.

      So underconsumption is a massive problem, as is the separation of sale and purchase, as the latest climate data clearly illustrates.

  12. citizencokane Says:

    “As marx describes, the only reason for increasing the production of means of production, is to thereby increase the production of consumption goods. But, increasing the production of means of production, so as to yet further increase the production of consumer goods, is the most obvious way of creating a crisis of overproduction!”

    That does make sense, I stand corrected on this. So, in other words, let me see if I understand this correctly: underconsumption won’t produce an immediate crisis (in the short-run, it will free up more resources for investment), but it will only create more overproduction in the medium to long-run by encouraging even more unprofitable capacity to get built up. So, maybe there is some long-run truth to the underconsumptionist school of thought after all! Maybe that is part of the current problem…

    “Marx is at pains to show that whilst the “profit of enterprise” may be reduced by any of these factors at particular times, they have nothing to do with the law of the tendency of the rate of profit to fall, which is a law relating to profits that already incorporate the amounts for rent and interest.”

    I agree with this. We are talking past each other here, it seems. I am talking about within business cycles, interest rates more and more eat up the profit of enterprise until there is a credit crisis. That’s separate from (but synergistic with) the ongoing TRPF that will be going on in the background more or less continually at all times, and will be lowering for each successive business cycle how high interest can go before another recession must hit and knock economic activity and interest rates back down to restore whatever profit of enterprise can be salvaged by the gradually-decreasing overall rate of profit.

    “Marx also dismisses that argument in Capital III, Chapter 15, saying that it bizarre that any economist could claim an overproduction of capital, whilst denying an overproduction of commodities!”

    What I meant was that “overproduction” does not *strictly* equate to overproduction of consumer goods (which is how laypeople tend to interpret the term “overproduction” considering that consumer goods are the only goods that they usually come into contact with). You are correct, “overproduction” can only apply to *both* consumer goods *and* the means of producing those consumer goods combined (with respect to an underproduction of commodity-money). I thought I had made that clear.

    Indeed, this is there the Austrian Business Cycle theorists go wrong in presuming that there can be an overproduction of consumer goods but an underproduction of the means of producing them, or vice-versa. Don’t they realize that the two go hand-in-hand?

    “Spoken like a true mouthpiece of the bourgeoisie!”

    The objective laws of capitalism are neither my fault nor the fault of the bourgeoisie. If reality happens to show that capitalism would thrive better by reducing all workers to abject poverty, then it is our job as scientific socialists to point that out, not hold onto some moralistic hope that capitalism will, or ought to, automatically function better if workers get a better deal out of it.

    That said, Boffy made a good point above in favor of the idea that there really can be a long-run problem with underconsumptionism under capitalism, such that maybe it would indeed make capitalism function better if workers could purchase more consumer goods (within a certain limit dictated by the need (from capitalism’s point of view, not necessarily humanity’s point of view) for a continally rising mass of surplus value, of course).

    • Boffy Says:

      Busy at the moment to reply fully. I agree with most of your response. In brief.

      In my book Marx and Engels’ Theories of Crisis, I set out Marx and Engels views on all this, which is far more nuanced than trying to explain crises by falling profits, under-consumption, or overproduction, or credit. For one thing, the understanding of the falling rate of profit is mostly wrong. Marx means by it a falling profit margin that arises at the same time that the general annual rate of profit is rising, because both are due to rising social productivity.

      The conditions that lead to the law of the falling rate of profit/profit margin arise as a means to remedy crises. You are right that in the short term profits, or the profit of enterprise can be squeezed, and Marx sets out that this is caused by conditions of boom not slump or stagnation. In Capital III, Chapter 15, Marx sets out,

      “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.”

      The longer the boom has lasted, the more the existing levels of technology are old in the tooth (extensive accumulation), and the more the existing supplies of labour-power are consumed, causing wages to rise and squeeze profits. Squeezed profits from this cause (not the LRTPF) whilst there are generally higher levels of revenues causing higher levels of consumption, mean that capitals need to expand to not lose market share, and they increasingly borrow to finance the expansion, or else they throw less realised profit into the money markets, causing interest rates to rise, which again squeezes the profit of enterprise.

