Marx’s law of profitability at SOAS

Last week I gave a lecture in the seminar series on Marxist political economy organised by the Department of Development Studies at the School of Oriental and African Studies (SOAS).  The Marxist Political Economy series is a course mainly for post-graduates and has several lecturers on different aspects of Marxian economics. Course Handbook – Marxist Political Economy 2019-20 (8)

Mine was on Marx’s law of the tendency of the rate of profit to fall.  Not surprisingly, the department team has noticed that I am apparently ‘obsessed’ by this law, at least according to critics of it.

Anyway, I thought it might be useful to go through my lecture in a post, with the accompanying slides referred to.  So here goes. (Marx’s law of the tendency of the rate)

I started by saying that Marx considered the law of the tendency of the rate of profit to fall as “peculiar to the capitalist mode of production” along with “the progressive development of the social productivity of labour.”  They go together: rising productivity and falling profitability.  (Slide 2).

Indeed, Marx’s law is the direct opposite of what Thomas Piketty, author of Capital in the 21st century claimed was Marx’s view.  Piketty reckoned that “Marx’s theory implicitly relies on a strict assumption of zero productivity growth over the long run” and that “Marxist analysis emphasises the falling rate of profit – a historical prediction that has turned out to be quite wrong.”  Indeed, Marx’s law is ignored by mainstream economics (except for getting wrong like Piketty) and also is either ignored or rejected by so-called heterodox economics.

Moreover, even most Marxist economists consider it irrelevant or wrong for any critique of capitalism. I referenced top MEGA scholar, Michael Heinrich: “A few manuscripts from the late 1860s and 1870s suggest that Marx had doubts about the ‘law of the tendency of the rate of profit to fall’, which he no longer mentioned after 1868.“  And then the world’s most famous Marxist economist, David Harvey: I find Heinrich’s account broadly consistent with my own long-standing scepticism about the general relevance of the law”.  Indeed, it is only a minority of Marxists who consider, like Alan Freeman, that “Marx’s LTRPF remains the only credible competitor left in the contest to explain what is going wrong with capitalism.” (Slide 3).

In contrast, I argued that Marx’s law of profitability is both theoretically valid, empirically supported and relevant to the critical analysis of modern capitalism.  But the law is only valid if two other laws of motion of capitalism that Marx held to are also valid. (Slide 4).

The first is the law of value.  The law of value says that the value of commodities depends on the amount of human labour exerted on producing commodities, as measured by the socially necessary labour time involved.  At one level, it is self-evident, “as any child knows” that nothing is produced to use or sell unless humans go to work to do it.  (Slide 5).

Under the capitalist mode of production, commodities are produced for sale, in a particular social relation.  The capitalist starts with money and the ownership of the means of production.  With that money he/she buys the technology and raw materials to make a new product for sale and employs the workers to do so.  Both that technology and workers are commodities to buy for the capitalist.  But only the workers produce the new commodity for sale on the market for a new amount of money.  And that end product must be worth more in labour time that invested by the capitalist and more in money than spent.  There must be a profit to make it worthwhile.  That profit comes from the surplus value appropriated by the capitalist over above the value paid for labour power.  M- C- P- C’- M’ (Slide 6)

Marx’s theory of value reveals that more value is created only by human labour power and a surplus is extracted by the capitalist because he/she owns and controls the means of production; and that value is realised by sale in markets.  The law of value is theoretically sound and indeed has been empirically supported, namely that total prices of commodities in an economy are closely correlated with total hours of labour time applied. (Slide 7)

The second law is Marx’s general law of accumulation. Competition among capitalists forces them to continue to expand their production in order to accumulate more profit or be driven out of business by others.  Competition drives each individual capitalist to increase the productivity of labour ie lower their costs of production. (Slide 8)

As capitalists spend more of their profits on means of production to boost the productivity of labour and reduce costs, the ratio of the value of means of production compared to the value of the labour power employed tends to rise.  Marx called this ratio the organic composition of capital. It is a law in capitalist economic expansion that the organic composition of capital will rise. (Slide 9)

The law is empirically valid. (Slide 10); fixed capital per worker rises over the long term.

But there is a dual nature to the accumulation process under capitalism.  On the one hand, there is a tendency to increased unemployment from technology shedding labour.  On the other hand, new technology creates new jobs.  Everything then depends on the momentum of the industrial cycle: “the general movement of wages is exclusively regulated by the expansion and contraction of the industrial reserve army and this corresponds to the periodic alternations of the industrial cycle”. Marx (Slide 11) Accumulation can drive down labour’s share in new value but also lower the price of future investment. (Slide 12).

