The Handbook of Karl Marx: profitability, crises and financialisation

The Oxford Handbook of Karl Marx, edited by Matt Vidal, Tomas Rotta, Tony Smith and Paul Prew, brings together a series of chapters by prominent Marxist scholars covering all aspects Marxist theory, from historical materialism, dialectics, political economy, social reproduction and post-capitalist models.

The editors have done an excellent job in arranging the various contributions into sections on the foundations of Marxism, labour and class, the nature of capitalist crises, and post-capitalist alternatives.  And in an introduction, the editors offer a succinct and informative account of Marx’s life and intellectual development, as well as summaries of the chapter contributions.

It is not possible to comment on all the contributions in this 870pp handbook, so I’ll concentrate on the chapters that interest me most.  As you might expect, these are the contributions on the Marx’s theory of crises and modern developments in capitalism like so-called ‘financialisation thesis’ and the digital economy. That’s enough on its own.

I was particularly interested in the chapter on Reproduction and Crisis in Capitalist Economies by Deepankar Basu, from the University of Massachusetts, Amhurst.  In the past, Basu has done excellent empirical work on the rate of profit.  In this chapter Basu develops some arguments about Marx’s theory of crisis.  According to Basu, “The Marxist tradition conceptualizes two types of crisis tendencies in capitalism: a crisis of deficient surplus value and a crisis of excess surplus value. Two mechanisms that become important in crises of deficient surplus value are the rising organic composition of capital and the profit squeeze: two mechanisms that are salient in crises of excess surplus value are problems of insufficient aggregate demand and increased financial fragility. This chapter offers a synthetic and synoptic account of the Marxist literature on capitalist crisis.”

In other words, Basu seeks to reconcile Marx’s law of profitability with ‘profit squeeze’ theory, in particular with Nobuo Okishio’s theorem which disputes Marx’s law, and with the post-Keynesian ‘wage-led’ underconsumption theory of crises. In my view, this ambitious aim fails. Basu reckons that “The controversy between proponents of the “falling rate of profit” crisis tendency and the “problems of demand” crisis tendency that has raged on for decades seem, from the perspective of the analysis of this chapter, rather unproductive and even unnecessary. Capitalist economies are prone to both types of crises: the first when the system generates too little surplus value and the latter when it generates too much. There is no theoretical reason to believe that capitalist economies will be plagued by only one or only the other.”

In particular, Basu argues that “Much of this controversy also seems (with the benefit of hindsight) needless. There are no theoretical grounds to claim that due to technological change, the rate of profit will have a tendency to always fall (as Marx claimed) or that it will have a tendency to always rise (as Okishio claimed). A careful analysis shows that the impact of technological change on the rate of profit depends crucially on what happens in the labor market. If the real wage rate rises sharply during the period of technological change, then the rate of profit tends to fall; on the other hand, if the real wage rate does not rise fast enough, then the rate of profit might rise.”

In my book, Marx 200, I deal in more detail with Okishio’s refutation of Marx. But let’s dissect Basu’s argument here. There are very good theoretical grounds to claim that the average profitability of capital in a capitalist economy will tend to fall over time.  Marx held to this view and provided solid theoretical foundations for this; namely if value (and surplus value) is created only by the exploitation of labour power and if Marx’s general law of accumulation holds in that there is a tendency for the organic composition of capital to rise over time (ie capitalist invest more in machinery and technology relative to labour power); then the rate of profit will tend to fall.

Moreover, the counteracting factor of a rising rate of surplus value from the increased productivity of labour power using machinery will, over time, not match the rise in the organic composition and so the rate of profit will actually fall.  If the rate of profit does so sufficiently and for a sustained period, then eventually there will be over accumulation, a fall in the mass of profit; and a crisis in production will ensue.  The slump will devalue the value of fixed assets, liquidate uncompetitive capital and reduce labour costs through rising unemployment, thus laying the foundations for a rise in profitability.  And the whole circle will begin again.

This is Marx’s theory of crisis, of which Basu says “there are no theoretical grounds to claim”.  That conclusion was precisely the point of Okishio’s theorem, which purported to argue that capitalists would never invest in new technology unless it brought them a higher rate of profit.  Increased technology would lead to higher productivity of labour, which was immediately transformed into a higher rate of surplus value for each unit of production.  So the rate of profit would not fall but on the contrary would rise.  Only the class struggle, bringing about a rise in the real wage, would counteract that and cause the rate of profit to fall.

Okishio’s theorem has been refuted decisively by many authors – I refer you to the following, including recent authors and those in the Handbook itself
(http://digamo.free.fr/carchedi84.pdf; http://digamo.free.fr/carchedi91.pdf;http://digamo.free.fr/kliman2007.pdf; http://digamo.free.fr/moseley15.pdf; https://brill.com/view/title/32834; http://digamo.free.fr/yaffe72.pdf; http://gesd.free.fr/miller95.pdf; https://edgeorgesotherblog.wordpress.com/2013/07/04/but-still-it-falls-on-the-rate-of-profit; https://thenextrecession.wordpress.com/2013/07/25/returning-to-heinrich). And there is also plenty of empirical evidence showing the causal connection between a rising organic composition of capital and falling profitability.

And yet Basu claims he can reconcile Marx’s theory with Okishio’s theorem: “The idea that there is no necessary contradiction between the claims advanced by Marx and Okishio” because “the rate of profit falls or rises after the adoption of a new technique of production ultimately depends on how the real wage rate behaves”.  But the argument that the real wage decides the direction of profitability is not Marx’s.  Indeed, it is closer to Ricardo, which is why Okishio and previous theorists who argue something similar have been called ‘neo-Ricardian’.  There is no way that Marx’s theory of crisis can be reconciled with the ‘real wage’ or ‘profit squeeze’ theory of Ricardo.

Basu goes onto suggest that Marx’s theory of crisis can also be reconciled with the post-Keynesian theory that crises are caused by either low wages leading to a collapse in consumption or by low profits leading to a collapse in investment.  There is no space to deal with the post-Keynesian distribution of income theory here – it is yet another variant of the discredited underconsumption view of crises.  All I can add now is to note the facts.  In the US in every post-war slump, it has been investment not consumption that has led the economy into recession, and it has been a fall in profit and profitability that has led investment.  I remain puzzled why Basu deems it necessary to reconcile neo-Ricardian profit squeeze theory and post-Keynesian underconsumption theory with Marx’s theory of crisis, which in my opinion is theoretically clear and empirically supported.

At least Basu is attempting to develop a Marxist theory of crises under capitalism.  Leo Panitch and Sam Grindin, in their chapter on capitalist crises and the state, deny that there is any theory of crises at all: “the genesis, nature, and outcome of which are historically contingent and the resolution of which changes the terrain for the development of future crises. Crises are always historically specific.”  This view has been expressed before by Panitch and Gindin and by others like David Harvey.

As the P and G put it: “The weakness of a general theory that tries to encompass each of these crises lies in what is thereby obscured. As David Harvey (2008:24–25) has cautioned, “There is no singular theory of crisis formation within capitalism, just a series of barriers that throw up multiple possibilities for different kinds of crises,” each determined by a combination of specific conditions at a “particular historical moment.” This does not mean retreating to an eclectic description of conditions in those historical moments designated as crises. It rather means recognizing that capitalist development is a contradictory process prone to crises—the genesis, nature, and outcome of which are historically contingent and need to be investigated with the tools of historical materialism”.

In their view, they are taking a much more sophisticated view of capitalist crises with its layers than some crude single theory approach.  I have dealt with this argument in many places.  But let me add the simple comment of Mino Carchedi on this sophisticated approach: “if crises are recurrent and if they have all different causes, these different causes can explain the different crises, but not their recurrence. If they are recurrent, they must have a common cause that manifests itself recurrently as different causes of different crises. There is no way around the ”monocausality” of crises.”  We monocausal theorists have never denied that each crisis of capitalism has its own characteristics.

See my Amsterdam paper Presentation to the Third seminar of the FI on the economic crisis
and my post
https://thenextrecession.wordpress.com/2014/02/16/tendencies-triggers-and-tulips/. The trigger in 2008 was the huge expansion of fictitious capital that eventually collapsed when real value expansion could no longer sustain it, as the ratio of house prices to household income reached extremes.  I do not say that such different ‘triggers’ are not ‘causes’, but argue that behind them is a general cause of crisis: the law of the tendency of the rate of profit to fall.

But P and G go further.  They deny altogether any role in crises for Marx’s law of profitability: “there was always a basic problem with this concept; the many “counter-tendencies” that Marx himself adduced to explain why the tendency does not always manifest itself were, as often as not, the very substance of capitalism’s dynamics: that is, the development of new technologies and commodities, the emergence of new markets, international expansion, innovations in credit provision, not to mention state interventions of various kinds. Above all, it depended on whether the extraction of greater surplus value from labor could be counted on to offset falling profits. Insofar as this could not be secured, then “the falling tendency is nothing but the expression of popular struggles against exploitation.”