      Capital seeks to resolve this by engaging in a new round of labour saving innovation to deal with the problem Marx outlined at the top. In other words, it needs to create a relative surplus population, to increase the amount of labour available for exploitation. The resultant rising level of social productivity creates the conditions for the LTRPF, i.e. higher volumes of output with less labour employed to produce it, but it creates the conditions for the general annual rate of profit to rise. Wages fall, the value of the fixed capital stock is slashed by moral depreciation, the value of circulating constant capital is slashed etc.

      Reduced wages in the short term can release resources for accumulation, but in my book I cite marx’s reference in TOSV 3 to Ricardo’s comment that glut and high profits due to reductions in wages are synonymous. But, a higher rate of surplus value, and profit may not result in a crisis. Marx sets out why in the Grundrisse.

      If as a result of this process set out above, labour saving technologies release labour and capital that are employed in other spheres, they may then produce a whole range of new commodities for which there is then a relatively high level of demand at high prices, or usually modified values, prior to capital flooding into such areas, to reduce market prices, and equalise profits. On the one hand high levels of surplus value can be associated with crises if the conditions that create the higher mass of surplus value are ones that prevent its realisation, on the other, low levels of profits may create the conditions for expansion, because a whole series of new commodities can be sold at high prices, sometimes at prices above their price of production, leading to surplus profits, and an encouragement for capital to accumulate more rapidly in those spheres.

      The reason that capital introduced welfare states, macro-economic planning and other forms of regulation, was indeed to address the longer-run problem of underconsumption, alongside the shift to a reliance on the creation of relative surplus value. It meant that real wages could rise year on year, even as the rate of surplus value was increased year on year. It is the material basis for the social democracies that were created from the end of the 19th century.

      But, it doesn’t end the potential for crises, for the reasons described, i.e. at certain points profits get squeezed for reasons quite opposite to the LRTPF. That is available supplies of labour-power get used up, wages rise, the rate of surplus value falls, profits get squeezed, capital needs to expand to meet the increased demands from workers for consumption goods, and the demand for money-capital rises relative to the supply causing interest rates to rise, squeezing the profit of enterprise further, and so on.

      As more sections of workers and the middle class obtain higher levels of consumption, the elasticity of demand for the existing range of commodities falls – in Capital II, Marx explains that during such periods, workers begin to consume some of the luxury goods that previously only the rich enjoyed. But, it becomes harder and harder to sell the increasing mass of output, other than at lower and lower prices, which in certain sectors, or in general may then fall the price of production or cost of production leading to a crisis.

      These periods of crisis are always associated with periods of boom, whereas what most people refer to as periods of crisis, are in fact, not periods of crisis in Marx’s terminology, but periods of stagnation. The stagnation follows the crisis in Marx’s model. The stagnation is associated with those periods of low growth, because extensive accumulation gets replaced by intensive accumulation, so that labour is replaced. Employment and output expands more slowly, but on the basis of this more efficient fixed capital, which thereby lays the basis for a new period of growth and higher profits, and resolves also the problem of realisation, because whole new ranges of consumer goods become available that have low price elasticities of demand, and so consumption of them can be increased over long periods at relatively high prices that not only reproduce the consumed capital within them, but lead to surplus profits, and the attraction of capital into them from other spheres. In so doing, as marx sets out in the Grundrisse, these new spheres also thereby create the demand for the output of the old spheres.

      “On the other side, the production of relative surplus value, i.e. production of surplus value based on the increase and development of the productive forces, requires the production of new consumption; requires that the consuming circle within circulation expands as did the productive circle previously. Firstly quantitative expansion of existing consumption; secondly: creation of new needs by propagating existing ones in a wide circle; thirdly: production of new needs and discovery and creation of new use values. In other words, so that the surplus labour gained does not remain a merely quantitative surplus, but rather constantly increases the circle of qualitative differences within labour (hence of surplus labour), makes it more diverse, more internally differentiated. For example, if, through a doubling of productive force, a capital of 50 can now do what a capital of 100 did before, so that a capital of 50 and the necessary labour corresponding to it become free, then, for the capital and labour which have been set free, a new, qualitatively different branch of production must be created, which satisfies and brings forth a new need. The value of the old industry is preserved by the creation of the fund for a new one in which the relation of capital and labour posits itself in a new form. Hence exploration of all of nature in order to discover new, useful qualities in things; universal exchange of the products of all alien climates and lands; new (artificial) preparation of natural objects, by which they are given new use values. The exploration of the earth in all directions, to discover new things of use as well as new useful qualities of the old; such as new qualities of them as raw materials etc.; the development, hence, of the natural sciences to their highest point; likewise the discovery, creation and satisfaction of new needs arising from society itself; the cultivation of all the qualities of the social human being, production of the same in a form as rich as possible in needs, because rich in qualities and relations — production of this being as the most total and universal possible social product, for, in order to take gratification in a many-sided way, he must be capable of many pleasures [genussfähig], hence cultured to a high degree — is likewise a condition of production founded on capital. This creation of new branches of production, i.e. of qualitatively new surplus time, is not merely the division of labour, but is rather the creation, separate from a given production, of labour with a new use value; the development of a constantly expanding and more comprehensive system of different kinds of labour, different kinds of production, to which a constantly expanding and constantly enriched system of needs corresponds.”

