# US rate of profit measures for 2018

Every year, I look at measuring the US rate of profit a la Marx.  Official data are now available in order to update the measurement for 2018 (not 2019 yet!). As usual, if you wish to replicate my results, I again refer you to the excellent manual for doing so, kindly compiled by Anders Axelsson from Sweden.

There are many ways to measure the rate of profit a la Marx (for the various ways, see http://pinguet.free.fr/basu2012.pdf). As previously, I start with an update of the measure used by Andrew Kliman (AK) in his book, The failure of capitalist production. AK measures the US rate of profit based on corporate sector profits only for the numerator and uses the historic cost measure of net fixed assets as the denominator (ie s/C).  AK considers this measure as the closest to Marx’s formula, namely that the rate of profit should be based on the advanced capital already bought (thus historic costs) and not on the current cost of replacing that capital.

Marx approaches value theory temporally so the value of the denominator in the rate of profit formula is at t1 and should not be changed to the value at t2. To do the latter is ‘simultaneism’, leading to a distortion of Marx’s value theory.  For more on this, see AK’s book, Reclaiming Marx’s Capital.  This seems correct to me. But the debate on this issue of measurement continues and can be found in the appendix in my book, The Long Depression, on measuring the rate of profit.

What are the results of the AK version for the US rate of profit up to 2018?

First, the AK measure confirms Marx’s law in that there has been a secular decline in the US rate of profit since 1946 (27%) and since 1965 (31%).  But also interesting is that, on AK’s measure, the rate of profit in the US corporate sector has risen since the trough of 2001 (17%).  Indeed, the Great Recession of 2009 did not see a fall below that 2001 trough. So the 2000s appear to contradict the view of a ‘persistent’ fall in the US rate of profit. I’ll consider some explanations for this later in this post.  But even so, on AK’s measure, the US rate of profit has not returned to the level of 2006 and in 2018 is some 18% below.

Readers of my blog and other papers know that I prefer to measure the rate of profit by looking at total surplus value in an economy against total private capital employed in production; to be as close as possible to Marx’s original formula of s/C+v. So I have a ‘whole economy’ measure based on total national income (less depreciation) for surplus value; net non-residential private fixed assets for constant capital; and adding in employee compensation for variable capital (AK does not do this).  This is what might be called a general rate of profit.

Most Marxist measures exclude any measure of variable capital on the grounds that employee compensation (wages plus benefits) is not a stock of invested capital but a flow of circulating capital.  And this cannot be measured (easily) from available data. I don’t agree that this is a restriction and G Carchedi and I have an unpublished work on this point.  However, given that the value of constant fixed capital compared to variable capital is five to eight times larger (depending on whether you use a historic or current cost measure), the addition of a measure of variable capital to the denominator does not change the trend or turning points in the rate of profit significantly. This also applies to the rest of circulating capital ie. inventories (the stock of unfinished and intermediate goods). They should and could be added as circulating capital to the denominator for the rate of profit, but I have not done so as the results would be little different.

Brian Green has done some powerful work in measuring circulating capital and its rate of turnover for the US economy in order to incorporate it into the measure of the rate of profit.  He considers this vital to establishing the proper rate of profit and also as an indicator of likely recessions. You can consider the usefulness of Green’s work at his website here:  https://theplanningmotive.com/ . All I would say now is that adding circulating capital to fixed assets in the denominator does not make much difference to the outcome for measuring the US rate of profit.

Anyway, on my ‘whole economy’ measure, the US rate of profit since 1946 to 2018 looks like this.

I have included measures based on historic (HC) and current costs (CC) for comparison.  What this shows is that the current cost measure hit its low in the early 1980s and the historic cost measure did not do so until the early 1990s. Why the difference? Well, Basu (as above) has explained. It’s inflation. If inflation is high, as it was between the 1960s and late 1980s, then the divergence between the changes in the HC measure and the CC measure will be greater. When inflation drops off, the difference in the changes between the two HC and CC measures will narrow.  From 1965 to 1982, the US rate of profit fell 20% on the HC measure, but 35% on the CC measure.  From 1982 to 1997, the US rate of profit rose just 9% on the HC measure, but rose 29% on the CC measure.  But over the whole post-war period up to 2018, there was a secular fall in the US rate of profit on the HC measure of 30% and on the CC measure 30%!

The data confirm Marx’s explanation of the trends in profitability.  According to Marx, the driver of changes in US profitability depends on the relative movement of two Marxian categories in the accumulation process: the organic composition of capital (C/v) and the rate of surplus value (exploitation) (s/v).  Since 1965, there has been the secular rise in the organic composition of capital (HC measure) of 60%, while the main ‘counteracting factor’ in Marx’s law of the tendency of the rate of profit to fall, the rate of surplus value, has actually fallen over 9%.  So the rate of profit fell 30%. Conversely, in the so-called ‘neo-liberal’ period from 1982 to 1997, the rate of surplus value rose 16%, more than the organic composition of capital (11%), so the rate of profit rose 9%.  Since 1997, the US rate of profit has fallen around 5%, because the organic composition of capital has risen nearly 17%, outstripping the rise in the rate of surplus value (4%).

One of the compelling results of the data is that each economic recession in the US has been preceded by a fall in the rate of profit and then by a recovery in the rate after the slump.  This is what you would expect cyclically from Marx’s law of profitability.

It appears there was significant rise in the rate of profit in the early 2000s to a peak in 2006, after which there was fall through to the Great Recession of 2008-9.  The 2006 peak was higher than the peak of 1997.  How can we explain this?  Well, in the period after the end of the mild recession of 2001 there was a massive credit-fuelled boom that led to profits in the financial sector reaching a record share of around 40% of total profits by 2006.

The profitability of the US non-financial corporate sector also rose in the period 2002-06.  It seems that the non-financial sector profitability was also boosted by the credit boom up to 2006.

But the non-financial sector is not strictly the same as the Marxian definition of the ‘productive’ sector.  A clear distinction must be made between the productive sectors of the capitalist economy ie where new value is created and the unproductive, but often necessary, sectors of the economy. The former would be manufacturing, industry, mining, agriculture, construction and transport and the latter would be commercial, financial, real estate and government.

Recently, Dimitris Paitaridis and Lefteris Tsoulfidis (PT) from the University of Macedonia separated the rate of profit for the whole economy into a ‘general rate’ for all sectors and a ‘net rate’ for just the productive sectors. This shows the following for the US general and net rate of profit from 1963 to 2015.