In other words, as with Basu, Marx’s general of law of accumulation of a rising organic composition of capital is countered by a rising rate of surplus value and the result is ‘indeterminate’ ie there is no theoretical reason that the former will overcome the latter and lead to falling profitability.  Marx was wrong.  And “mechanically” spouting on about and trying to measure the rate of profit (as some of us do) is a wasted exercise.  Again, this idea of indeterminacy, propagated by Paul Sweezy in the 1940s, by the neo-Ricardians in the 1970s and by Michael Heinrich and David Harvey currently can be refuted and has been done by many authors (as above), including me.

What matters for P and G in explaining crises is the strength of the working class not the profitability of capital: “a key factor in generating the conditions that led by 2007– 2008 to the greatest financial crisis since 1929 was the weakness of the working class. This is important for understanding why, in contrast to the other three crises, this crisis was not caused by a profit squeeze or collapse of investment due to overaccumulation as many Marxist economists have insisted    The “Great Financial Crisis” was triggered in the United States, where profits and investments had recovered by the late 1990s, and it was only after the financial meltdown of 2007–2008 that profits and investment declined.”

Here P and G argue that profitability was irrelevant to the Great Recession and only fell afterwards as a result not a cause.  This is an empirical argument and it is wrong. There is plenty of evidence that there was a fall in US profitability of capital and the mass of profits before the Great Recession started – indeed, profits led investment and investment led production and employment in and out of the Great Recession.  And see this recent analysis supporting this.

One of the Handbook’s editors, Matt Vidal, in his chapter Geriatric capital: stagnation and crisis in Western Capitalism, does use Marx’s law of profitability in his explanation of the collapse of ‘Fordism’, mass factory production from the 1970s.  But he too seems to want to reconcile Marx’s “convoluted” law of profitability with disproportion and underconsumptionist alternatives to deliver “stagnationist” tendencies in post-war capitalist economies.

At least, Vidal shows that Marx’s law of falling profitability is supported by empirical evidence. As he says: Evidence demonstrates that the profit rate decline was driven in part by a rising organic composition of capital in the United States (Shaikh 1987), Germany, the United Kingdom, and France (Duménil and Lévy 2004). The evidence also indicates that a profit squeeze due to an increasing labor share of income also contributed to the profit rate decline in the United States (Wolff 2003), Germany, the United Kingdom, France, Italy, and Japan (Glyn et al. 2007).”

Vidal argues (correctly in my view) that the reason economies have not restored real GDP, investment and productivity growth rates since the ‘golden age’ of ‘Fordism’ in the 1960s is because profitability of capital remains low.  So credit injections and monetary easing may have kept capitalism from collapsing but essentially stagnation is the main theme – expressing the “structural problems of an ageing capitalism”.

And then there is the brave attempt of Jeff Powell in his chapter to reconcile the ‘financialisation thesis’ with Marxian economic theory.  Readers of this blog will know that the ‘financialisation thesis is that capitalism has changed from the days of ‘Fordism’ when investment in productive assets was the driving force of capitalist accumulation for profit.  Now in the ‘neo-liberal’ era, capitalists no longer invest so much in productive assets and or exploit labour in the production process, but instead seek to speculate and profit in the financial sector and exploit working people through ‘usury’, ie mortgages, savings instruments, rents and taxes.

The financial sector now dominates and is the real enemy of working people and the productive sectors of the capitalist have been relegated by the power of finance capital.  Thus, crises in capitalism are now to be found not in the falling profitability of capitalism but in the ‘fragility’ of the reckless, debt ridden financial institutions that suffer ’Minsky moments’ not ‘Marx moments.’

Thus Powell says “Falling profitability can, at best, be a contributing but far from a driving factor of financialization. Indeed, the overriding concern of the TRPF advocates themselves seems to be less about asserting that falling profits cause financialization than arguing against the diametrically opposed post-Keynesian narrative that financialization causes falling profits.”  I think we should argue both.

Powell reckons that “there has been a secular shift in the role of finance in the period of late neoliberalism. This shift marks the emergence of a new stage of what can be called financialized capitalism, distinct (but intertwined with) processes of financialization. While the speculative excesses of finance that have accompanied this transformation abound, the key point here is that those excesses are by their very nature short-lived, while the emergence of a qualitatively different role for finance represents a structural shift emblematic of a new stage. Finance is providing a system of discipline and control necessary for capital accumulation in an era of globalized production networks.”  So, in this analysis, financialisation is indeed more than just the increase in the size of the financial sector and financial sector profits in neoliberal capitalism.  It is a new stage of capitalism, particularly expressed in international financial flows and production networks.

I am not convinced by Powell’s attempt to distinguish between financialisation as cyclical process (meaning it has older historical roots) and financialised capitalism as secular stage (meaning the contemporary capitalism with its supposedly new features).

I still prefer Marx’s explanation.  Capitalists need finance and credit to invest in and exploit labour; it is more efficient to have specialised credit players then raise finance internally or just use previous profits.  But when profitability falls, capitalists try to switch into financial speculation and investment to sustain profitability (as in the 1980s onwards).  But this leads to an explosion of ‘fictitious capital’, the buying and selling of bonds and stocks that are merely titles to the ownership of potential profits in production.  Fictitious capital can extend the financial market boom and give the appearance that finance is all powerful.  But the collapse of profitability and profits in the productive sectors will soon end that myth.

As Guglielmo Carchedi, in his excellent, but often ignored Behind the Crisis puts it: “The basic point is that financial crises are caused by the shrinking productive base of the economy. A point is thus reached at which there has to be a sudden and massive deflation in the financial and speculative sectors. Even though it looks as though the crisis has been generated in these sectors, the ultimate cause resides in the productive sphere and the attendant falling rate of profit in this sphere.”

In every slump in the US in the post-war period, a slump in profits in the productive sectors has brought about a slump in profits in finance and a recession.  If finance rules crises now, why have the major economies not recovered to previous growth rates in production, investment and wages post the Great Recession?  Because the financial sector has certainly recovered, with stock and bond markets at record highs.  No, productive sectors rule over finance in crises, not vice versa.

There are defenders of Marx’s value theory and his law of profitability in the Handbook, namely Andrew Kliman, Alan Freeman and Fred Moseley, but their chapters are on more fundamental explanations of Marx’s theory of value and the nature of capital.  But it seems that all the Marxist authors discussing crises under capitalism in the Handbook are determined to trash Marx’s law of profitability as an explanation, in favour of others or deny that there is any general theory of crises at all.

That will do for now, but I plan to return to the Handbook to consider the arguments presented in a chapter by Tomas Rotta on the nature of profits and the ‘commodification of knowledge’ in the digital economy.  Is Marx’s value theory still relevant when the knowledge is ‘costless’ and how does knowledge enter the capitalist accumulation process?

38 Responses to “The Handbook of Karl Marx: profitability, crises and financialisation”

  1. Arif Kosar Says:

    Thanks for your assessment.

    “I plan to return to the Handbook to consider the arguments presented in a chapter by Tomas Rotta on the nature of profits and the ‘commodification of knowledge’ in the digital economy. Is Marx’s value theory still relevant when the knowledge is ‘costless’ and how does knowledge enter the capitalist accumulation process?”

    Please, as soon as possible.

  2. Anti-Capital Says:

    I think it’s important to make a distinction between “crisis”– which is always a short-term occurrence, and the self-generated obstacles to capitalist reproduction, a sort of structural stenosis that operate over the longer term.

    Now, FWIW, IMO, and all the other disclaimers, the two do share a single source, but not always a synchronicity, in the disproportional expulsion of labor power from the production, and therefore the valorization, process.

    And with that, in contrary to what is usually argued, unless wages fall, the application of machinery does not augment the extraction of relative surplus value. It, the application of machinery, does reduce cost,and allow capitalists to reallocate the total surplus value. It, the increased productivity of labor does create more exchanges, larger, and most importantly, new, markets, but the reduction in total working hours triggered by the rising organic composition of capital impedes, hampers, reduces the extraction of surplus value.

  3. vk Says:

    The intention of these authors is clearly political: they want to ressurect social-democracy (i.e. socialism as the moral compass of capitalism). Hence the emphasis on working class strength and negation of TPRF: as long as the working classes organize and fight, capitalism can exist in a social-democratic form for eternity.

    The same political intent has the “new” David Harvey (i.e. after he moved to the USA): he wants to create a “value realization” theory for the simple fact it fits American consumer-based economy reality; the USA can continue to be the sole superpower indefinitely because value is created by consumption, not production. It’s what every American undergraduate wants to hear. Those authors quoted in this post seem to be the Western European version of David Harvey.

    I agree with mr. Roberts that these are pseudo-scientific theories. TPRF stands (and will stand forever, since it’s scientifically true).

    • Vots Says:

      Do you believe that social democracy is feasible in today’s world?
      I have serious doubts that its possible long term.

      Globalization seems to me irreversible and each country would have to compete in a globalize economy.