      https://www.marxists.org/archive/marx/works/1857/grundrisse/ch08.htm

    • Boffy Says:

      Busy at the moment to reply fully. I agree with most of your response. In brief.

      In my book Marx and Engels’ Theories of Crisis, I set out Marx and Engels views on all this, which is far more nuanced than trying to explain crises by falling profits, under-consumption, or overproduction, or credit. For one thing, the understanding of the falling rate of profit is mostly wrong. Marx means by it a falling profit margin that arises at the same time that the general annual rate of profit is rising, because both are due to rising social productivity.

      The conditions that lead to the law of the falling rate of profit/profit margin arise as a means to remedy crises. You are right that in the short term profits, or the profit of enterprise can be squeezed, and Marx sets out that this is caused by conditions of boom not slump or stagnation. In Capital III, Chapter 15, Marx sets out,

      “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.”

      The longer the boom has lasted, the more the existing levels of technology are old in the tooth (extensive accumulation), and the more the existing supplies of labour-power are consumed, causing wages to rise and squeeze profits. Squeezed profits from this cause (not the LRTPF) whilst there are generally higher levels of revenues causing higher levels of consumption, mean that capitals need to expand to not lose market share, and they increasingly borrow to finance the expansion, or else they throw less realised profit into the money markets, causing interest rates to rise, which again squeezes the profit of enterprise.

      Capital seeks to resolve this by engaging in a new round of labour saving innovation to deal with the problem Marx outlined at the top. In other words, it needs to create a relative surplus population, to increase the amount of labour available for exploitation. The resultant rising level of social productivity creates the conditions for the LTRPF, i.e. higher volumes of output with less labour employed to produce it, but it creates the conditions for the general annual rate of profit to rise. Wages fall, the value of the fixed capital stock is slashed by moral depreciation, the value of circulating constant capital is slashed etc.

      Reduced wages in the short term can release resources for accumulation, but in my book I cite marx’s reference in TOSV 3 to Ricardo’s comment that glut and high profits due to reductions in wages are synonymous. But, a higher rate of surplus value, and profit may not result in a crisis. Marx sets out why in the Grundrisse.

      If as a result of this process set out above, labour saving technologies release labour and capital that are employed in other spheres, they may then produce a whole range of new commodities for which there is then a relatively high level of demand at high prices, or usually modified values, prior to capital flooding into such areas, to reduce market prices, and equalise profits. On the one hand high levels of surplus value can be associated with crises if the conditions that create the higher mass of surplus value are ones that prevent its realisation, on the other, low levels of profits may create the conditions for expansion, because a whole series of new commodities can be sold at high prices, sometimes at prices above their price of production, leading to surplus profits, and an encouragement for capital to accumulate more rapidly in those spheres.

      The reason that capital introduced welfare states, macro-economic planning and other forms of regulation, was indeed to address the longer-run problem of underconsumption, alongside the shift to a reliance on the creation of relative surplus value. It meant that real wages could rise year on year, even as the rate of surplus value was increased year on year. It is the material basis for the social democracies that were created from the end of the 19th century.

      But, it doesn’t end the potential for crises, for the reasons described, i.e. at certain points profits get squeezed for reasons quite opposite to the LRTPF. That is available supplies of labour-power get used up, wages rise, the rate of surplus value falls, profits get squeezed, capital needs to expand to meet the increased demands from workers for consumption goods, and the demand for money-capital rises relative to the supply causing interest rates to rise, squeezing the profit of enterprise further, and so on.