As in other measures, the US rate of profit is around 30% below 1960 levels but bottomed in the early 1980s with a modest recovery to the late 1990s in the so-called neoliberal period.  Interestingly, on their measure, the peak in the rate of profit was in 1997/2000, which was not surpassed in the credit boom of 2002-6 before the Great Recession.  This difference in results from AK’s and mine may be due to PT’s use of gross capital stock (before depreciation) rather than net capital stock (after depreciation) where PT find the data dubious. PT argue that the falling profit rate from 1997 onwards induced the banking sector to cut interest rates to boost lending, exposing the economy to excessive credit which eventually burst in 2007.  PT find that regression analysis showed “unidirectional causality from the rate of profit to the interest rate and unproductive activities.”

Canadian scholars Smith and Butovsky offer a similar explanation for the rise in profitability after 2001. They consider it as “anomalous and based to a considerable extent on ‘fictitious profits’ booked in the finance, insurance, and real-estate sectors, and perhaps also by many firms operating in the productive economy.”  This is a similar conclusion reached by Australian scholar Peter Jones. He found that if you strip out ‘fictitious profits’, then the US corporate sector rate of profit actually fell from 1997 – see his graph below.

More recently, in a yet unpublished thesis, Josh Watterton of Brock University, Canada argues that “although the ARP peaked in 2006, this peak was mainly due to an excessive amount of “fictitious profits” treated as real corporate booked profits.” By 2005, FIRE (finance, insurance and real estate) sector profits doubled from 2000, totalling a near \$270Bn; and reached \$300Bn mark in 2016. Here is Watterton’s estimate.

Fictitious capital are financial assets like stocks, bonds and derivatives of those.  The buying and selling of these financial assets can deliver profits that are booked on the accounts of companies.  But they are not profits from investment in the production of commodities through the exploitation of labour power.  Only that can produce new value.  So if profitability and profits from productive investment fall, the profits from speculation in stocks and bonds may then also disappear and turn out to be ‘fictitious’. That is what happened from 2007 onwards.

I used the KLEMS database to calculate the profitability of the US productive sector, as defined above.  Between 1987 and 1997, the profitability of the productive sector rose 12%, then fell sharply, provoking the mini-recession of 2001.  Profitability then recovered to previous levels by 2004.  Three years of decline then led into the Great Recession. The recovery in profitability after the slump of 2008-9 was weak and in 2018 profitability remained below the peaks of 1997 and 2004 and started to fall as early as 2011.  This can explain the weak investment in productive activities in the period after 2009 that I call the Long Depression.  PT make the same point.

Using another database (the EU’s AMECO), I calculated the weighted (by GDP) average overall rate of profit in the top six capitalist economies of the world.  There was a sharp rise in profitability from 2002 to 2006; then profitability fell and the Great Recession ensued.  Profitability recovered at the end of the Great Recession but, on average, remains below the level prior to the great crash.

I have argued that the profitability of capital is key to gauging whether the capitalist economy is in a healthy state or not.  If profitability persistently falls, then eventually the mass of profits will start to fall and that is the trigger for a collapse in investment and a slump.

In 2018, on my measure, US overall profitability rose very slightly over 2017 (probably due to Trump’s corporate tax cuts).  But profitability in 2018 was still 5-7% below the 2014 peak.  If we assume real GDP, employee compensation and fixed asset growth for 2019 similar to the mini-recession of 2015-16, we can expect a further significant downturn in US profitability this year, to levels well below 2006.

Indeed, the period from 2014 to 2019 is now the longest period of contraction in US profitability since 1946.  Recessions have usually followed after just 2-3 years.  A recession is long overdue.

Despite this, the US stock market is hitting new record highs.  Corporate debt in the US is at record highs.  The price of bonds (the inverse of yields) are at record highs.  So fictitious capital is racing up again just as it did in the period 2002-06.

In contrast, the profitability of capital (a la Marx), profit margins (the gap between costs and revenues per unit of production) and the mass of corporate profits are all falling.  From 2006, the fall in profits in productive investment eventually led the economy down into recession despite record fictitious profits.  That situation beckons again.

## 46 thoughts on “US rate of profit measures for 2018”

1. Boom says:

Will you change your method to reflect ‘book’ profits?

1. book profits as recorded by company earnings statements are full of holes and dressing up and are limited to listed companies. So they are not as reliable or accurate as official estimates of corporate profits. In the US the BEA official data often divert from recorded book profits of companies and eventually prove to be more accurate – see the period 1997-2000.

1. Boom says:

That was the time of the Asian crisis. It might suggest that there was already a crisis going on in US, but it was stalled by the dot.com bubble.You must see that the neo liberal period was not only cutting wages, but exporting industries to the 3rd world. The dot.com and the mortgage bubbles was a way of getting around that crisis by money capitalists. The logic is simple from a marxian point of view: keep surplus from unequal exchange circulating, without creating exchange value.

2. Boom says:

BTW, why not use 1 more way of measure the rate of profit? I don’t think any living system, like a society, works in such a simple way. It is not a single time, or a dual time. This is a chaotic system, but that works within boundaries. It’s like working with turbulence: it is predictable, but you have to know many parameters to figure out a system, the range of rate of profits it is operating.

2. Jon Langdal says:

Just a technical comment: It is not correct that only exploitation of labour creates new value. Family (petit-bourgeois) commodity-producing businesses create also values, but they are not productive in the sense that they are involved in a capitalist relation.
Greetings
Jon Langdal, Oslo

1. Only the capitalist relation involves value creation, because value creation is when commodity production through the exploitation of labour power is generalised. But this is a theoretical debate for another time.

1. So, how then do you explain Marx’s comment in the Preface to capital, that philosophers had been trying to get to grips with the concept of value for 2,000 years? How too, do you explain Marx’s analysis of the Value Form?

In his analysis of the value form, in Capital I, Marx examines the way that products casually exchanged by nomadic tribes became commodities. As a consequence of this more regular trade, the basis of exchange of these commodities was undertaken on the basis of the value of each type of commodity. As Engels, in his Supplement to Capital III, says that this commodity production and Exchange began around 10,000 years ago, and that, it is only during that period, and up to the commencement of capitalist production in the 15th century that the exchange of commodities takes place on the basis of the Law of Value, its hard to see how this is in any way compatible with your assertion here.

Going back to Marx’s analysis of the value form, Marx gives an historical and logical explication of how these primitive exchanges result first in the development of a relative form of value, and subsequently to an equivalent form of value, whereby the value of any commodity is expressed not directly in terms of the labour-time required for its production, but indirectly in terms of its equivalence for a quantity of some other use values that are themselves most frequently traded. Eventually, this process leads to the development of a universal equivalent form of value in the shape of a single commodity, which measures indirectly the value of other commodities – a money commodity.

Again given that money has existed for thousands of years, its hard to see how your assertion is in any way consistent with Marx’s value form analysis and the existence of money as the universal equivalent form of value going back thousands of years!