In sum, the organic composition of capital (C/V) rises over time.  This means increased centralisation and concentration of capital. Rising C/V creates a reserve army of labour and technological unemployment. The size of reserve army will vary cyclically with the strength of accumulation.  This law can be empirically verified and has been in many studies. (Slide 13)

This brings us the main message of the lecture.  The first two laws of motion lead to the third law: the law of the tendency of the rate of profit to fall.  The first law says that only labour creates value.  The second says that capitalists will accumulate more capital over time and this will take the form of a faster rise in the value of the means of production over the value of labour power i.e. a rising organic composition of capital. (Slide 14) For Marx, the third law of profitability 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.” (Slide 15)

The law has a simple formula (Slide 16).  The capitalist starts with money to invest in:

Means of production (fixed capital) and raw materials (circulating capital) = constant capital (c)

Labour force to produce the commodities paid in wages.  But the labour force produces more value than it is paid in wages; so it is called variable capital (v).

The labour force produces commodities that contain surplus value over and above its own value in wages paid = surplus value (s)

The rate of profit is thus S/(C+V).  If we divide this formula by the value of labour power (V), we get s/v//c/v+1.  In other words, the rate of profit falls if C/V rises faster than S/V and vice versa.  (Slide 17)

Marx argues that rising C/V is the tendency which will generally rule and operate over time and rising S/V is a countertendency (induced by the tendency) that can curb, or slow or occasionally reverse the tendency.  If the tendency prevails, the rate of profit will fall  – and most of the time it does.  That is Marx’s law. (Slide 18)

This law has been subject to criticism from the start when it was first revealed in the 1890s in Volume Three of Capital.  (Slide 19)

There are two main critiques.  The first is the so-called ‘transformation problem’. In Volume Three, Marx shows how the values of commodities as expressed in socially necessary labour time are modified in competition for sale of those commodities.  There is price for the commodity in the market, but different producers have different efficiencies – some produce the commodity for sale in less labour time than others.  And they do so because they invest more in labour-saving technology as expressed in a higher organic composition of capital.  Through competition in the market, a production price is established.  At that production price, the more efficient producers make more profit.  They do so because in the market there is a transfer of value from the less efficient to the more efficient and profitability tend to an average across the economy.

Values are turned into prices of production by this competitive process.  Market prices will oscillate around production prices, which are also continually changing due to changes in technology and the organic composition of capitals.  But in Marx’s transformation, total value in the economy (in labour time) is still equal to total price of production (which is value modified by average profitability) and total surplus value is equal to total profit.  So value, the labour time exerted, is still the basis of prices in a capitalist economy. (Slide 20)

Marx’s transformation of values into prices was rejected and attacked by many Marxists.  Bortkiewicz argued that the inputs in values (c+v) on the value side of Marx’s table are really prices of production. In Marx’s formula, the value of the inputs before the equalization differ from the prices of production for the same commodities after the equalization of profit rates. But surely, says Bortkiewicz, the same commodities must be bought and sold as prices of production and not as values.  So Marx’s formula is incorrect and indeterminate. But if we ‘correct’ Marx’s transformation using simultaneous equations, total value no longer equals total price and/or total surplus value does not equal total profit.  So there is a logical inconsistency in Marx’s solution.  Value in labour time is no longer proven as the basis of prices. (Slide 21)

The reply to this critique is that Marx’s transformation is temporal.  The Bortkiewicz critique removes the temporal aspect completely.  Let us say that production starts at t1 and goes to t2.  The output produced during t1-t2 is then sold at t2, the end point of t1-t2.  Then t2 becomes also the initial point of the next production period, t2-t3. The output of t1-t2 has become the input of t2-t3. It exits one period and it enters with the same value in the next period.  Instead, the Bortkiewicz critique holds to the absurd notion that the output of one period is the input of the same period. That’s what simultaneous equations do; remove time. (Slide 22)

The second critique of Marx’s law is that is that new technology would never be introduced by a capitalist if it did not raise profitability.  Indeed, Marx says in Volume Three of Capital that “No capitalist ever voluntarily introduces a new method of production, no matter how much more productive it may be, and how much it may increase the rate of surplus-value, so long as it reduces the rate of profit.”  So Okishio says that “A profit-maximising individual capitalist will only adopt a new technique of production if it reduces the production cost per unit or increases profits per unit at going prices.  So capitalist accumulation must lead to a rise in the rate of profit, not a tendency to fall – otherwise why would any capitalist invest in new technology?” (Slide 23)