      As more sections of workers and the middle class obtain higher levels of consumption, the elasticity of demand for the existing range of commodities falls – in Capital II, Marx explains that during such periods, workers begin to consume some of the luxury goods that previously only the rich enjoyed. But, it becomes harder and harder to sell the increasing mass of output, other than at lower and lower prices, which in certain sectors, or in general may then fall the price of production or cost of production leading to a crisis.

      These periods of crisis are always associated with periods of boom, whereas what most people refer to as periods of crisis, are in fact, not periods of crisis in Marx’s terminology, but periods of stagnation. The stagnation follows the crisis in Marx’s model. The stagnation is associated with those periods of low growth, because extensive accumulation gets replaced by intensive accumulation, so that labour is replaced. Employment and output expands more slowly, but on the basis of this more efficient fixed capital, which thereby lays the basis for a new period of growth and higher profits, and resolves also the problem of realisation, because whole new ranges of consumer goods become available that have low price elasticities of demand, and so consumption of them can be increased over long periods at relatively high prices that not only reproduce the consumed capital within them, but lead to surplus profits, and the attraction of capital into them from other spheres. In so doing, as marx sets out in the Grundrisse, these new spheres also thereby create the demand for the output of the old spheres.

      “On the other side, the production of relative surplus value, i.e. production of surplus value based on the increase and development of the productive forces, requires the production of new consumption; requires that the consuming circle within circulation expands as did the productive circle previously. Firstly quantitative expansion of existing consumption; secondly: creation of new needs by propagating existing ones in a wide circle; thirdly: production of new needs and discovery and creation of new use values. In other words, so that the surplus labour gained does not remain a merely quantitative surplus, but rather constantly increases the circle of qualitative differences within labour (hence of surplus labour), makes it more diverse, more internally differentiated. For example, if, through a doubling of productive force, a capital of 50 can now do what a capital of 100 did before, so that a capital of 50 and the necessary labour corresponding to it become free, then, for the capital and labour which have been set free, a new, qualitatively different branch of production must be created, which satisfies and brings forth a new need. The value of the old industry is preserved by the creation of the fund for a new one in which the relation of capital and labour posits itself in a new form. Hence exploration of all of nature in order to discover new, useful qualities in things; universal exchange of the products of all alien climates and lands; new (artificial) preparation of natural objects, by which they are given new use values. The exploration of the earth in all directions, to discover new things of use as well as new useful qualities of the old; such as new qualities of them as raw materials etc.; the development, hence, of the natural sciences to their highest point; likewise the discovery, creation and satisfaction of new needs arising from society itself; the cultivation of all the qualities of the social human being, production of the same in a form as rich as possible in needs, because rich in qualities and relations — production of this being as the most total and universal possible social product, for, in order to take gratification in a many-sided way, he must be capable of many pleasures [genussfähig], hence cultured to a high degree — is likewise a condition of production founded on capital. This creation of new branches of production, i.e. of qualitatively new surplus time, is not merely the division of labour, but is rather the creation, separate from a given production, of labour with a new use value; the development of a constantly expanding and more comprehensive system of different kinds of labour, different kinds of production, to which a constantly expanding and constantly enriched system of needs corresponds.”

    • Edgar Says:

      I have more of an issue with the “no problem at all” part of your comment. “No problem at all” is not a scientific statement. So let us stop pretending that you are delivering us scientific treats shall we.

  13. Transformation and realisation – no problem — Michael Roberts Blog | Art History blog Says:

    […] via Transformation and realisation – no problem — Michael Roberts Blog […]

  14. Pete Green Says:

    This is a response to Michael Roberts and his passing references to my comments on his thought-provoking work at the HM conference (not to Edgar, Boffy et al with whom I agree on some points but not others and it would take far too long to differentiate).
    Michael helpfully refers to my own paper at HM which I will be writing up for the HM journal but he didn’t attend that session and obviously didn’t read the abstract either.
    My attempt to salvage disproportionality analysis as part of what I’ve termed a ‘multi-dimensional’ theory of crisis doesn’t draw on Tugan-Baranovsky at all (not least because most of what that author had to say has not been translated into English). In my own talk I referred primarily to Marx and to Maksakovsky’s book from 1928 on the Capitalist Cycle, to Preobazhensky’s book the Decline of Capitalism from 1931 and to the excellent account of the debates inside the USSR in the 1920s over Marxist theory by Richard B.Day the Crisis and the Crash published by Verso back in 1981 . My simple objective was to recommend a reading of all three. but if you are short of time Day’s summaries of the other two (whom he translated) are excellent.
    But Michael’s presentation in the session with Ivanova and Norfield did confirm my suspicion that Michael has never fully understood what Marx was doing in Volume 2 of Capital. As others have said above overproduction and underconsumption are not as Michael seems to think simply two sides of the same coin. On that point in particular I’m also writing a guest blog on Jim Kincaid’s blog “readings of capital” which should appear sometime next week hopefully – and Michael has generously linked to Jim’s blog above..