2. jlowrie says:

I had myself thought Michael here surely meant surplus value.

3. J,

That isn’t what Michael says, and he has made a similar comment previously. But, even in terms of surplus value, its not strictly true either.

The “antediluvian” forms of capital, usury and merchant capital, have existed almost as long as commodity production and exchange itself. They rely in the existence of money as exchange-value incarnate. But, in addition, they rely on the fact that the interest or merchant profit they obtain itself comprises at least a part of the surplus value produced by the producers, here, the independent peasant producer, whether that is in the interest, commercial profit they obtain directly from those producers, or indirectly via the interest charged on loans to landlords, who pay it out of the rents they obtain from tenants, which in turn represents the surplus product/value produced by those tenants.

In TOSV, Marx in analysing Adam Smith’s recognition that surplus value is created in production, makes the following points recognised by Smith. The independent peasant producer produces output with a certain value, equal to the labour-time required for its production. If all production is direct production in the strict sense of the term, then this value can only be an “individual value”, i.e. its equal to the concrete labour undertaken by the producer. Yet, the value of this output can, and usually is greater than the value required for the reproduction of the labour-power of he producer. It contains a surplus value.

This surplus value, embodied directly in their surplus product enables them to pay feudal rent, and potentially interest. But, it also enables them to accumulate additional means of production, e.g. if a surplus of grain is produced, the peasant can plant more of it as seed for he following year, the same might be true with livestock etc. But, this surplus value is not the same as that of the capitalist. The direct producer produces a surplus value only in that they overproduce, they produce more than is required for their own reproduction, and the replacement of their means of production. But, it is not a surplus value that comes to them gratis. The new value they create exists only because they have expended that amount of labour. The capitalist however, obtains surplus value, because they get something for nothing.

But, as Smith recognised, the basis of this something for nothing is precisely the fact that the producer overproduces – they produce more new value than is required for their own reproduction. It is that, which allows the landlord and the capitalist to appropriate this surplus value. Smith was confused, because he did not differentiate between labour-power and labour, and so thought that what the capitalist buys is labour rather than labour-power. It led him to conclude that as soon as capital and landed property come into existence, the Law of Value ceases to operate. He explains the fact that labour appears to be sold below its value, whilst capital is sold above its value, by relations of supply and demand. Labour is abundant, capital is scarce. For the same reason he explains the falling rate of profit as arising because capital then accumulates faster than labour supply, the price of capital falls (profit) whilst the price of labour (wages) rises.

As Marx says, had Smith simply understood that what the capitalist buys is the commodity labour-power, and that what the worker provides is labour the value creating substance, he would have solved the whole riddle of the source of surplus value.

Incidentally, direct production never involves the producer producing 100% of what they consume. The concept of direct production as Marx describes it is that production itself is undertaken for the purpose of acquiring use values rather than exchange-value. the direct producer might produce only potatoes, but the reason for doing so is not to obtain money per se, but only to obtain money in order to buy carrots, chicken, peas, clothes etc. required for consumption. However, once this production of use values/products for exchange gets underway, it creates its own logic that leads first to generalised commodity production, and then to some producers in more favourable conditions producing only to obtain exchange value, not for the purpose of buying commodities for consumption, but so as to buy additional means of production, which thereby gets turned into capital.

The practical application of this analysis is undertaken by Lenin in his analysis of the development of capitalism in Russia, a short version of which can be found in his works “New Developments in Peasant Life” and “On The So Called Market Question”, which I will be looking at in blog posts, shortly.

4. “The difference between product and capital …is that the product for capital, expresses, as capital, a particular relation-ship belonging to an historic form of society.” (Grundrisse, p. 264.

“Exchange value is an expression of an historically evolved unequal global relation between capital and labor. It is specific to the capitalist mode of production for exchange and private profit rather than social use, as is Marx’s labor theory of value.

5. langdaljgetmailno says:

Quotations cannot replace thinking. Just a simple exempåle: An agricultural product is (normally) in a capitalist society sold on the market at its value, whereas the price of an industrial commodity is sold at its production price. (Exchange) value existed long before capitalism, but precapitalist modes of production were not BASED on abstract labor and value production. A handicraft product, sold on the market, contains also value, even if the production in this case is not structured as the work process an industrial factory.
Jon Langdal

ca

6. ““Exchange value is an expression of an historically evolved unequal global relation between capital and labor. It is specific to the capitalist mode of production for exchange and private profit rather than social use, as is Marx’s labor theory of value.”

You have conveniently not given us the source of this quote, but it is clearly not Marx himself.

A large part of Marx’s analysis of the commodity, of value, and of exchange-value is of its development prior to capitalism. As Lenin says, the point of Capital was to prove the hypothesis contained in Marx’s theory of historical materialism, i.e. to demonstrate how a new mode of production arises naturally from the material changes that occur in the previous mode of production. Marx analyses the commodity as it exists in pre-capitalist modes of production, and how it embodies use value and exchange-value, and how exchange value makes the development of money inevitable, and how once this development arises it leads inexorably to the development of capital.

But, none of that is possible unless a) products have individual value as well as use value, b) this individual value becomes the basis of the market value of these products as they become commodities, i.e. the market value is the mean average of the individual values of these products thrown on to the market, and finally c) this market value is the basis upon which the ration of one commodity then exchanges for other commodities, i.e. it is the basis for the determination of exchange value.

All of this occurs thousands of years before the development of capitalist production. As Lenin notes the distinction between the directly consumed product and the marketed commodity

“… it is not enough to demonstrate the greater advantage of the latter (the lower price of the product); the predominance of money (more precisely, commodity) economy over natural economy must also be established; under natural economy, when the product is consumed by the producer himself and is not sent to the market, the cheap product does not encounter the more costly product on the market, and is therefore unable to oust it.”

(New Economic Developments in Peasant Life)

It is not that products do not have value, but that they have individual value, rather than market value, and that this market value does not find expression as exchange value. But, the Law of Value applies equally to products as to commodities, as Marx made clear in his letter to Kugelmann. The peasant who has more facility to produce potatoes rather than carrots, i.e. requires less labour-time to produce the former rather than the latter, has an incentive to produce the former and exchange them for the latter with another peasant where the opposite applies. That is he basis of comparative advantage and development of the social division of labour, that is the material basis for trade, and for commodity production to arise in the first place. It is why even under modes of production based upon direct production, there is never 100% direct production for immediate consumption, but the direct production of use values to be exchanged for other use values for immediate consumption.