      Welfare, pensions etc seems to me that they make most economies less competitive.
      Maybe they could be feasible in the most technological advance economies but i doubt they are feasible when you have competition between USA and China.

      • vk Says:

        Of course I don’t believe. That’s why those quoted economists in the post are resorting to pseudo-science.

      • Boffy Says:

        Welfare states are a creation of capitalism. Its why China is looking to create a welfare state, its why large US corporations bemoaned that they had to carry the cost of healthcare insurance for their workers, whereas their European counterparts did not.

        The basic principle is quite simple. Firstly, if each worker has to provide for their own potential healthcare, social care, unemployment and retirement costs, they will have to base their calculation on the worst case scenario. They may never fall sick in their lives, but they will have to estimate that they may fall sick more than the average, and they will therefore, have to set aside a portion of their wage accordingly. The same thing for social care, for the potential for periods of unemployment, and for old age. This is why Chinese workers lacking such a welfare system have to set aside such a large part of their incomes as savings to cover these potential costs.

        The whole point about insurance is that instead of each individual having to base their calculation on the worst case the insurance provider can base their calculations on the average. The larger the number of people in the scheme the the more the average risk applies, and the lower the premiums. A National Insurance scheme achieves that goal. It then means that workers require lower wages, because less of their wages has to be set aside to cover their own individual potential costs.

        Not only does that thereby raise the rate of surplus value via a lower value of labour-power, but it also means that more current resources are available for consumption/capital accumulation.

        Moreover, the state in providing such welfare schemes can do so on a massive scale. The state provided healthcare systems like the NHS in Britain, like the state run education provision was established from the start on Fordist mass production lines, which, at the time at least, meant that all of the cost benefits of Fordism could be achieved. The more capital can raise the efficiency of provision of healthcare, education, social care etc., which form a significant element in the reproduction of labour-power, and so of the value of labour-power, the more it can raise the rate of surplus value, and thereby profit.

        Thirdly, in the 19th century, workers were already establishing their own provision for education, healthcare and unemployment insurance. That was a basis for an extension of what Marx and Engels called workers self-government. It posed a threat, as an alternative to capitalist provision. Marx warned against workers allowing the capitalist state to undermine this provision. he called for the state to keep its hands off the workers Friendly Societies. They both opposed calls for the establishment of a National Insurance scheme in Germany, or the provision of a welfare state (See Engels Critique of the Erfurt Programme).

        Fourthly, the creation of large welfare states which provide important commodities required for the reproduction of labour-power, such as health and education, means that the capitalist state has a powerful means of planning and regulating the supply of labour-power to meet its needs at any one time. These state provided commodities are paid for by workers via a collective charge taken compulsorily from their wages as National Insurance and taxes. In fact, Alan Freeman some time ago, showed that in no year since 1945, had UK workers got back a greater value in welfare services and benefits than they had paid out in taxes and NI contributions.

        But, the state can continue taking in these payments from workers, whilst at any time choosing to cut back on its supply of those commodities, by implementing cuts in welfare provision. It is, thereby, a means of the state reducing its need to levy taxes on profits, and thereby enables it to raise the rate of profit.

    • mandm Says:

      I’m no economist, but viewed historically, it seems to me that capitalist mode of production (basically m-c-m’ as understood by Marx) has from its beginning been entangled with merchant banker/adventurer activities: primal accumulation of labor and land in Western Europe, accumulation by exploitation/expropriation in Asia, Africa, and the New World. These merchant banker/adventurer activities served to financially seed (and increasingly had a role in directing) the industrial revolution in the West.

      Isn’t modern “financialization” nothing more than a post 1970’s overproduction crisis strategy of US (and British) capitalists to save their imperial system (by reintegrating the disintegrating financial and productive sectors of global finance/monopoly capital, but on a higher level, by separating them politically and spatially into a “service sector” employing relatively well (but increasingly less well-) paid labor at the imperial centers and a (material) “production sector” of super-exploited wage earners in the ex-colonial countries?

      But this rationalization changes only appearances, because capitalism’s contradictory laws of motion, based on the alienation and exploitation of human labor in the production of surplus value remain in effect …as does the labor theory of value, and its corollary, trpf…which is to say that late capitalism and late imperialism are one and the same.

      • Boffy Says:

        “but viewed historically, it seems to me that capitalist mode of production (basically m-c-m’ as understood by Marx) has from its beginning been entangled with merchant banker/adventurer activities: primal accumulation of labor and land in Western Europe, accumulation by exploitation/expropriation in Asia, Africa, and the New World. These merchant banker/adventurer activities served to financially seed (and increasingly had a role in directing) the industrial revolution in the West.”

        Except that Marx, particularly in TOSV, makes a distinction between that primary accumulation, and the role of merchant and interest-bearing capital within it, and the secondary accumulation and dominance of industrial capital that follows on from it.

        As Marx says in, TOSV, Part III, Addenda, industrial capitalism does not create the commodity, or the antediluvian forms of capital such as merchant capital, and usury, any more than it creates landed property. It is confronted by these things as already existing, having been created by previous modes of production. What it, therefore, has to do is to subordinate them, and reshape them to its own requirements.

        And, for example, the circuit of industrial capital is not M – c – M`, as you state, which more closely approximates the circuit of merchant capital, or in the form directly of M – M`, the circuit of interest-bearing capital, but P … C` – M`.M – C … P, which indicates that the nature of industrial capital is to expand the social relation that is capital, i.e. to set in motion more means of production, and thereby more labour, which is the basis for producing more surplus value, which is the basis of the self-expansion of capital, which is the basis of the further accumulation of capital, and so the expansion of the social relation that is capital.

        ““It encounters these older forms in the epoch of its formation and development.  It encounters them as antecedents, but not as antecedents established by itself, not as forms of its own life-process. In the same way as it originally finds the commodity already in existence, but not as its own product, and likewise finds money circulation, but not as an element in its own reproduction. Where capitalist production has developed all its manifold forms and has become the dominant mode of production, interest-bearing capital is dominated by industrial capital, and commercial capital becomes merely a form of industrial capital, derived from the circulation process. But both of them must first be destroyed as independent forms and subordinated to industrial capital.” (TOSV, p 468)

        Indeed, as Marx describes, this role of industrial capital, as against the role of the antediluvian forms of capital, such as merchant capital and usury, which everywhere they appear, in previous modes of production reduce the producers to a state of slavery, is to create this process of economic growth and rapid expansion, as Marx describes it in the Grundrisse, its “Civilising Mission”, because it must not only create an ever expanding market based upon the production and sale of an ever expanding range of use values, but it must continually draw in peasant producers to capitalist production, rescuing them from the idiocy of rural life.

        That as Marx describes in TOSV is its historic mission, by which it also creates the conditions for Socialism, and as Lenin describes in On The Market Question, the two things go together, because on the one hand as more peasant producers become wage labourers, the more they are also thereby buyers of commodities, that are now produced capitalistically, which is the basis for the expansion of the market and for capitalist production, and thereby for the employment of those workers.

      • mandm Says:

        I have no argument with you here. I know, but not as well as you, the difference between industrial and merchant capitalism. But the evolution of capitalism as such is constantly moving, not segmented (although the complete break between the two systems had to wait in England until the revolution of 1640-88).

        Your merely misunderstand what Im trying (perhaps poorly) to say, which is that under late capitalism (in its destructive production stage) the multiple western institutions of financial capitalism have increased their portion of ownership in the largest international monopolies in the production of material goods (mostly wage goods, but also capital goods) for the entire world. Their ownership is either direct or indirect (providing credit to independent and dependent firms in the “third world” for modern means of production).

        These financial/industrial institutions, which seem to control much of the world’s productive industrial property, reside in the “post industrial” West, where they also have gained oligarchic control of the state, especially in the US (whose prime “service” industry is producing armaments and retailing war, maintaining its political hegemony and hegemonic dollar at the system’s center.

        Of course, this “financially” directed system of production is a stage in the development of industrial capitalism, which remains subject to the laws of the capitalist mode of production. Dividing the world into backward developing producing mere things like food and clothing and advanced countries producing high tech services doesn’t fundamentally change anything. But capitalists are in the drivers seat, not socialists, and they have been driven by fear and greed into bloody gridlock. But they have a default bail out route, over a cliff.

        Late capitalism and this system of late imperialism are one and the same, and must be theorized from this dialectical perspective if the labor theory of value is to retain its analytical power. But I leave that up to the economists. Surprisingly (to me) few western marxist economists see things that way and continue to quibble among themselves.

      • mandm Says:

        correction: in the second to the last paragraph, “backward developing producing” should be “backward developing countries producing..”.

      • Boffy Says:

        “the multiple western institutions of financial capitalism have increased their portion of ownership in the largest international monopolies in the production of material goods (mostly wage goods, but also capital goods) for the entire world. ”

        They have increased their ownership of fictitious capital, i.e. shares, bonds and other derivatives, not of the real capital, i.e. the productive-capital. They exercise control over that real capital, however, via their ownership of fictitious capital, because their political power has enabled them to shape laws on corporate governance in such a way that shareholders get to be the ones that appoint Boards of Directors, and determine corporate policy.