    • michael roberts Says:

      Pete. Thanks, I read those books you mention to see if I need to correct my analysis. I look forward to your remarks.

    • Boffy Says:

      The other aspect that is never considered in examining the transformation problem is the question of the price elasticity of demand. The mechanism that Marx sets out by which prices of production are established as the process of transformation unfolds is that capital moves from those areas where the rate of profit is low (organic composition is high, rate of turnover is low) and into those where the rate of profit is high (organic composition of capital is low, rate of turnover is high).

      In fact, in practice this only requires that capital accumulates more rapidly in the latter than the former. The result is then that the level of supply of commodities in the latter sphere rises relative to demand so that market prices fall till they reach the price of production, and vice versa.

      In most of his examples, Marx uses percentage allocations of capital, and this obscures his underlying argument here. In theories of Surplus Value, Chapter 8, where he sets this out in attacking Rodbertus Theory of Rent, he describes this process, but keeps the amount of capital employed in each of the five spheres described as £1,000, before and after the process of transformation. In fact, its obvious that this cannot be the case, because the process of transformation requires the capital in low profit areas to fall below £1,000 as it is transferred to high profit areas, and the capital in these high profit areas to then rise above £1,000.

      But, exactly how much capital will be required to bring about the required changes in unit prices of commodities in each sphere will depend upon the elasticity of demand for the commodities produced in each sphere.

      Suppose, Sphere I has £1000 of capital and produces butter, and represents a supply and demand for 1100 units. It currently produces a 10% rate of profit, as Marx sets out in his example (P 67). Capital leaves butter production and heads for sphere III. The capital invested in sphere I falls to £900, and now the supply of butter falls to 990 units. As a result of the reduction in supply of 110 units, the price rises from its previous price of £1 per unit to 1080/990 = £1.09 per unit.

      However, assume Sphere I produces bread, and while consumers may switch from butter to margarine, in the event of a higher price of butter, there are fewer substitutes for bread. Consequently, any rise in the price of bread is likely to provoke a smaller reduction in demand, and so supply will need to fall by a smaller amount to cause the same rise in its price.

      Suppose then that capital only fell to £950, output would fall to 1045, and the price would rise to £1.09, giving a price of production for the output of £1140, which provides the 20% profit on the £950 of advanced capital. If instead, sphere I was involved in the production of some commodity which consumers could easily find substitutes for, if prices rose, then a much larger fall in supply would be required to bring about a rise in price to £1.09 per unit, to produce the average profit.

      For example, supply of such a commodity might have to fall from 1100 units to 800 units. Where the £1,000 of capital was employed previously, this reduction in supply would require a capital of just £727. The 800 units would sell at the equilibrium price of £1.09, giving a return of £872, or 20% profit on the capital advanced.

      Given that not only did Marx not have the analytical tools to make such calculations, but that such an exposition, whilst being closer to reality, adds in additional layers of complexity, more relevant to the analysis of competition that Marx had planned for later, its clear why he kept his exposition at this stage at the simpler level.

      But, its also clear from this why it is impossible to arrive at an algebraic resolution of the transformation problem without knowing what all of these different price elasticities of demand for each commodity are, because that affects how much capital must accumulate in one sector relative to another, to bring about the required prices of production, and that in turn will affect a whole load of other variables that determine costs of production etc.

      Its probably why Engels said that those that sought to reduce the solution purely to such mathematical solutions were heading in the wrong direction, and really didn’t understand what Marx was getting at.

      “Schmidt strayed into this bypath when quite close to the solution, because he believed that he needed nothing short of a mathematical formula to demonstrate the conformance of the average price of every individual commodity with the law of value” ” Capital III. p 13)

      “Sombart, as well as Schmidt, — I mention the illustrious Loria merely as an amusing vulgar-economist foil — does not make sufficient allowance for the fact that we are dealing here not only with a purely logical process, but with a historical process, and its explanatory reflection in thought, the logical pursuance of its inner connections.” (Capital III, The Law Of Value and Rate of Profit, p 895)

    • Boffy Says:

      “But Michael’s presentation in the session with Ivanova and Norfield did confirm my suspicion that Michael has never fully understood what Marx was doing in Volume 2 of Capital.”