As Engels puts it,

“Starting with this determination of value by labour-time, the whole of commodity production developed, and with it, the multifarious relations in which the various aspects of the law of value assert themselves, as described in the first part of Vol. I of Capital; that is, in particular, the conditions under which labour alone is value-creating. These are conditions which assert themselves without entering the consciousness of the participants and can themselves be abstracted from daily practice only through laborious, theoretical investigation; which act, therefore, like natural laws, as Marx proved to follow necessarily from the nature of commodity production. The most important and most incisive advance was the transition to metallic money, the consequence of which, however, was that the determination of value by labour-time was no longer visible upon the surface of commodity exchange. From the practical point of view, money became the decisive measure of value, all the more as the commodities entering trade became more varied, the more they came from distant countries, and the less, therefore, the labour-time necessary for their production could be checked…

In a word: the Marxian law of value holds generally, as far as economic laws are valid at all, for the whole period of simple commodity production — that is, up to the time when the latter suffers a modification through the appearance of the capitalist form of production. Up to that time, prices gravitate towards the values fixed according to the Marxian law and oscillate around those values, so that the more fully simple commodity production develops, the more the average prices over long periods uninterrupted by external violent disturbances coincide with values within a negligible margin. Thus, the Marxian law of value has general economic validity for a period lasting from the beginning of exchange, which transforms products into commodities, down to the 15th century of the present era. But the exchange of commodities dates from a time before all written history — which in Egypt goes back to at least 2500 B.C., and perhaps 5000 B.C., and in Babylon to 4000 B.C., perhaps to 6000 B.C.; thus, the law of value has prevailed during a period of from five to seven thousand years. And now, let us admire the thoroughness of Mr. Loria, who calls the value generally and directly valid during this period a value at which commodities are never sold nor can ever be sold, and with which no economist having a spark of common sense would ever occupy himself!”

Note that Engels mocks the fool Loria who denied that this value existed or could be determined during that period.

And, why does Engels state that this Law of Value – by which he means the exchange of commodities at their market value – applies only until the 15th century? Because in the 15th century, capitalist production gets underway. And, as soon as capitalist production commences, commodities no longer sell at their exchange value, but at their price of production. Moreover, because capitalist produced cloth, say, sells at its price of production, which differs from its exchange-value, this cloth, which is the output of the capitalist weaver, is simultaneously the input of the individual artisan tailor. So, the cost of production of the non-capitalist tailor, who does not sell their output at its price of production, is now also no longer sold at its exchange value, because a part of the cost of production of the clothes they produce is also now bought at a price that is not equal to its exchange value, but is equal to its price of production.

This is why, as Marx says, it is necessary to transform input prices simultaneously with output prices, because these outputs of one producer are simultaneously the inputs of another. As Marx puts it,

“The foregoing statements have at any rate modified the original assumption concerning the determination of the cost-price of commodities. We had originally assumed that the cost-price of a commodity equalled the value of the commodities consumed in its production. But for the buyer the price of production of a specific commodity is its cost-price, and may thus pass as cost-price into the prices of other commodities. Since the price of production may differ from the value of a commodity, it follows that the cost-price of a commodity containing this price of production of another commodity may also stand above or below that portion of its total value derived from the value of the means of production consumed by it. It is necessary to remember this modified significance of the cost-price, and to bear in mind that there is always the possibility of an error if the cost-price of a commodity in any particular sphere is identified with the value of the means of production consumed by it.”

(Capital III, Chapter 9)

3. Ucan or Brian Green thanks Mr Roberts for his complimentary recognition of the work I have done on circulating capital. Turnover is indispensable for reducing annual compensation to variable capital, or v, forming the v in all three key Marxian formulas: s/v, or c/v or s/(c+v) or the rate of surplus value, the value composition of capital and the rate of profit.

Regarding comparable rates of profit. True, because our estimates share the same profit, the rate of profit and the rate of return share the same trend, but it is their difference in amplitude that is so interesting. As for results I would caution against using historical cost in valuing fixed capital. That is comparing currently valued profits to embodied cost capital. The current cost tables for fixed capital are not replacement cost prices. I have shown that repeatedly. Rather they represent the market value of fixed capital in current monetary terms. Market value as understood by Marx in Chapter 10 of Volume 3, in turn is not either replacement cost nor embodied cost, but the weighted balance between the two. Leontief knew a thing or two. In any case once you add in circulating capital you cannot use current cost for circulating capital and historic cost for fixed capital. That is why my calculations yield a pre-tax rate of profit for non-financial corporate at below 5% whereas your figure may be over 15%, but I am not sure if you are using the surplus whereas I am using pre-tax profit. (Please Robert can you number your graphs.) I believe my figure to be the operative one as it would be the one used by investors when estimating what return they will receive from any new investment.

Finally the typical cost of capital is currently 3% in the USA. The difference in measuring the rate of profit with and without circulating capital is around that mark. Surely what we are dealing with is not only trends, but the thresholds the rate of profit must rise above, before capitalists will invest.

1. jlowrie says:

”As for results I would caution against using historical cost in valuing fixed capital. That is comparing currently valued profits to embodied cost capital. The current cost tables for fixed capital are not replacement cost prices. I have shown that repeatedly. Rather they represent the market value of fixed capital in current monetary terms. Market value as understood by Marx in Chapter 10 of Volume 3, in turn is not either replacement cost nor embodied cost, but the weighted balance between the two. Leontief knew a thing or two. In any case once you add in circulating capital you cannot use current cost for circulating capital and historic cost for fixed capital.” Ucan, I wonder if you would be good enough to elaborate further?

1. Certainly. An article in today’s Financial Times describes the life cycle of a typical technology for engines in the car industry being 15 years. That relates to the adoption of new technologies such as turbo charging, direct fuel injection etc. So during 15 years a new technology will become standard for the industry. This does not happen immediately. The technology will start with luxury cars then filter down as economies of scale reduce the cost of the technology. Thus it is exceptional for the weight of change in an industry to be 100% at the onset, therefore for the replacement value to dominate totally to begin with. Rather the weight of change could be 5% then 10% before accelerating to 25% then 50% and finally 100% by which time a new engine cycle no doubt has appeared.

So, it is the weight of change that is crucial. Market value reflects this. The market value of the engine industry will reflect the changing weights of the old technology compared to the new technology. At 50% the market value will be made up equally of the value of the original cycle and 50% of the new cycle with a loss of profit to the old and an additional profit to the new. Thus market value is a composite value born of the changing weight of embodied value (the old engine cycle) versus the replacement value of the new (the emerged cycled). This is the conclusions Marx was beginning to draw in his overlooked Chapter 10 of Volume 3 where he talked of market value being formed by a preponderance of more efficient firms or conversely by a preponderance of less efficient firms. Substitute the word preponderance for weight and you get the picture.