        In the 1970’s, social-democracy, which is based upon the real productive-capital, and so on the need to create the conditions for the accumulation of that capital, sought to promote the interests of real productive-capital as against the interests of fictitious capital. Going back to the 19th century, Germany had introduced laws on corporate codetermination, giving workers representation on company boards. After WWI that was increased with the law being set that in large companies, the board must be comprised of 50% elected worker representatives.

        Harold Wilson sought to introduce similar laws in Britain as proposed by the Bullock Report, and the EU introduced its Draft Fifth Company Law Directive that essentially sought to extend the German co-determination laws across the EU. There is, of course, no more reason that shareholders should have a say on company boards or corporate policy than that your mortgage provider should tell you what colour to paint your house, or who you can have round for dinner. The rational means of exercising control over this socialised capital is via industrial democracy, by the workers and managers democratically deciding on policy.

        Those moves towards industrial democracy were reversed in the 1980’s, as conservatives became ascendant. That has promoted the interests of the owners of fictitious capital in the subsequent period. They have used their control to inflate asset prices, their main form of wealth, and as rising asset prices caused yields on those assets to fall, they have increasingly used their control to divert increasing amounts of profits to dividends, to capital transfers and so on. Andy Haldane of the Bank of England has shown that where in the 1970’s, only 10 of company profits went to dividends, today the figure is around 70%. A similar situation exists in the US.

        As asset prices soared, and yields thereby declined, large companies could issue bonds, with very low yields the proceeds from which they used to buy back shares, which then inflated share prices, and again boosted asset prices. The owners of fictitious capital became fixated with the capital gains to be had from these assets, and whenever interest rates rose, causing asset prices to crash, they have required central banks to step in to buy up those assets, using QE, so as to push the prices back up again. Liquidating paper capital gains has become the option of choice for the owners of fictitious capital, as a means of obtaining revenue rather than the actual revenue from the asset.

        Across the globe, that applies also to property. In Britain, as asset prices soared, property prices and land prices soared. As property prices soared, increasing numbers of people could not buy a house, those who had houses, found they could not move up the ladder to a better house, because the difference in price between their existing house and the better house they hope to move to had become unbridgeable. Increasing numbers were pushed into private renting, which meant that rents rose.

        But, even with these historically high levels of rents, as with dividend yields, the rental yields for landlords fell, because what they now had to pay for the properties they rented out rose by an even larger proportion. Rents rose to such a level that workers could not afford to pay them. So, the state had to massively increase its subsidies. It now pays out £9 billion a year in Housing Benefit to workers who otherwise would not be able to pay their rents, and that subsidy goes straight into the pockets of landlords. It is a direct drain from profits/surplus value that would otherwise have been available for real capital accumulation.

        But, landlords as with share and bondholders have become more interested in the capital gain they can obtain from rising property prices than the income they can obtain from rents. In London in particular, consortia of foreign investors now buy up or finance new property developments many of which are never occupied, and which, therefore, produce no rent. Rather like those currently buying German bunds at negative yields, what these speculators are concerned with is not the yield, but the potential future capital gain as these asset rise further in price, an expectation fuelled by the fact that whenever the stock and property market speculators complain, the central bank and governments respond by introducing more QE, reducing official interest rates to encourage commercial banks to borrow more form it to buy up bonds etc. so as to reflate those asset prices.

        But, it is unsustainable, as 2008 showed, and is why another bigger financial crash is inevitable. It is unsustainable, because without additional profits, which requires additional real capital, there becomes absolutely no basis for the asset prices, which are based upon capitalised revenues. The fictitious capital is necessarily subordinated to real capital.

        And, contrary to your argument, one of the side effects of the fact that in the West there has been this focus on inflating asset prices, rather than real capital accumulation, it has meant that real capital accumulation has been taking place elsewhere in the globe, which is why the working-class has expanded most rapidly in developing regions.

        And again contrary, to your assertion that these developing economies have in some way been channelled into producing only material goods, is also wrong, as the data I have provided previously demonstrates.

        And that is a good thing, because socialists should want these developing regions to grow as quickly as possible, because that is the basis of the workers there becoming more powerful, as the fundamental requirement for socialism. Equating capital investment by western businesses in these developing regions, with military intervention is rather silly. Developing economies require investment from developed economies, and large corporations, precisely because they are currently poor and require that external investment, as Lenin set out in attempting to get western firms to invest in the Soviet Union, and as Trotsky described in relation to Mexico.

        Marxists in the past have had no problem in distinguishing between this progressive role of capital investment as against militarism and military intervention. That equation between the two is something that has arisen as a result of the role of Stalinism and Third Worldism, which for its own reasons sought to oppose such investment and the influence that came with it.

        As Trotsky wrote, in relation to the Balkan Wars that preceded WWI.

        ““It is necessary to vindicate the possibility for these peoples themselves to settle their own affairs, not only as they wish and see fit but also by their own strength, in the land where they are established. This means that European democracy has to combat every attempt to subject the fate of the Balkans to the ambitions of the Great Powers. Whether these ambitions be presented in the naked form of colonial policy or whether they be concealed behind phrases about racial kinship, they all alike menace the independence of the Balkan peoples. The Great Powers should be allowed to seek places for themselves in the Balkan Peninsula in one way only, that of free commercial rivalry and cultural influence.”

  4. Boffy Says:

    Michael,

    It looks a very interesting read.

    I disagree with many of the points you have raised in relation to the arguments presented, but to save space I will, when I have time respond on my own blog. I will though, just highlight the points here, without further elaboration.

    1. “Marx held to this view and provided solid theoretical foundations for this; namely if value (and surplus value) is created only by the exploitation of labour power and if Marx’s general law of accumulation holds in that there is a tendency for the organic composition of capital to rise over time (ie capitalist invest more in machinery and technology relative to labour power); then the rate of profit will tend to fall.”

    In TOSV Marx says that this tendency is much less than it was said to be. He sets out that if the value of fixed capital, and materials falls proportionately, then there is no change in the organic composition of capital, and so no tendency. He then says that, indeed, the value of fixed capital can fall by an even bigger proportion, because it is a function of industrial production as machines produce machines, but that this is not true of materials, because they are the product of agriculture, or natural production. Its that which drives the rise in the occ, therefore, he says.

    But, that’s no longer true. Firstly agriculture has become highly capital intensive, as has mineral production, and at the same time, raw materials now form a small part of final production. There is then no reason that the value composition of capital should not fall at least proportionate to the rise in the technical composition.

    2. “Moreover, the counteracting factor of a rising rate of surplus value from the increased productivity of labour power using machinery will, over time, not match the rise in the organic composition and so the rate of profit will actually fall”

    This is not true, and Marx in his response to Hodgskin shows why its not true. The simple answer resides in the social working-day as opposed to the individual working-day. The argument you put forward is only true if we assume no increase in employment, and thereby of the social working-day. As Marx demonstrates, if the workforce expands then the mass of surplus value can expand without limit, and so too can the rate of surplus value.

    3. “Only the class struggle, bringing about a rise in the real wage, would counteract that and cause the rate of profit to fall.”

    It doesn’t depend on class struggle to bring about that condition. It only requires as Marx sets out in C2, Ch. 15 and in TOSV, that if firms do not invest in technological development, a constant technical composition eventually results in a shortage of labour and rise in wages, squeezing profits. The reason I think Basu is wrong, is that this squeeze on profits is different from the tendency for the rate of profit to fall, which Marx describes as being the consequence of the technological change brought in to deal with the squeeze on profits caused by rising wages.

    4. “But the argument that the real wage decides the direction of profitability is not Marx’s. Indeed, it is closer to Ricardo, which is why Okishio and previous theorists who argue something similar have been called ‘neo-Ricardian’.”

    I agree entirely. But,

    5. “There is no way that Marx’s theory of crisis can be reconciled with the ‘real wage’ or ‘profit squeeze’ theory of Ricardo.”

    I disagree entirely, because its quite clear from what Marx says in Ch 15, and in his further elaboration in TOSV, that he sees the overproduction of capital precisely in those terms that capital expands relative to the working population to such a degree that the workers cannot produce additional absolute surplus value, or relative surplus value,and the demand for labour causes wages to rise, so that rather than rising the amount of surplus value falls as capital expands. That is completely the opposite of what Marx describes in relation to the TFRPF, which he says is based upon the rate of surplus value rising as a result of rising social productivity, and fall in the value of labour-power, and a rising mass of surplus value!

    6. On underconsumption, Marx sets out in a number of places how crises can arise from underconsumption including his discussion on the replacement of fixed capital in Cap II. Marx describes how crises often arise when consumption is at a very high level, but he also sets out why the heterogeneous distribution of income, and thereby of demand, means that at these very high levels of consumption the elasticity of demand means that crises become more likely. It is not an actual reduction in consumption that is the basis of underconsumption, but a failure for consumption to expand at the same rate as supply.