The reply to that is this argument is a fallacy of composition – to use the Keynesian term of logic.  Yes, the first capitalist to introduce a new technology will gain extra profit – at the expense of the other capitalists who have not.  The second capitalist will then introduce it and also gain some profitability (but not as much as the first did) at the expense of the other less efficient ones.  But once all capitalists adopt the technology, the extra profitability for introducing it will have dissipated.  And because the organic composition of capital (C/V) is likely to have risen, the rate of profit across all producers will have fallen compared to before.  As Marx says: ”Competition makes it general and subject to the general law. There follows a fall in the rate of profit — perhaps first in this sphere of production, and eventually it achieves a balance with the rest — which is, therefore, wholly independent of the will of the capitalist.” (Slide 24)

And there is one more retort to the critics of the law.  It is empirically supported.  Over decades, there has been a secular decline in the profitability of capital across all the major economies – if you like, the world rate of profit has fallen –  but not in a straight line, because there have been periods where the counteracting factors to the tendency have been stronger.  But over the history of modern capitalism, the rate of profit has fallen. (Slide 25)

Marx’s law is not only secular (namely a long-term tendency for profitability to fall).  The law also helps explain the cyclical recurrence of booms and slumps in capitalist production and investment. (Slide 26) The operation of counter-tendencies transforms the breakdown into a temporary crisis, so that the accumulation process is not something continuous, but takes the form of periodic cycles. (Slide 27)

The rate of profit can be falling but the total or mass of profit in the economy can be rising.  Indeed, that will be the usual situation as capitalists expand investment and production to increase profits as the profitability of each new unit of investment begins to drop.  This is what Marx called the double-edge law of profit. (Slide 28) So the mass of profit can and will rise as the rate of profit falls, keeping capitalist investment and production going. But as the rate of profit falls, eventually the increase in the mass of profit will decline to the point of what Marx called ‘absolute over-accumulation’, the tipping point for crises.

Thus Marx’s law of profitability provides an underlying explanation of the cycle of boom and slump that occurs periodically in capitalism. (Slide 29)

In sum:

The law of value:  only labour creates value.

The law of accumulation: the means of production will rise to drive up the productivity of labour and to dominate over labour.

The law of profitability: the first two laws create a contradiction between rising productivity of labour and falling profitability for capital. This can only be reconciled by recurring crises of production and investment; and, in the long term, by the replacement of capitalism. (Slide 30).

That was the lecture.  Questions from the seminar attendees were many and perceptive.  Here are a few.

Are there no other factors that cause crises in capitalism apart from profitability?

What is the difference between the organic composition of capital and the technical composition of capital that Marx refers to?

Does not the law suggest that there is no economic policy within capitalism that can stop recurring crises? 

If so, do the crises go on forever or will it come to a total breakdown at certain point?

I’ll leave the reader to consider these answers, if there are any answers.

75 thoughts on “Marx’s law of profitability at SOAS

  1. “Mine was on Marx’s law of the tendency of the rate of profit to fall. Not surprisingly, the department team has noticed that I am apparently ‘obsessed’ by this law, at least according to critics of it.”

    If they aren’t obsessed with the TRPF, then they didn’t understand Capital.

    If Capital was a Ph.D. thesis, the TRPF would essentially be its conclusion/findings (don’t know how you call it in English). It’s the culminating point of the book(s).

    Granted, Capital transcends by a lot any Ph.D. thesis produced in the West during at least these last 120 years. Even Marx’s “Economic and Philosophic Manuscripts” would easily pass as a maximum grade Ph.D. thesis by today’s western standards.

    That’s why I always take 20th-21st Century critics of Marx in the West with a grain of salt. They are usually intellectual midgets (many of them straight up vulgar, even pseudo-scientific) trying to take down the greatest thinker of all time.

    1. Yes. Western Marxism has for the most part taken over unwittingly, subjecting it here and there to minor modification, the philosophical, economic etc. thought of the bourgeoisie.

      1. That’s a brilliant segue there. VK says he takes Marxist CRITICS in the west with “a grain of salt,” and M. Hartwig2015 morphs that into “Western Marxism has for the most part taken over…the philosophical, economic thought of the bourgeoisie.”

        Spoiler alert, the second statement has no connection, logical or material to the first.

        And while we’re playing the old East-West shuffle, otherwise known as “Third World-ism” tell us what has Eastern Marxism “taken over” besides the “thought” of Milton Friedman, Deng Xiaoping and George Gilder?

        Enough to gag a maggot, honestly.