Now in the case of fixed capital we have two forces shaping its market value. Firstly depreciation and secondly current investment. Depreciation whittles away at historic cost because it is based on that. On the other hand, investment each year adds replacement value current to that year. The market value reflects the interaction of the two. If we assume two ten year periods for identical industries. In the first ten year period, 80% of the investment was made within the first five years, and in the second, 80% of the investment was made within the second five years. In that case a number of differences will be noted. Firstly in the first case the average age of the means of production will be older because 80% of it is older than five years. In the second case the average age of the investment will be younger because 80% will be less than 5 years. This structural difference will be reflected in the market value. In the first case, the mass of depreciation will be greater because the m.o.p. is older. Thus the market value of the means of production will be lower than the market value in the second case. This is the correct result because it reflects the age of the means of production itself.

By year 10 the same amount of investment in both cases will have taken place, but because depreciation is greater in the first case than in the second, it means the market value of the m.o.p. in the first case will sit further below replacement cost in year 10 than in the second case. It is important to note that in neither case can their market value be equal to the replacement value of the entire means of production because their average age cannot be <1year and because the m.o.p. are no longer like new because of wear and tear. For example, most commercial insurance schemes cover replacement cost not book value. Why, because insurers paying out book value would bankrupt most companies because they would not have enough capital to replace their burnt out equipment, structures etc, the cost of which is replacement cost.

Finally, one can only use market value in terms of aggregates, say for an industry. It does not apply to individual firms whose value of production, while entering into the market value for the sector or industry, may sit above or below the weighted or market average for the industry.

Abstract labour time is labour based on simple averages, universal labour time, that is actual concrete functioning labour time, is based on weighted averages. Hope this helps. You can find a lot more on my website. theplanningmotive.com

2. The use of market value in this context confuses two different things, the market value of the commodity that forms part of the immediate production, i.e. the market value of a machine, with the market value of the output produced by the machine.

If machine A is produced by 100 producers, each producing with different levels of efficiency, so that each has a different individual value, then the market value of A will be equal to the mean average value of the total individual values. If one producer of A, improves their efficiency, so that the individual value of their output falls, this will marginally reduce also the market value of A, depending upon the proportional weight of this individual producer in the total.

The same would be true if this producer created a new more efficient machine, but could not produce them on a sufficient scale so as to meet all of the demand for these new machines. But, the new machine would nevertheless undercut all of the old machines, meaning that not only would this producer try to produce more of them as quickly as possible so as to gain market share, but other producers would introduce the new machine as soon as possible too, so that the market value would quickly fall.

That is different to the effect on the market value of the output of those that utilise this machine in their production. As soon as the market value of the machine falls either because of higher productivity/efficiency in its production, or because a new technology replaces it, then that determines the value of the machine, and its wear and tear in production. Whether or not a lot of the older machines remain in operation or not, their market value is what now determines their value in production, and they would be morally depreciated accordingly.

3. jlowrie says:

Thank you for this. I shall certainly consult your website. I confess I could not grasp ”Market value as understood by Marx in Chapter 10 of Volume 3, in turn is not either replacement cost nor embodied cost, but the weighted balance between the two.” I can comprehend ‘replacement cost’ or ‘ embodied cost (which latter I hold to be decidedly wrong)’, but not how market value can be a balance between the two.

Moseley asserts, ”I argue that… the given constant capital at the time the output is sold would be the current constant capital, as evidenced by the most recent purchase of these means of production in the sphere of circulation. The constant capital that is transferred to the value of the output is a social average constant capital…” (p287). This seems to me contradictory. The most recent current costs cannot be a social average. The historic cost has to be the analytical point of departure: otherwise it would be impossible to talk of for example a 20% revaluation or devaluation without an original figure to measure against. If then I understand you correctly, in the case of fixed capital, you argue that means of production do not enter into use in such numbers as immediately greatly to alter the weighted balance that determines the market value?

4. jlowrie says:

” embodied cost (which latter I hold to be decidedly wrong)’,” I expressed myself here rather crudely. I meant to say only that I do not hold that a commodity’s value expresses its embodied cost.

” This is the conclusions Marx was beginning to draw in his overlooked Chapter 10 of Volume 3 where he talked of market value being formed by a preponderance of more efficient firms or conversely by a preponderance of less efficient firms. Substitute the word preponderance for weight and you get the picture.”

Marx remarks, ”The quantity of labour by which for example the value of a yard of cotton is determined is therefore not the labour it contains, the quantity the manufacturer expended upon it, but the average quantity with which all the cotton manufactures produce one yard of cotton for the market….

which of the categories has a decisive effect on the average value will in particular depend on the numerical ratio or the proportional size of the categories….

The commodity produced under more favourable conditions contains less labour time than that produced under less favourable conditions, but it sells at the same price and has the same value, as if it contained the same labour -time though this is not the case” (TSV II Pp204-206).

Marx would seem to affirm that it is the preponderance of which category that determines the market value. I take it you hold this can only be the weighted average?

Now consider circulating capital where an excellent cotton harvest lowers the value immediately of both the cotton lying in warehouses and that already worked up. If the manufacturer were to sell his cotton he\she could only command the market price of the cotton, but this is not really plausible for the manufacturers as a class, who are obliged to pursue manufacturing cotton commodities. What changes is that those manufacturers who are able to produce with the newly purchased and thus cheaper cotton produce under more favourable conditions.

5. J,

Marx himself does not help matters in Chapter 10, because he does not clarify what he means by average, and in places it appears he is using mean, at other times median, and other times mode. His use of the term “determines” is also not clear, but reading the whole Chapter, along with the rest of his work, and it becomes obvious that by average he means Mean, and by “determines” he means skews the weighting.

I have described this in my definition of Market Value, and deal with it in more detail, in my account of Chapter 10.

Its also worth noting that in Chapter 10, Marx is not only dealing with Market Value, but Market price, and the effect thereon of longer-term imbalances of supply and demand, so that, for example, where supply is continually beneath demand, it is the least efficient production that is determinate, and vice versa. This is important for Marx’s analysis of rent, and of differential value.

6. jlowrie says:

”I have described this in my definition of Market Value,” This is really excellent and I urge all to read it. You say there that by average Marx means the modal average. This is not the mean, then. Can you clarify?

I think Marx uses determine also to include ‘to set limits to’ and ‘determinatio est negatio.’

Michael says,
”Only the capitalist relation involves value creation, because value creation is when commodity production through the exploitation of labour power is generalised. But this is a theoretical debate for another time.” I think given the arguments above we need this debate sooner rather than later.