    7. I agree with Panitch and Grindin that there is no single theory of crisis. There are theories of crisis, and an abstract theory of crises, but Marx himself in TOSV, Cha 17, says that each one must be analysed in its specifics.

    8. “There is no way around the ”monocausality” of crises.” We monocausal theorists have never denied that each crisis of capitalism does not have its own characteristics.”

    But, if the cause is the LRTPF, then its necessary to show the basis of its cyclicality, rather than its nature as simply a very slight long term tendency that in Marx’s words is for most of the time so small as to be indiscernible.

    9. “So credit injections and monetary easing may have kept capitalism from collapsing but essentially stagnation is the main theme – expressing the “structural problems of an ageing capitalism”.”

    But, the 2007/8 crash came at a time when the economy was growing. It was in fact a growing economy that led to rising wages, UK petrol tanker drivers getting a 14% rise after a strike of just a couple of days, for example, and rising interest rates. It was rising interest rates that burst the financial bubble, as they will again. QE has not prevented capitalism collapsing it has prevented asset prices collapsing again – for now – but at the expense of dragging money capital away from real investment, and thereby undermining economic growth, a desire that has been strengthened by austerity measures to further hold back growth to further restrict rises in interest rates.

    10. “Capitalists need finance and credit to invest in and exploit labour; it is more efficient to have specialised credit players then raise finance internally or just use previous profits.”

    This is a very strange and dangerous argument. It seems to present the argument that bourgeois apologists have put forward and that Marx himself argued against. It suggests, that we cannot have capital without their being capitalists who provide the capital from outside the system somehow. It suggests that there are money-capitalists who somehow dig into a cornucopia from where they pull out money capital to lend to industrial capitalists, rather than, as Marx describes the actual money-capital that those money-capitalists lend, itself being the product of past realised profits! It is on the one hand profits and other money reserves that companies throw into the money markets, and secondly the revenues paid to parasitic classes, which they have in excess of their consumption requirements, plus some of the wages of workers that the banks pool together.

    11. “But when profitability falls, capitalists try to switch into financial speculation and investment to sustain profitability (as in the 1980s onwards).”

    Except, in the 1980’s profitability was not falling, it was rising! In the 1960’s and 1970’s profitability was definitely falling. But the consequence was rising interest rates, and asset prices fell in inflation adjusted terms between 1965-1985, as a result. The big switch into financial assets did not come when profitability was falling, but when it was rising, and when that rising profitability caused interest rates to fall, and asset prices to rise. It has been massively rising asset prices, and the capital gains that went with it that led firms to speculate, especially when such speculation, after 1987 was backed by the Greenspan Put.

    Incidentally, it was no a collapse of profitability in 1987 or 1994 that caused the asset prices to crash, but a rise in interest rates.

    12. ““The basic point is that financial crises are caused by the shrinking productive base of the economy.”

    Actually, as Marx describes, usually they are not. Usually, they crash as a result of interest rates rising, and those interest rates rise because of more rapid economic growth, such that the demand for money-capital exceeds the supply. That was also the case in 1848, as described by Marx and Engels, and the same was true of 2008.

    • antonio Says:

      ¡16 quotes to K. Marx and his work (paragraph by paragraph) in his last comment and 12 quotes in the previous one¡. Have you not realized that your job, the position of copyist-Amanuense of the work of K. Marx, was extinguished, disappeared, became obsolete, in the fifteenth century (1,440) with the printing of J. Gutenberg? Also, have you not realized that its massive, extreme and unpleasant use of the authority argument (quotes from K. Marx) is the one of the worst possible arguments to validate a thesis or a reasoning? And that this argument for the use of an authority is the argument most frequently and thoroughly used by priests (and altar boys) of any religion (quotes from Jesus, Muhammad, Saints, etc …). Finally, what is your goal: to be a socialist or a priest of K. Marx?
      Regards,

      • jlowrie Says:

        At a first reading Antonio’s observations will no doubt attract assent, but one has to be careful. In expounding an argument, where one deems Marx to have best analysed the issue, there is surely no point in reproducing his analysis in one’s own words, rather than directing the reader to the locus classicus.

        For example, I have on occasion criticised Michael, Boffy and others for their use of the concept ‘bourgeois democracy,’ arguing that there is no such political institution, and that what they call ‘bourgeois democracy’ is rather to be called ‘moderate oligarchy.’ Here I appeal to the authority of Aristotle not because I regard his writings as sacred texts, but because his analysis in ”The Politics” is of stupendous scientific rigour and insight. He ridicules the proposition that ‘democracy’ means the rule of the majority, and points out that the mark of a democracy is selection by lot. But it is clearly impossible for me to reproduce his arguments at length every time I refer to statements.

      • Boffy Says:

        J,

        Also the fact of the printing press, and subsequent printing of books did not mean that anyone actually then read the books that had been printed. It certainly did not mean that everyone had read every book ever printed, or even every book on a particular subject of interest to them, or under discussion.

        I have certainly not read everything written by Marx, even yet, after more than 40 years of study, and I’m always grateful when someone points me in the direction of some particular work, that I have not previously read, and sometimes to things I have read many years ago, but which I had forgotten about.

        Indeed, I first started reading Capital when I was 14, and I’ve re-read it every five years since then, and I discover new things in it today, that I didn’t pick up on the previous time I read it, let alone when I first read it, and some of that is due to the framing of what you read being changed in the context of new understanding of other elements of Marx’s work, some of which comes from discussions with other people, or simply reading what other people have said about it.

        Indeed, its clear to me that there are many people who have actually never read Capital itself, but only other people’s interpretations of it, and given that many of those interpretations come from people who are themselves members of various sects, or worse still members of Stalinised communist parties that have systematically bowdlerised Marx’s work in the service of Stalinist regimes, those interpretations, even when not deliberate falsifications, are hampered by confirmation bias, and unconscious framing of arguments to fit with the particular political positions adopted by the sects they belong to.

        That is why I began my own books on Capital, by saying that no one should take my own interpretation as gospel, but should go to the original work and read it themselves, but trying to assist that process of learning, by trying to explain what various sections actually mean, with appropriate reference to Marx’s writings elsewhere to support that interpretation, is a vital part of any process of learning.

    • Boffy Says:

      I have previously dealt with the question of the US rate of profit, and whether what is being seen is a squeeze as opposed to a manifestation of Marx’s long term tendency – here.

      It is quite clear, even from the data that Michael provides in the charts as set out in that post that what is being witnessed is a squeeze on profits rather than Marx’s long-term tendency. The long-term tendency would require that first there has been a strong rise in intensive accumulation, i.e. an investment of large amounts of labour-saving technologies, with a corresponding rise in the accumulation of capital in general, a corresponding rise in productivity, and in the rate of surplus value, and mass of profit.

      But, Michael’s own charts show the exact opposite! What we have is a typical Smithian, if not yet, Ricardian squeeze on profits. In other words, as Marx describes in TOSV Ch17, according to Smith, capital accumulates faster than labour supply. Wages rise and profits get squeezed. Ricardo’s variation on that is labour supply rises, but the additional demand then for food means diminishing returns on the land set in, the value of labour-power rises, profits get squeezed.

      As Marx sets out in TOSV, Chapter 21. Hodgskin adopts the same framework. He assumes that labour supply/employment is constant, and on that basis, with rising amounts of capital to labour concludes that its impossible to produce enough surplus value from the labour to be able to continue to increase the rate of surplus value, and so rate of profit.

      Marx shows this is wrong, precisely because a) labour supply does rise, b) the introduction of labour-saving technologies means that labour supply does not need to rise proportionate to capital c) rising productivity reduces the value of capital, and of labour-power so that i) the rate of surplus value rises, and ii) the mass of surplus value rises as more labour is employed, and iii) the falling value of capital means that any given mass of surplus value represents a higher rate of profit, contra the Ricardians who conflate rate of surplus value with rate of profit.

      Marx says, in Chapter 21, there is no reason why £8,000 of capital employing 8 workers should not produce £800 of profit, whereas £1,000 of capital employing 1 worker produces only £100 of profit, and why, therefore, the rate of profit in both cases will not be 10%.

      Read Chapter 21 in this section dealing with Hodgskin in conjunction with C3, Chapter 15 on the overproduction of capital, and you will see that they are dealing with the same thing, i.e. an overproduction of capital as an expansion of the mass of capital in excess of the available supply of labour, so that the social working-day cannot be expanded further, and so absolute surplus value cannot be expanded. In Ch 21 Marx gives an example that I have reproduced in my blog post today setting this out.

      Moreover, as Marx also describes, at such a point, because at such a point the supply of labour is in relative short supply, it is not possible either to increase the rate of surplus value by reducing wages, because competition between capitals actually drives wages higher, thereby reducing relative surplus value.