      I agree with that assessment, as I said above, and would recommend also my own modern translation of Capital Volume II in that respect.

    • sartesian Says:

      I think Maksakovsky’s book is one of the best studies I’ve read. It’s so good it almost made me accept disproportionality as the source of impaired capital accumulation.

  15. Herbie Destroys the Environment Says:

    I have a question,

    Isn’t the theory of the falling rate of profit both a production of surplus value and a realization problem?

    On the one hand more and more of the composition of capital is made up of fixed capital and less is made up of Labour power. This leads to a problem of realization because fewer workers can buy back the total wealth of society. So debt levels increase etc

    Isn’t there also a problem of finding new sources of capital? The ability to simply rob off the natives is more difficult.

    I would be more informed if the debate was more about the logic than the actual data. Climate science is built on logic, which often gets lost in the claims and counter claims about the data. Knowing the logic can better help us understand what sort of data we need to look out for.

    So do we have a debate over logic here or over data?

    • Boffy Says:

      “On the one hand more and more of the composition of capital is made up of fixed capital and less is made up of Labour power.”

      No this is incorrect. The basis of the law of the tendency for the rate of profit to fall is based upon a rise in productivity that leads to more circulating constant being processed relative to labour-power NOT to more fixed capital relative to labour-power.

      In fact, in Capital III, Chapter 6, Marx says that the consequence of the rise in productivity is that the proportion of both fixed capital (wear and tear) and labour (wages and surplus value) falls, whilst the proportion represented by materials rises.

      In fact, the same technological development that forms part of this process means that both less fixed capital (quantity) may be employed, because 1 new machine replaces 2 old machines, and the value of this fixed capital falls both because of this technological development, and because rising productivity reduces the value of fixed capital as with any other commodity.

      A machine with a value of £1,000 that replaces 2 older machines with a combined value of £2,000, may process three times as much material as the previous two. As a consequence, the proportion of circulating constant capital, material rises relative to both the fixed capital and the labour employed, which thereby results in a higher organic composition of capital, and lower rate of profit.

      But, the rate of profit/profit margin may fall for the other reason that Marx sets out without any change in the organic composition. In other words, it may fall, because the rate of turnover of the capital rises.

      Marx demonstrates that if the total social capital is taken not only can an average organic composition be determined, but all of the different rates of turnover of capital are also subsumed in an average rate to determine the annual average rate of profit. But, that means that in just the same way that some capitals will have a lower than average organic composition of capital, and vice versa, so some will have a higher than average rate of turnover of capital and vice versa.

      A capital that has a higher rate of turnover of capital will thereby have a higher annual rate of profit than the average. But, the process of establishing prices of production means that the its price of production will thereby have to fall. This profit will then be spread over its much larger laid out capital, and volume of output so that its profit margin/rate of profit will be lower than the average.

      See The example, I have given in a blog post today.

  16. Mike Ballard Says:

    Thanks for this blog entry, Comrade and for all the very cogent critical observations from the other comrades.

  17. Alex Harland Says:

    Is it incorrect to say that “cost of production” means one thing to the capitalist and another to the working class? The capitalist pays for wages, raw materials, etc. and believes that this is the cost of production. In reality workers add “surplus value” during the production process for which the capitalist pays nothing; the capitalist then appropriates this value as profit when the commodity is sold, which, according to Marx, is why the capitalist thinks they are responsible for the creation of profit.

    If this is correct then it is useless to analyze price in terms of the capitalist’s cost of production. The price will almost always be higher than that cost of production, as shown in Roberts’ example of the price of an Iphone: the cost of production is $225 and the price is $650. The actual cost of production is an additional $425, which reflects the value of the surplus work of Chinese workers. They are being exploited, at least in Marxist terms, because their own wage-value is so low, yet their value added during production is so high.

    Would this mean that the surplus value added by a Chinese worker is the same as that added, say, by an American worker? The only difference would be in the higher wages paid to the Americans, the actual work done would be qualitatively the same.

    So how does Apple know to charge $650 for an Iphone?