For example, take the Roman dockers unloading the grain ships at the Portus Claudius for further dispatch to Rome. The sailing season was at most 7 months. As many as 100 ships might be in harbour at the same time. They are both unloading and reloading on to smaller craft and barges. How many in the labour force, which must have been casual? One reads that they were members of collegia, identified as guilds. But I think the collegia members were rather the gang masters, as it were. The labour force surely must have numbered thousands of seasonal day labourers. Did they then not produce surplus value?

7. J,

I was trying to make precisely this point that Marx does not help by using average in these different senses. In Chapter 10, he is discussing the situation in which demand is normally satisfied under different conditions. In other words, if supply perpetually fails to meet demand, then it is the individual value of the least efficient producers producers that determine the market value. This, for example, is the case with agriculture. Market value is determined by the least efficient producer, because otherwise, these producers cannot make average profit, and so they would not enter production. There would be negative rent.

Where supply perpetually exceeds demand then market value is determined by the most efficient producer, for the opposite reasons, i.e. otherwise all producers would get surplus profits/rent.

Only where “normal” demand is satisfied by supply is market value determined by the average producer. But, then this begs the question who is he average producer. I have dealt with that better, I think in my summary of Chapter 10.

The point here being that if say one producer has 40% of the market, and the other 60% is shared by say 100 smaller producers, the one single producer is likely to be able to determine the market value. Their production is the modal average but not the mean average. They are likely to be the most efficient producer, as the largest producer.

A look at Marx’s analysis of the concept of Differential Value (not to be confused with Differential Rent) in TOSV is important here. Basically, this one producer can determine market value, because without their supply, the demand cannot be satisfied.

In relation to the Roman dockers, Marx again in TOSV talks about the fact that wage labour has existed for a long time, for example, sailors were wage labourers, and produced surplus value.

As I have set out, Smith’s analysis of the source of surplus value, discussed by Marx in TOSV shows that every producer ha the potential to produce surplus value, because every producer can perform surplus labour, i.e. labour in excess of what is required to reproduce their labour power. The question is who appropriates this surplus labour. The direct producer/independent commodity producer appropriates it themselves, the wage labour sees it appropriated by the capital that employs them.

The difference in the latter case is that the capital gets something for nothing.

2. “Ucan or Brian Green thanks Mr Roberts for his complimentary recognition of the work I have done on circulating capital.”

It appears that UCan shares with Donald J. Trump, the practice of referring to himself in the third person!

1. jlowrie says:

Boffy, as the recipient yourself of ad hominem attacks let us not get carried away if Brian in passing refers to himself in the 3rd person singular; after all it is not the Royal 1st person plural!

2. J,

Not an ad hominem attack, merely an observation. And given that a numbr of those ad hominem attaks have come from Brian Green, I shouldn’t let yourself lose too much sleep over it.

4. antonio says:

A question of interest about your data series on the rate of Profit ..
Your corporate earnings rate data series and that of other authors than you. shows in the blog (eg Andrew Kliman) seem to always be global profit rates, of the whole of an economy, of all the companies in a country, or, at least, of a representative sample (S & P500, etc.) . And yes, it is clear that there is a fall in profits and the rate of profit. I have no doubt about the quality of your data and that, in general, your contribution to socialist economic theory is exceptional. In addition, I have no doubt that such a fall in TG is the ultimate cause (first cause before investment, demand, etc.) that causes crises, recessions and, finally, a slowdown in growth (a long-range recession ) in the capitalist model, such as the slowdown that is already approaching and that you correctly predict. However, in my opinion, there are two series of earnings data that would be very desirable to observe separately from the global rate to certify complete evidence of the thesis of the Decreasing Profit Rate. These two desirable series are: 1st Profit Rate of the monopolistic companies of each market, the corporations that together hold a market share of more than 60%. FAANGs in the digital sector, for example. Google announces profit increases every year, etc. and 2nd Profit Rate of public (state) companies. The more than 600 state-owned companies that have been privatized in Europe since the 1980s. It would be convenient to know your profit rate before privatization. This request comes for the reason that the question that quickly comes into view of your data is: are there also falls in the rate of profits in these two types of companies, monopolistic and state? Companies that, from the outside and without reliable data, always appear to be very profitable companies with increasing benefits.
If this other earnings rate data that I ask you now has already published them (books, blog) I beg your pardon for not having seen them and I appreciate your indication on where I can observe them.
Sincerely

5. Prea says:

Hello
This is a basic question.
With regards to the rate of profit, are companies like Google, Amazon, Facebook, etc considered to be non-productive sectors since they are services and they don’t actually produce commodities (except for say a google phone).

They’re not exactly fictitious capital since they aren’t in the finance sector, but they’re not exactly productive labour either.
Is this something that is considered when calculating the rate of profit? Or is this distinction not important.

1. Interesting question. Productive sectors are those where the labour force creates new value and does not just appropriate existing value from other sectors. That does not apply just to physical commodities but also to services (transport, for example) and within that to ‘knowledge commodities’ produced by mental labour. See my recent post on knowledge commodities. https://thenextrecession.wordpress.com/2019/10/08/knowledge-commodities/

So imparting information and selling and delivering products using software through the internet is broadly productive, in my view. The labour involved has created new value. Although, of course, as in every productive sector in capitalism, there is unproductive labour involved (supervisory labour, accountancy labour etc) and considerable unproductive activities like marketing and advertising etc.

1. So Amazon, Walmart, etc employ productive labor in storing, delivering goods mostly produced outside the US, and, in selling these goods to the final consumer, realizing the value of labor embodied within them.

Both semi-monopolist retailers appropriate the surplus value created by their very poorly compensated workers. Question: how much of the surplus value created by the super-exploited workers who have produced the goods do they actually appropriate from the final selling price?

Question: Is the pauperization of most “service” producing labor at the consumerist core and of the industrial goods producing labor at the peripheries of global system the prevailing trend of late capitalism?

2. One last question: much of the income of the largest multinational enterprises centered in the core nations (which are often financial institutions as well as direct and indirect owners of various productive enterprises) is in the form of interest and rent, as well as profit. Do you include income in all three forms in calculating rate of profit?

6. Very useful presentation and critique of the various possibilities to calculate the (US) rate of profit on the basis of statistical data.
My conclusion:
No matter how one wants to calculate the rate of profit in detail, in a long-term comparison each of the different methods of calculation shows a similar course with a clear decline in the US rate of profit since 1945 to the present.
Linked with various graphics:
https://marx-forum.de/Forum/index.php?thread/997-m-roberts-wie-die-us-profitrate-berechnen/&postID=5403#post5403

Wal Buchenberg, Hannover

1. Which, were it true begs the question of why then capitalism did not collapse long ago, given its been in existence now for around 600 years. The reason it has not, is that those calculations of the rate of profit are wrong.