      “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…

      There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”

      This is precisely what Marx means by a crisis of overproduction of capital, as the mass of capital rising faster than the supply of labour, so that absolute surplus value cannot be expanded, and relative surplus value is squeezed by rising wages. Its precisely that which leads to crises, not the LRTPF.

      On the contrary, its because this crisis can only be resolved by creating a relative surplus population, by raising social productivity, that the answer lies in then introducing labour-saving technology. The labour-saving technology is the basis of Marx’s Law, because it a) increases the mass of capital, b) increases the proportion of c:v, by raising productivity, c) raises the rate and mass of surplus value, d) releases capital and labour that eventually gets employed in new higher profit spheres of production, which in turn act to validate the old production, as also described in the Grundrisse.

      THE LRTPF is not the cause of crises, but the mechanism by which they are resolved.

      • vk Says:

        Except that wages are not rising. They are rising (barely) from a lower pre-2008 base; but they are still overall lower than the pre-crisis level.

        Profit squeeze (as you use it) is just another name for capitalism being unable to revolutionize the productive forces.

        You’re wrong when you state Marx’s Law only applies when the OCC is rising. He warned his readers that, oftentimes, the rate of exploitation remains the same or can even rise while the profit rates declines — but that is not necessarily always the case. The Law is secular, so you cannot analyze isolated cycles of capitalism to confirm or refute it.

        Crises may be cyclical or structural. Cyclical crises may be, when analyzed isolated, considered independent of the TPRF. But not structural ones: those can only be explained by Marx’s Law.

        Overproduction and underproduction are used by Marx when determining the market price. Market price is only used to determine the social necessary labor time to produce a given commodity. It is then used as a base to determine the social rate of profit (and the prices of production). When the market price = price of production, then supply=demand in Marxist terms (i.e. from the point of view of capital) — which, by the way, Marx himself recognized rarely (accidentaly) happened. It is completely irrelevant to determine crises.

      • Anti-Capital Says:

        In keeping with the wonderful tradition of quote-mining, practiced repetitively by Boffy, a few quotes from Marx:

        1, “Since this law is of great importance to capitalist production, it may be said to be a mystery whose solution has been the goal of all political economy since Adam Smith, the difference between the various schools since Adam Smith having been in the divergent approaches to a solution. When we consider, on the other hand, that up to the present political economy has been running in circles round the distinction between constant and variable capital, but has never known how to define it accurately; that it has never separated surplus-value from profit, and never even considered profit in its pure form as distinct from its different, independent components, such as industrial profit, commercial profit, interest, and ground-rent; that it has never thoroughly analysed the differences in the organic composition of capital, and, for this reason, has never thought of analysing the formation of the general rate of profit — if we consider all this, the failure to solve this riddle is no longer surprising.” Capital Vol 3

        2. “We again meet here the previously defined law that the relative decrease of the variable capital, hence the development of the social productiveness of labour, involves an increasingly large mass of total capital to set in motion the same quantity of labour-power and squeeze out the same quantity of surplus-labour. Consequently, the possibility of a relative surplus of labouring people develops proportionately to the advances made by capitalist production not because the productiveness of social labour decreases, but because it increases. It does not therefore arise out of an absolute disproportion between labour and the means of subsistence, or the means for the production of these means of subsistence, but out of a disproportion occasioned by capitalist exploitation of labour, a disproportion between the progressive growth of capital and its relatively shrinking need for an increasing population.” Capital, Vol 3

        3.”The rate of profit is calculated on the total capital invested, but for a definite time, actually a year. The rate of profit is the ratio of the surplus-value, or profit, produced and realised in a year, to the total capital calculated in per cent. It is, therefore, not necessarily equal to a rate of profit calculated for the period of turnover of the invested capital rather than for a year. It is only if the capital is turned over exactly in one year that the two coincide.” ibid

        4.. “Thus, in the same proportion as capital takes up a larger place as capital in the production process relative to immediate labour, i.e. the more the relative surplus value grows – the value-creating power of capital – the more does the rate of profit fall. We have seen that the magnitude of the capital already presupposed, presupposed to reproduction, is specifically expressed in the growth of fixed capital, as the produced productive force, objectified labour endowed with apparent life. The total value of the producing capital will express itself in each of its portions as a diminished proportion of the capital exchanged for living labour relative to the part of capital existing as constant value.” Grundrisse, Chapter 15

        5. ” The rate of profit can rise although real surplus value falls. Indeed, the capital can grow and the rate of profit can grow in the same relation if the relation of the part of capital presupposed as value and existing in the form of raw materials and fixed capital rises at an equal rate relative to the part of the capital exchanged for living labour. But this equality of rates presupposes growth of the capital without growth and development of the productive power of labour. One presupposition suspends the other. This contradicts the law of the development of capital, and especially of the development of fixed capital.” ibid

        6. “This is in every respect the most important law of modern political economy, and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint. It is a law which, despite its simplicity, has never before been grasped and, even less, consciously articulated. Since this decline in the rate of profit is identical in meaning (1) with the productive power already produced, and the foundation formed by it for new production; this simultaneously presupposing an enormous development of scientific powers; (2) with the decline of the part of the capital already produced which must be exchanged for immediate labour, i.e. with the decline in the immediate labour required for the reproduction of an immense value, expressing itself in a great mass of products, great mass of products with low prices, because the total sum of prices is = to the reproduced capital + profit; (3) [with] the dimension of capital generally, including the portion of it which is not fixed capital; hence intercourse on a magnificent scale, immense sum of exchange operations, large size of the market and all-sidedness of simultaneous labour; means of communication etc., presence of the necessary consumption fund to undertake this gigantic process (workers’ food, housing etc.); hence it is evident that the material productive power already present, already worked out, existing in the form of fixed capital, together with the population etc., in short all conditions of wealth, that the greatest conditions for the reproduction of wealth, i.e. the abundant development of the social individual – that the development of the productive forces brought about by the historical development of capital itself, when it reaches a certain point, suspends the self-realization of capital, instead of positing it.

        Beyond a certain point, the development of the powers of production becomes a barrier for capital; hence the capital relation a barrier for the development of the productive powers of labour. When it has reached this point, capital, i.e. wage labour, enters into the same relation towards the development of social wealth and of the forces of production as the guild system, serfdom, slavery, and is necessarily stripped off as a fetter. The last form of servitude assumed by human activity, that of wage labour on one side, capital on the other, is thereby cast off like a skin, and this casting-off itself is the result of the mode of production corresponding to capital; the material and mental conditions of the negation of wage labour and of capital, themselves already the negation of earlier forms of unfree social production, are themselves results of its production process. The growing incompatibility between the productive development of society and its hitherto existing relations of production expresses itself in bitter contradictions, crises, spasms. The violent destruction of capital not by relations external to it, but rather as a condition of its self-preservation, is the most striking form in which advice is given it to be gone and to give room to a higher state of social production. It is not only the growth of scientific power, but the measure in which it is already posited as fixed capital, the scope and width in which it is realized and has conquered the totality of production…

        “Since this decline of profit signifies the same as the decrease of immediate labour relative to the size of the objectified labour which it reproduces and newly posits, capital will attempt every means of checking the smallness of the relation of living labour to the size of the capital generally, hence also of the surplus value, if expressed as profit, relative to the presupposed capital, by reducing the allotment made to necessary labour and by still more expanding the quantity of surplus labour with regard to the whole labour employed. Hence the highest development of productive power together with the greatest expansion of existing wealth will coincide with depreciation of capital, degradation of the labourer, and a most straitened exhaustion of his vital powers. These contradictions lead to explosions, cataclysms, crises, in which by momentaneous suspension of labour and annihilation of a great portion of capital the latter is violently reduced to the point where it can go on. These contradictions, of course, lead to explosions, crises, in which momentary suspension of all labour and annihilation of a great part of the capital violently lead it back to the point where it is enabled [to go on] fully employing its productive powers without committing suicide. [21] Yet, these regularly recurring catastrophes lead to their repetition on a higher scale, and finally to its violent overthrow.”

        I can do more, but you get the idea, “most important law” – leading to crises, explosions, cataclysms… It’s painfully clear to most casual observer that Marx regards this law as the condensed expression of the conflict at the heart of capital.

      • Boffy Says:

        “Except that wages are not rising. They are rising (barely) from a lower pre-2008 base; but they are still overall lower than the pre-crisis level.”

        Firstly, the question is are profits being squeezed, and if so compared to when. The argument Michael has put forward here is that, the rate of profit has been falling for the last three years. So, to explain that in terms of a squeeze due to rising wages, its only necessary to show that wages have been rising during that three year period. Whether they are higher or lower than prior to 2008 is irrelevant in that respect.

        Secondly, the relevant figure for wages here is not the hourly or weekly wage rate, but the total amount laid out for wages. Even if the hourly wage remains constant, if proportionally more labour is employed relative to the increase in output value (which is a function of both variable and constant capital) then the wage share in total output value will rise, and the share of surplus value in total output value will fall. That was seen clearly in the 1960’s and 1970’s.