        I’ll take “Western Marxism” from Rosa on, warts and all, the warts being the, the Frankfurt School, the council communist “ultra-lefts,” and those adherents of “Western Marxism” in the “East” itself, who grasped the significance of uneven and combined development for workers’ revolution, every day of the week and twice on Sundays over the official Soviet version, and the “Third World” variant.

      2. You’ve left out critics OF MARX

        OK, vk might have meant bourgeois critics

        But most Western Marxist critics of Marx don’t even accept the labour theory of value. They operate on the terrain of the bourgeois critics.

        Surprised “gag a maggot” got past the moderator

      3. It means the argument is so putrid, not even a maggot could feed off it.

        I didn’t leave out critics of Marx, the marvelous mhartwig2015 did. Read his/her post again.

        So name the “most Western Marxist critics of Marx” who “don’t even accept the labour theory of value.”

        Who qualifies in that category? Varafoukis? That guy’s not a Marxist, no matter how you stretch the label.

        Yep, I’ll stick with what I wrote earlier, maggots, warts, gags, and all.

      4. Anti Capital, 3rd worldism is part of anti revisionist Marxist Leninism. It does rejects things like Dengism and is usually associated with Maoism. It also rejects most of ideas associated with Trotkysm.

      5. Boom,

        Thanks. I’m familiar with what 3rd worldism claims to be, as I’m familiar with what “anti-revision” claims to be (Hoxha, anyone?), although “anti-revisionism” is nothing itself if not revisionist to the core (national, patriotic bourgeoisie, anyone?) and as I’m familiar with what “Marxism-Leninism” claims to be.

        Saying third-worldism rejects “most of the ideas associated with Trotskyism” is a bit of understatement though, don’t you think.

      6. Not necessarily nationalist nor patriotic, it is that each region has particular conditions that is understood better by locals. An international force will at most cause destruction. And I am not favorable to an alliance with a burgeoisie, I tend more to favor their purge. I think there is enough industrialization to justify any such move.

        For the Trostkyte part, I don’t think the 1st world has enough revolutionary potential to do any revolution. It must eventualy be dismantled by an international force and then, by means of overwheleming larger 3rd world, be coerced into colaboration. Then, they will have to be teach of socialism or it will be mere destruction. This is the core of the international strategy of 3rd worldism world revolution.

    2. I agree. TRPF is the “culminating point” of Marx’s labor theory of value. Robert’s exposition of capital’s historical tendency is lucid and masterful. It provides a road map showing how “The real barrier of capitalist production is capital itself.”

      If that barrier hadn’t been quite reached by 1914, the naked personifications of global capitalism, driven by diminishing profitability, have all the world trapped against this impoverishing wall of capital.

      Marxists of the world unite! All we have to lose is fatuous doubting of the self-evident and fear of the state. Break down that wall …. Free Julian Assange!

      1. This comment was intended as a comment of vk’s comment above. Somehow it ended up down here.

    3. I guess it’s comparable to a Darwinist not “obsessing” over evolution by natural selection. The notion borders to an oxymoron.

  2. Dear Professor Michael Roberts.
    I am also obsessed with Marx’s law of falling rate of profit and as I read his posts I am even happier.
    I would like to make a series of videos on a YouTube channel about the “greatest law of Marx”, I ask for permission to use your slides in SOAS to serve as the basis of the presentation.
    As it will not be a presentation for Marxist economists, but for Marxist activists, I will have to add more information that is obvious to initiates on the subject, but for those who are not, it becomes more difficult, for example, as an introduction I think of showing the case of “zoombies entreprises” ”As a demonstration that capitalism is really hitting bottom.
    I will also have to better illustrate the questions that they make about the law on the trend of falling profitability, for that I would need some references, in addition to your blog, that would be simpler and that you are free on the Internet, for that I am contacting you.
    My YouTube channel is called “Engenheiro Maestri” and it is growing, but it is still very small, but the growth is almost exponential, so I hope that the “pro bono” work will be successful.
    I await the answer to start my work.
    Rogério Maestri.

  3. Nice explanation but it does beg the question: If S varies by induced effects of increasing C then why is it considered as an independent variable in the LTRPF equation? Is there an empirical equation based on historical data developed?

    1. Mike – a very good point. Marx uses the concepts of tendency and countertendency to argue that ‘the law as such’ is the dominant force’ to make a distinction between the rise in the organic composition of capital and the rate of exploitation. One way of deciding whether that is legitimate is to consider what would happen to the rate of profit if you kept the rate of exploitation constant in your empirical calculation. Carchedi does that here and in Chapter 3 of our World in Crisis book. The result is that the ROP always falls when the OCC rises but the ROP does not always rise when the RSV rises.