7. langdaljgetmailno says:

But the non-financial sector is not strictly the same as the Marxian definition of the ‘productive’ sector. A clear distinction must be made between the productive sectors of the capitalist economy ie where new value is created and the unproductive, but often necessary, sectors of the economy. The former would be manufacturing, industry, mining, agriculture, construction and transport and the latter would be commercial, financial, real estate and government.

I agree, this distinction is crucial. But transport of persons does not, as I understand Marx’ comments in Theories of .. (volume 1), create value, (but a privat company can give income in form of profit). Services generally don’t create values, they distribute values created elsewhere, they don’t contribute to the the national wealth, see for exemple what Marx says about prostitution i Resultate des unmittelbaren Productionsprosess (I don’t know the english title). In the same manuscript, there are many exemples of intellectual services (of engeneers, technicians etc.) create plus-value if these are subsumed by a commodity-producing capital. Therefore, as MR has pointed out, is it absurd to say that “immaterial” (mental) work cannot create values. However, we don’t need any lessons from the neuroscience to understand that. The most banal manual work requires use of the brain. (But concepts and the content of a theory is ideal, not reducible to physical, chemical or biological activities in our heads).
Jon Langdal, Oslo

1. “But transport of persons does not, as I understand Marx’ comments in Theories of .. (volume 1), create value, (but a privat company can give income in form of profit). Services generally don’t create values, they distribute values created elsewhere, they don’t contribute to the the national wealth, see for exemple what Marx says about prostitution”

Transport of people most certainly does create new value according to Marx, as does other service production. Whether it creates surplus value, depends upon whether the labour is employed by capital or revenue. If its employed by capital it produces surplus value. i.e. it is productive labour.

I don;t know which comment by Marx about prostitution you are discussing, but in TOSV, Chapter 4, Marx specifically says that the labour of a prostitute creates new value. He says that the wealth of a nation is undoubtedly increased by all of the labour undertaken by those in that other service production, because of the additional use values that result from it. And, by producing these use values, required by society, the labour engaged in that activity represents new value. If not, then as Marx says, why would someone give an amount of equal value in exchange for it?

Whether the labour of the prostitute is productive or not again depends on whether it exchanges with revenue or capital. If the prostitute simply sells their labour service directly to a punter then it is an exchange with revenue, and creates no surplus value, if the prostitute is employed by a brothel keeper, they sell their labour-power to them, and is paid the value of their labour-power as a wage. But the brothel keeper is then the one who sells the labour service to the punter, and obtains the equivalent value in money. The difference between this value of the labour service, and the value of the labour-power of the prostitute is the surplus value. By exchanging with capital rather than with revenue, the labour of the prostitute becomes productive labour.

8. “AK measures the US rate of profit based on corporate sector profits only for the numerator and uses the historic cost measure of net fixed assets as the denominator (ie s/C). AK considers this measure as the closest to Marx’s formula, namely that the rate of profit should be based on the advanced capital already bought (thus historic costs) and not on the current cost of replacing that capital.”

Except, of course, that Marx specifically, and in several places in capital, rejects that use of historic prices as the basis of calculating the rate of profit, because it leads to spurious results! The whole basis of Marx’s analysis of social reproduction, for example as set out in Capital III, Chapter 49, is based upon the reproduction of capital “on a like for like basis”, i.e. the physical reproduction of the use values at their current reproduction cost. Moreover, if you are going to calculate the rate of profit on the basis of the inclusion of the full value of fixed capital, not the wear and tear of that fixed capital, then what you are calculating is the annual rate of profit s/C, i.e. the surplus value produced in the year as against the advanced capital for one turnover period , e.g. 4 weeks.

But, that advanced capital does not just include fixed capital, it includes the circulating constant capital and variable capital for this 4 week period. The advanced circulating capital for 4 weeks is clearly much less than the laid out circulating capital for a year, but I can’t see in your comment here that circulating capital has been included at all. As Marx sets out extensively in TOSV, if the value (current reproduction cost) of that capital is reduced, it not only creates a release of capital, which creates the illusion of additional profit, but it does create an actual rise in the rate of profit, as a result of this fall in the current reproduction cost of the capital.

Moreover, Marx describes there how a rise in the rate of turnover has a similar effect, because now, less capital has to be advanced in a turnover period to produce the same mass of surplus value. So, this is neither a rate of profit a la Marx, or an annual rate of profit a la Marx, but some bastardised rate of profit equivalent of neither.

More interestingly, despite this fall in the rate of profit, however calculated, we are now at the end of 2019, more or less, and despite Trump’s escalating trade war with China and Europe, despite Brexit and so on, we still have not seen the predicted slump. In fact, we have seen US payrolls continue to grow at about double what is required for a stable rate of unemployment, and we have seen US GDP continue to rise.

So, not only have we not seen a slump, we have not even seen a recession. Still, as with the previous five years, there is always next year when “the next recession” may eventually materialise eh?

9. “One of the compelling results of the data is that each economic recession in the US has been preceded by a fall in the rate of profit and then by a recovery in the rate after the slump. This is what you would expect cyclically from Marx’s law of profitability.”

Except I’ve shown elsewhere that these dips in profit prior to crises, even according to your own data are not consistent with Marx’s long-run law of falling profits, but are consistent with short-run profit squeezes due to extensive rather than intensive accumulation of capital. They are consistent with slowing productivity growth, and a falling rate of surplus value, whereas Marx’s law is based on more rapidly rising productivity, due to intensive accumulation, and a rising rate and mass of surplus value.

The other posts in that series show why the use of historic prices is not sustainable as a basis for calculating the rate of profit “a la Marx”.

10. “Since 1965, there has been the secular rise in the organic composition of capital (HC measure) of 60%, while the main ‘counteracting factor’ in Marx’s law of the tendency of the rate of profit to fall, the rate of surplus value, has actually fallen over 9%.”

Which, in itself should indicate that what is going on here is NOT Marx’s Law, because Marx’s law is based on the rate of surplus value rising, not falling! It is based upon new technologies and fixed capital raising productivity so that a given amount of labour processes a greater mass of material, so that the proportion of new value attributable to labour falls, and the proportion attributable to raw material rises. It is based upon relatively less labour being employed whilst absolutely more labour is employed, thereby producing a greater mass of surplus value. It is based upon that same rise in productivity creating a relative surplus population that causes previously raised wage levels to fall, and causes the value of labour-power, and then wages to fall raising the rate of surplus value.

If the rate of surplus value is falling that is evidence that the conditions for Marx’s Law are NOT present, and any fall in the rate of profit is due to other factors such as rising value of constant capital, falling productivity, labour shortages causing wages to rise etc.

11. “Marx approaches value theory temporally so the value of the denominator in the rate of profit formula is at t1 and should not be changed to the value at t2.”