        “You’re wrong when you state Marx’s Law only applies when the OCC is rising.”

        Totally, wrong. It is the whole basis of Marx’s Law! It is what he specifically sets out as differentiating his law from that of Smith and Ricardo. It is precisely what is the basis of his determination of the calculation of an average annual rate of profit (along with variations between spheres in the rate of turnover), and of the formation of prices of production. It is precisely because the rate of profit falls where the OCC is higher than average, (or where the rate of turnover is higher than average) and vice versa that makes it into the most important law, because it is that which determines the allocation of capital across the economy.

        The rate of profit is higher where the occ is lower than the average or rate of turnover higher, and that results in capital accumulating faster in that sphere, so that supply rises faster than demand causing markets prices to fall until they reach the average profit, and vice versa.

        “He warned his readers that, oftentimes, the rate of exploitation remains the same or can even rise while the profit rates declines — but that is not necessarily always the case. The Law is secular, so you cannot analyze isolated cycles of capitalism to confirm or refute it.”

        But, Marx goes out of his way to say that his Law is distinguished from that of others by the very fact that it IS based upon a higher rate of exploitation, and he says that his predecessors had gone into all sorts of acrobatics to try to show the opposite that it depended on a falling rate of surplus value. He says that is so because it is based upon rising productivity, which raises the rate of surplus value, but that same rise in productivity means that a given mass of labour processes a proportionately greater mass of raw material so that the technical composition of capital rises c:v.

        That is what causes the OCC to rise, but, he again emphasis it does not rise by as much as the technical composition, precisely because the rise in productivity also reduces the unit value of the raw material processed.

        The law is indeed secular and not cyclical, and Marx says that its effects are so imperceptible that they can only be seen after very long periods. He suggested at least requiring seven years to be seen. Moreover, as he points out, in the meantime there is actually no such thing as an average rate of profit, other than as an abstraction, and so at any one time, the rate of profit in different spheres varies considerably one to another, and even where the OCC changes, there may be no change in the actual rate of profit in that sphere, because it takes time for additional capital to accumulate in those spheres where the rate is higher than the average.

        But, its precisely because the law is secular and not cyclical that its impossible to explain cyclical crises on the back of it! It is possible to explain cyclical crises of overproduction on the basis of the long wave cycle, and of squeezes on profits caused by either a rise in the value composition of capital (for example as Marx describes in TOSV, the value of materials rises, because as Ricardo describes existing resources suffer from diminishing returns, requiring long-term investment in new lands, mines, and infrastructure to be undertaken, to resolve it, (see for example TOSV, Chapter 9, on Marx’s analysis of long wave 50 year movements in agricultural prices), or because of a falling rate of surplus value as productivity drops, or wages rise). That is so because, these cyclical movements are determined by endogenous factors, in relation to population growth, changes in technology and innovation etc.

        Your final paragraph I’m afraid makes no sense. Marx does not use overproduction and underproduction in relation to variations in market prices, which are a consequence of simply short term changes in demand and supply that even out over a given period. Indeed, Marx says that the normal condition for all modes of production is overproduction, because without overproduction there is no surplus product and so not potential for accumulation. The question then is, he says, why such overproduction results in crises specifically under capitalism rather than other modes of production, indeed not just under capitalism, but only under capitalism at a particular stage of its development. For example, there was overproduction during the period of capitalism’s development from the 14th century onwards, and was necessary for their to be capital accumulation, but there were no crises of overproduction. The first crisis of overproduction does not arise until 1825.

        I don’t know what social rate of profit means, or how you think its determined by market prices, or how this might then be the basis of prices of production. To the extent I understand what you mean by that, it is completely the wrong way around. It is the calculation of the average annual rate of profit that makes possible the calculation of prices of production, and it is prices of production that are the locus around which market prices revolve on the basis of changes in demand and supply.

      • Boffy Says:

        Correction:

        In para 5 above, it should read “where the rate of turnover is lower than average”. In case I’ve made a similar error in other paragraphs, the basis law is that the rate of profit is higher where the OCC is lower, and assuming the same OCC, the rate of profit is higher where the rate of turnover is higher.

        That is because for both reasons a given amount of capital employs proportionately more labour, which thereby produces proportionately more surplus value, which thereby constitutes a greater proportion of output value, and higher proportion of the capital advanced.

  5. samgindin Says:

    Hi Michael,

    Happy to see you engaging our piece on crisis theory! Though Leo and I disagree with your take, we’ve both always respected your serious work on this and other issues. It may be useful to briefly clarify three inter-related issues: defining what we mean by ‘crises’; whether recurrent crises necessarily imply an underlying mono-cause; and the empirical record.

    The concern of Leo and I in addressing ‘crises’ are not the more or less regular ups and downs of capitalism such as the multiple recessions since WWII. We are rather referencing the few *structural *interruptions in accumulation that have historically occurred in capitalism – the crisis at the end of the19th century, the Great Depression, the crisis of the 70s and the 2007-9 crisis. By ‘structural’ we mean that there was no relatively self-correcting (albeit disruptive) mechanism at work. Whether the barriers capitalism confronted in these distinct historical periods could be overcome depended on qualitative institutional innovations or dramatic shifts in the balance of class forces.

    As we argued in the piece, this doesn’t mean replacing theory with eclecticism but including history – the changing history of capitalist development in our theory (i.e. *historical* materialism). Carchedi is right to ask whether a recurrent pattens of crises doesn’t suggest some underlying cause, but a) note that we’re not talking about repeated sessions but relatively rare events in different epochs of capitalism with those differences being critical; and b) the underlying ’cause’ is the dynamics of a system based on fragmented private property, competition, and class struggle all of which tend to keep throwing up barriers to accumulation and so whether recurrent structural crises are inevitable or not, they are certainly likely.

    As for the empirical record, Leo and I certainly agree that profits are a critical focus for addressing the trajectory of the economy (as do many bourgeoise economists). In the case of the crisis at the end of the 60s and into the 70s, Leo and I- were less interested in *why* there was a downturn – downturns obviously aren’t unusual within capitalism but why this downturn *persisted* rather than corrected itself. This involved bringing in the class struggle – the refusal of workers to accept reversals in working conditions and wages sufficient to restore profits (while demanding more social protections). The crisis was only resolved through breaking the class power of workers. In the case of the breakdown that began in 2007-8, working class strength wasn’t a factor and you are correct in noting that profits peaked* before * the breakdown in 2007/2008. But the profit dip was from a high level and not major and besides, as your own graphs show, there were other such peaks in earlier years that *didn’t* lead to a major breakdown. So the critical questions are why then, why was the breakdown so profound, and how was it overcome (re the latter, the standard answer of the ‘devaluation of capital’ is not all that helpful). And what this demands is seriously integrating the transformations in finance (including the fragile status of a weak, debt-dependent working class) and the role of the American state.

    I don’t mean to suggest that your nuanced analysis excludes all this and to reiterate, Leo and I do appreciate the centrality of profits in a capitalist economy – so there is much we share analytically. Yet a significant gap remains in the differences between us in the questions posed, approach to theorizing capitalism, and reading of the empirical and historical record.

    p.s. having major computer problems. please excuse any garbled passages.

    On Tue, Aug 6, 2019 at 9:43 AM Michael Roberts Blog wrote:

    > michael roberts posted: “The Oxford Handbook of Karl Marx, edited by Matt > Vidal, Tomas Rotta, Tony Smith and Paul Prew, brings together a series of > chapters by prominent Marxist scholars covering all aspects Marxist theory, > from historical materialism, dialectics, political econo” >

    • michael roberts Says:

      Dear Sam (and Leo)

      Thanks very much for your considered comments on my post. I appreciate you clarifying what you mean by crises, which I take to mean are certain periods of major structural change, not just ‘normal cyclical recessions’. This seems to be similar to the Social Structure of Accumulation approach with which I have some sympathy. I agree that there are (rare) periods which differ from ‘normal’ recessions that are ‘self-correcting’ and I argued as such in my book, The Long Depression. And they are the same periods you distinguish. In these periods, capitalism finds it very difficult to recover and only does so by war (revolutions) and/or successive recessions.

      And of course political action that flows from these crises is very important. However, I don’t think the key factor in this is the class struggle as such. I think it lies in the fundamental (economic) contradiction between the capitalist drive for profit and capital accumulation over production for peoples needs. That contradiction leads to repeated crises and cannot be resolved without ending the contradiction through class struggle.

      You agree that profits are the critical focus for understanding the trajectory of the economy. And that is why Marx considered his law of the tendency of the rate of profit to fall the most important in political economy and historically. And it is why trying to measure profitability as best we can is necessary. We may disagree on the data and the consequences, as we do, but at least it is a scientific approach.