  18. fosforos17 Says:

    Sorry. The Marxian “price of production,” the subject of all this discussion, is nothing but the long-run competitive-equilibrium cost of production *as calculated by the capitalist firm according to the generally accepted standards of cost accounting.*

  19. sartesian Says:

    Some general comments. The falling rate of profit, is the tendency of the rate of profit to fall as “objectified labor”– past labor appropriated by capital and converted into the means of production– displaces living labor, the source of value. It is a structural tendency– based on the very lifeblood of capital, which is of course, the accumulation of capital, which means the accumulation of the means of production as capital

    Marx does not say that this tendency is the result of the expansion of constant circulating capital; he says it is the result of the expansion of constant capital, which includes both fixed and circulating elements. The tendency can be offset, to be sure, by cheapening the elements of constant capital, but the cheapening of the constant capital, and the resulting boost to the rate of profit means that more capital will be accumulated, constant capital will expand, and the growth of the mass of value embodied in constant capital gets the capitalist right back to the point of the tendency of the rate of profit to decline.

    As for fixed capital, Marx leaves no doubt in his discussions of machinery in Vol 1, as he leaves no in the Grundrisse and in other sections of the Economic Manuscripts that he, Marx, regards “fixed capital” as the more or less perfect expression, the embodiment, of the conflict between the labor process WITH the valorization process that drives capital up, down, sideways, and in a perpetual struggle against itself, where everything capital has aggrandized, “posited” now becomes a limit, a burden.

    As for overproduction and underconsumption, Marx indeed expresses, as Edgar already quoted:

    ““The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way, that only the absolute power of consumption of the entire society would be their limit.”

    That quote,from Vol 3, certainly casts a bit of ambiguity about Marx’s views. There’s a lot of ambiguity in Marx. I think we can say that, indeed, in the last analysis, the last cause of all real crises is the poverty of the masses, but I don’t think that is anywhere close to saying “the problem is the workers can’t buy back enough of the articles they produce.” Of course they can’t. If they could there would be no surplus value. In volume 2 when analyzing the exchange between Depts 1 and 2 in simple reproduction, when it comes to realizing the surplus value, Marx points out “the money coming from all circumstances from these capitalists. since we have already disposed of the money thrown into circulation by the labourers…” meaning, the wages are spent on necessities, and that capital has to reappropriate, realize surplus value, through the expansion of capital, through expansion of the means of production as capital and the increased, intensified exploitation of wage labor.

    So overproduction is quite different from under consumption– it is the “flaw,” the vulnerability in the expanded reproduction of capital.

    Regarding Cockshott’s comment, Paul has done extensive research into the correlation of price and value, and if I recall correctly has found something like, or greater than a 95% correlation between commodity prices and the actual labor time necessary for production, which I believe he regards as disproving the validity of, or even need, of “prices of production”– i.e. cost price + the average rate of profit, for capital to distribute the total socially appropriated surplus value, and the equalization of profits.

    Alex Harland asks a great question, which IMO, is part of the bigger question– that since surplus value has no cost to the capitalist, how in fact can the surplus labor time figure into the price of the commodity? Capitalists don’t see, and don’t know, surplus value. All they can see is cost. All they can measure is how long it takes workers to reproduce values equivalent to their own wages. So what is the mechanism by which the total value embodied in commodities is “known” is “intelligible” in markets?

    And I say all this as a firm supporter of the tendency of the rate of profit to decline; a firm supporter of the price of production as the distributor of value, and the equalization process among capitals; and that surplus value is the only source of profits, rents, interests.

  20. sartesian Says:

    And then there’s this: “Today not enough surplus value is being produced to re-launch the accumulation process and the amount that is serves to consolidate the accumulation of dividend and interest bearing assets by banks, funds and individuals (financial accumulation) and so the claims on this already very insufficient amount of surplus value. This has led both to the dead-end of the quasi-zero long term interest rate regime, which not simply the outcome of quantitative-easing and to the endless small shocks in the global financial system.”

    Michael– you need to provide some numbers to go with that claim– show us how the mass, and rate of surplus value have indeed declined, if they have. And there is an implication in your statement that there is insufficient surplus value satisfy both capital expansion and dividend/interest payments. I don’t think that is an accurate picture of what has occurred since 2007; nor is it accurate of the trajectory of capital since the 2001 recession and recovery.

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