There are literally dozens of instances in Capital and Theories of Suplus Value, where Marx says the opposite, as well as where he describes in clear terms that his analysis is based upon simultaneity.

A look at Capital III, Chapter 6, on its own gives numerous examples of where Marx says that the value of the advanced capital has to be revalued to its current value, when considering its reproduction, and the calculating of the rate of profit thereon.

12. “This also applies to the rest of circulating capital ie. inventories (the stock of unfinished and intermediate goods). They should and could be added as circulating capital to the denominator for the rate of profit, but I have not done so as the results would be little different.”

But, why on Earth would you include only “inventories” of raw materials and intermediate goods in the figure for advanced circulating constant capital??? The value of the advanced circulating constant capital is the value of the raw material, intermediate production actually consumed in production during that turnover period. The whole point about Marx’s law is that it is this figure that rises disproportionately (to both labour and fixed capital as set out in Capital III, Chapter 6), which causes the rate of profit to fall. The more productivity rises the greater this mass and value of circulating constant capital.

If you exclude changes in this figure no wonder you get spurious results on the rate of profit, because the whole basis of Marx’s law is that this figure gets continually and proportionally larger. That is the basis of his law, as Department I (c) grows fastest, then Department I (v + s), and then Department II (v + s). You have missed out the most important element of Marx’s law, when it comes to determining the changes in the rate of profit!

Moreover, because it is Department I (c) that grows fastest, the data relating to that is not available from GDP data, because that only covers new value added. Department I (c) is the value of the raw materials, and wear and tear, used in Department I production that must be reproduced directly out of Department I’s own production, and so does not appear as revenue anywhere. Now given that economies have moved significantly away from material production to service production, it is inevitable that this figure for Department I (c) rather than being the fastest rising sector, should slow considerably if not actually fall, and that would make a huge difference to calculation of the rate of profit.

1. An indication of the importance of this can be seen by considering, say Toyota. Toyota, at Burnaston, via its Just In Time system has deliveries of components (intermediate production) every 20 minutes. If we calculate the value of stocks then, it would be equal to the stock it holds at any point during any of these 20 minute periods. The whole point, of course, for Toyota and others of such Just In Time systems, is to reduce the money they have tied up in such stock to the minimum.

But, even though Toyota and others have made huge progress in reducing the Working Period for their production, as well as the circulation period, the turnover time for Toyota is not 20 minutes. It is more like a week, i.e. the time required from when the productive-capital is employed, to it producing the minimum output required for a working period, to that output being put into circulation, sold, and the capital value realised as potential money-capital, and then used to physically replace the productive-capital.

If we assume a 24 hour working-day (3 8 hour shifts), then the total circulating capital consumed in a turnover period will be 3 x 24 x 7 = 504 times greater than the average stock, held in any 20 minute period. So, calculating on the basis of stock levels rather than consumed raw material/intermediate goods, is significantly out.

But, what it does show, is that if this calculation is done on the basis of the actual consumed circulating capital during a turnover period, then the significant reductions in that figure due to increasing the rate of turnover also have a significant effect on raising the annual rate of profit.

2. “Now given that economies have moved significantly away from material production to service production…”

A global phenomenon? You seem to have refined the labor of department 1 and of the wage goods sector of department 2 out of existence, leaving just capitalists and servants serving manna. But you jest: a dialectical materialist’s satire of a malthusian bourgeois nirvana?

1. Yes, a global phenomenon, as I have illustrated to you with the relevant data, for example ion respect of the Chinese economy, previously. The largest part of the value of Department I nowadays is not new value creation by labour, but the transfer of existing value – congealed labour – inherited from the past, i.e. the value of raw materials, wear and tear of fixed capital, that is simply reproduced on a like for like basis out of current production.

That is what Marx’s Law of The Tendency for the Rate of Profit to Fall is founded upon, and what can be seen in that historical development. The largest part of new value creation nowadays in all developed economies, and in most developing economies, like China etc. is in service industry, and this is also a necessary corollary of Marx’s tendential law, becuse his tendential law is based upon this fact of rising social productivity due to the increasing use of technology, and ever more advanced technology, in production, so that the same, and even massively increased quantitities of material use values can be produced with ever small quantities of labour.

In other words, the material use values required by society, be they food, clothes, shelter, or the machines, the raw materials required to produce those things require only a small fraction of the labour they did a century ago, and so the new value created by that labour has diminished accordingly. In fact, for the same reason, the value of the raw material and of the fixed capital used in that production has been reduced significantly too.

As less labour and capital was required to produce these material use values, so labour and capital moved to other higher profit spheres, and those higher profit spheres are where the organic composition of capital is lower, and/or the rate rate of turnover of capital is higher. Those spheres are in service industry. That is why capital migrated from lower profit material production to higher profit service production, thereby proving Marx’s Law of the Falling Rate of profit, as the basis for the formation of an average rate, and of the allocation of capital as a result of it.

The decline in the quantity of labour employed in material production, and shift to service industry is the same process that occurred with the shift of labour from agricultural production to manufacture in the 19th and 20th century, as rising levels of productivity meant that the agricultural products required by society indeed, a much expanded quantity of those products could be produced with much less labour, which is why in the UK today, agricultural output is many times what it was in the early 19th century, despite the fact that at that time, nearly 80% of the population was employed in agriculture, whereas today, it is less than 2%!

2. Your presentation of the progressive disappearance of means of production (if not in substance then in exchange value) and and the subsequent freed-for-service labor seems based on the premise of a post-capitalist, socialist world order. (It’s uncannily like Smith’s assuming away constant capital as a cost in the value of commodities.) Unfortunately, we live in a violently devolving imperial order, featuring a turn toward fascism and even an increase in the existing militarization of society. At the center of it all, in the US better than 40% of GNP is devotee to war production and surveillance of an increasingly precariously employed and angry but disorganized working population. I envy your blissful blindness to it all.

3. “Your presentation of the progressive disappearance of means of production (if not in substance then in exchange value) and and the subsequent freed-for-service labour seems based on the premise of a post-capitalist, socialist world order.”

No, its based on readily observable facts about the way capitalism has developed over the last 200 years. Just because those facts get in the way of your dogma does not change the reality!

13. Datta Desai, Pune- Maharashtra, India says:

Very illuminating M Roberts. Thnx a lot.This will help us in our analysis of the world recession too.

1. langdaljgetmailno says:

I think that the present zero interest rate in European banks is more eloquent and convincing as to the present profit crises than all the world’s Swedish excellence in the field of statistics.
A question to Michael Roberts and other competent people: Has this zero interest rate policy been practiced in the West in earlier epochs?
Jon Langdal

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