      I look forward to meeting up with you guys at future events.

      best Michael

  6. Timothy Fay Says:

    “We monocausal theorists have never denied that each crisis of capitalism does not have its own characteristics” is a double negative and seems to be the opposite of what you want to say. Also, an easy refutation of the “rise in profit from technological advancement” would be that the rate of profit DOES increase AT FIRST for firms adopting the new tech due to the nature of commodities. Since value comes from the average necessary labor time, the average doesn’t change much when one firm increases productivity and produces more value per input in capital than before. But, as other firms adopt the new tech, the average time decreases (labor saving tech) and the corporations then have no advantage, and less new value is being created per capital input.

  7. Nadim Mahjoub Says:

    Please, add the miss word in the fourth paragraph, fourth line.

  8. Boffy Says:

    Michael,

    I understand that you have passed my e-mail address on to Sebastian Budgen of Historical Materialism, who has expressed interest in publishing my own book on Marx and Engels’ Theories of Crisis in a Verso print version, as part of their Historical Materialsm series.

    Sebastian has been in touch with me about that, which was fortuitous, because I was about to produce a second, updated edition, and many people of contacted me about doing a print version.

    So, thanks for that.

  9. mhartwig2015 Says:

    “all the Marxist authors discussing crises under capitalism in the Handbook are determined to trash Marx’s law of profitability as an explanation, in favour of others or deny that there is any general theory of crises at all.”

    Marxism after Marx has mostly been nothing more than a sup-plot of the main bourgeois story. Are they revolutionaries or not?

  10. Boffy Says:

    The LTRPF and Crises
    In Capital III, Chapter 15, Marx sets out what he means by a crisis of overproduction of capital.
    “There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”
    This is consistent with what he says in TOSV, Chapter 21, in his discussion of Hodgskin. In other words, Hodgskin’s theory of a falling rate of profit was essentially, Smithian. He assumes that labour supply is constant, but the capital per worker grows. The length of working day is limited, so at a certain point a fixed number of workers can produce no additional surplus value, and so surplus value as a proportion of total laid out capital must fall, i.e. the rate of profit falls, as Smith had suggested. Hodgskin develops the argument by saying that, of course, in practice, the labour supply does rise, so if the technical composition of capital were to remain constant, this large number of workers would produce more surplus value. As Marx says, if the technical composition remains constant, and if the number of workers increases proportionately, there is no basis for any fall in the rate of profit, because surplus value rises proportionately to the laid out capital. However, as Hodgskin says, in line with his Ricardian model, this increased mass of labour requires more food; more land must be cultivated, diminishing returns set in food and other agricultural prices rise, causing the value of labour-power and wages to rise, so the rate of surplus value falls squeezing profits, rents also rise along with rising agricultural prices, further squeezing profits.
    Marx points out, in Chapter 21, that, in fact, on the basis of Malthus projections for population growth, it could not grow fast enough to meet the increased mass of capital. The demand for labour would rise faster than the supply, and so wages would rise. This is essentially the same argument and scenario for a crisis of overproduction that Marx sets out in C3, Ch 15 above.
    In other words, the crisis of overproduction of capital arises, because capital grows faster than labour supply. It means that the rate of surplus value, thereby falls, because wages rise. Is this definition of a crisis of overproduction, set out by Marx in C3, Ch 15, and in TOSV, Ch. 21, consistent with his definition of the LRTPF? No, of course it isn’t. His definition of a crisis of overproduction is one in which productivity if it grows, does so slowly, whilst, and as a consequence, the supply of labour does not rise proportionate to the increase in the mass of capital. As the mass of immediate labour does not grow fast enough, it is not possible, as Hodgskin correctly says, and as Marx explains for this labour to work enough hours in the day to increase the mass of absolute surplus value, so that at a certain point, it grows no further, so that profits are squeezed. Indeed, as Marx explains the demand for labour causes wages themselves to rise at the expense of profits causing profits to be squeezed further.
    In other words, we have a slow rise in productivity, and we have a fall in the rate of surplus value, as the value of labour-power rises, and wages themselves rise. That is the opposite of Marx’s law of the falling rate of profit, which he explains is based upon, rising productivity, brought about by a rise in the use of labour-saving fixed capital, which creates a realtive surplus population, so that wages are driven down, and a reduction in the value of labour-power, caused by cheaper wage goods, which thereby increases relative surplus value. As Marx says, his law his characterised as follows:
    “The rate of profit does not sink because the labourer is exploited any less, but because generally less labour is employed in proportion to the employed capital.”
    But, all of the above description of a crisis of overproduction involves the labourer being exploited less. It involves a fall in the rate of surplus value, and in TOSV, in explaining crises of overproduction, Marx also explains the role played by rising material costs, due to a similar increase in demand as capital expands. He sets that out at length in TOSV Ch. 12 and after, as well as in C3, Ch. 6.
    So, how does Marx explain the way that the crisis of overproduction is resolved. He sets it out in C3, Ch. 15.
    “But the equilibrium would be restored under all circumstances through the withdrawal or even the destruction of more or less capital. This would extend partly to the material substance of capital, i.e., a part of the means of production, of fixed and circulating capital, would not operate, not act as capital…”
    In TOSV, Marx emphasises that the main consideration here is not the physical destruction of capital, but the destruction of its value.
    “When speaking of the destruction of capital through crises, one must distinguish between two factors.” (TOSV2 p 495)

    “A large part of the nominal capital of the society, i.e., of the exchange-value of the existing capital, is once for all destroyed, although this very destruction, since it does not affect the use-value, may very much expedite the new reproduction. ” (Theories of Surplus Value 2 p 496)

    This capital is then picked up on the cheap by other capitalists and put to work, now making a higher rate of profit following the depreciation of its value.

    In Ch. 15, Marx continues,

    “Part of the commodities on the market can complete their process of circulation and reproduction only through an immense contraction of their prices, hence through a depreciation of the capital which they represent. The elements of fixed capital are depreciated to a greater or lesser degree in just the same way…

    The stagnation of production would have laid off a part of the working-class and would thereby have placed the employed part in a situation, where it would have to submit to a reduction of wages even below the average. This has the very same effect on capital as an increase of the relative or absolute surplus-value at average wages would have had. Prosperity would have led to more marriages among labourers and reduced the decimation of offspring.”

    So, now we have a rectification of the squeeze on profits caused by higher prices for materials resulting from a fall in all commodity prices, and from higher wages, as a result of unemployment, and rising population causing downward pressure on wages. But, these are just immediate effects of the crisis. Marx points out that longer term effects come into play.

    “the fall in prices and the competitive struggle would have driven every capitalist to lower the individual value of his total product below its general value by means of new machines, new and improved working methods, new combinations, i.e., to increase the productivity of a given quantity of labour, to lower the proportion of variable to constant capital, and thereby to release some labourers; in short, to create an artificial over-population.”

    In other words, one way that each firm responds to the squeeze on profits is to reduce its own costs, and a main way of doing that is precisely to introduce new labour-saving technologies, and to engage in a search for such technologies where they do not currently exist. It is the introduction of the new technologies, which then create the longer term tendency for the the demand for labour to be relatively reduced. It is that, which puts more permanent downward pressure on wages, beyond the immediate effects of the crisis, and which is the basis, also for a fall in the value of labour-power, and rise in the rate of surplus value. It is that, which means that productivity rises, so that a given mass of labour, processes a greater mass of material, i.e. that creates the conditions required for Marx’s law of falling profits.

    “Ultimately, the depreciation of the elements of constant capital would itself tend to raise the rate of profit. The mass of employed constant capital would have increased in relation to variable, but its value could have fallen. The ensuing stagnation of production would have prepared — within capitalistic limits — a subsequent expansion of production.”

    So, the rise in productivity reduces the value of materials, the new technologies bring about a moral depreciation of the existing fixed capital stock, and all this as it then plays out in the subsequent stagnation phase, creates the basis for a rise in the rate of profit, a further accumulation of capital, and for the cycle to repeat once more.

    In other words, as I said previously, the cause of cyclical crises of overproduction of capital is a squeeze on profits that arises cyclically due to the working of the long wave cycle and the endogenous movements of population growth, extensive accumulation of capital leading to cycles of rising, stagnant and falling productivity growth, with consequent effects on commodity prices and wages, which cause squeezes on profits due to rising material costs (rise in the unit value of constant capita), and rising wages, falls in the rate of surplus value. That in turn provokes a response from capital, to find new sources of primary products – itself requiring around 13 years to complete – and alternative materials, means of utilising materials, which requires technological developments. When the squeeze on profits eventually becomes acute, as in the 1970’s, it leads to new technological innovations to replace labour. That sets in place the conditions described above by Marx, in which the mass of capital and profit rises, the rate of surplus value rises, productivity rises, but the rate of profit falls.

    In short, the Marxian law of falling profits arises in conditions brought about to resolve crises of overproduction of capital. It is the means by which those crises are resolved, not the cause of the crises themselves.

  11. Boffy Says:

    I have set out in a post today why Monocausalism and Malthusian/Keynesian Undeconsumptionism are twins.

  12. Boffy Says:

    What has happened to my last three comments?

  13. Robert Gislason Says:

    The link to your book, Marx 200, seems to be broken.

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