      Theoretically, while a rise in the organic composition of capital may cause a rise in the rate of surplus value, such a rise also depends on the balance of the class struggle. Conversely a rise or fall in the rate of surplus value does not cause a rise or fall in the organic composition. That supports the view that OCC is the tendency or law as such and RSV is a countertendency.

      1. The problem is a rise in the organic composition of capital, a rise in value of its technical composition, cannot increase the rate of surplus value directly. The increased machinery creates no new value, so if the wage remains the same and the working hours remain the same, there is no additional surplus value remains the same. Only if the value of wage falls, and falls disproportionately to any decline in overall working hours; of if the wage falls and hours increase; or if the wage falls without a reduction in working hours, does the proportion of the working day devoted to surplus labor time increase.

        Marx establishes these very restricted and special circumstances for the increase in relative surplus value, and then appears to immediately forget them in further discussions– identifying the increased application of machinery as directly and immediately increasing rates of surplus value.

        During the long deflation of the 1868-1895 period in the US, this “perfect storm” of capitalist accumulation– increased application of machinery and declining wages– prevailed as the trend though the oscillating periods of expansion and contraction.

        The logic of Marx’s labor theory of value leads us to conclude, against what Marx posits, that in fact the increase in the organic composition of capital is not identical with increased rates of surplus value: and that there is less new value being circulated throughout capital; and a declining mass of surplus value, unless and until new sources of ever cheaper labor can be brought into the networks of accumulation. And….thus the coincident need for advanced capitalism sustaining the attack on the living standards of workers in the advanced countries– a la Thatcher, Reagan, Major, Bush, and….Macron.

      2. To comment on your post Anti-Capital, Marx does actually state that surplus value can be increased by increasing the productivity of labor. To put it simply, by reducing the necessarily labor time, capitalists are able to increase surplus labor time. They reduce necessarily labor time by reducing the value of labor power. This is done through a cheapening of products, and THIS is done by reducing the amount of labor time necessary to produce these products. Chapter 17 of Capital Volume 1 is all about this.

        “Further, the value of labour-power cannot fall, and consequently surplus-value cannot rise, without a rise in the productiveness of labour. For instance, in the above case, the value of the labour-power cannot sink from three shillings to two, unless an increase in the productiveness of labour makes it possible to produce in 4 hours the same quantity of necessaries as previously required 6 hours to produce. On the other hand, the value of the labour-power cannot rise from three shillings to four, without a decrease in the productiveness of labour, whereby eight hours become requisite to produce the same quantity of necessaries, for the production of which six hours previously sufficed. It follows from this, that an increase in the productiveness of labour causes a fall in the value of labour-power and a consequent rise in surplus-value, while, on the other hand, a decrease in such productiveness causes a rise in the value of labour-power, and a fall in surplus-value.”

        As well as this, Marx states that even with a rise in real wages it is possible for surplus value to increase so long as productivity had increased.

        “The value of labour-power is determined by the value of a given quantity of necessaries. It is the value and not the mass of these necessaries that varies with the productiveness of labour. It is, however, possible that, owing to an increase of productiveness, both the labourer and the capitalist may simultaneously be able to appropriate a greater quantity of these necessaries, without any change in the price of labour-power or in surplus-value. If the value of labour-power be 3 shillings, and the necessary labour time amount to 6 hours, if the surplus-value likewise be 3 shillings, and the surplus-labour 6 hours, then if the productiveness of labour were doubled without altering the ratio of necessary labour to surplus-labour, there would be no change of magnitude in surplus-value and price of labour-power. The only result would be that each of them would represent twice as many use-values as before; these use-values being twice as cheap as before. Although labour-power would be unchanged in price, it would be above its value. If, however, the price of labour-power had fallen, not to 1s. 6d., the lowest possible point consistent with its new value, but to 2s. 10d. or 2s. 6d., still this lower price would represent an increased mass of necessaries. In this way it is possible with an increasing productiveness of labour, for the price of labour-power to keep on falling, and yet this fall to be accompanied by a constant growth in the mass of the labourer’s means of subsistence. But even in such case, the fall in the value of labour-power would cause a corresponding rise of surplus-value, and thus the abyss between the labourer’s position and that of the capitalist would keep widening.”

        It is possible to have rising real wages and rising surplus value, but only alongside lower relative wages for the worker (born out of increased productivity).

      3. I’m well aware of what Marx wrote. Quoting what Marx wrote doesn’t solve the problem. In chapter 12 of vol 1 of Capital he carefully restricts the production of relative surplus value to the specific circumstances where the decline in prices of the means of subsistence causes the value of the labor power to fall. That fall is expressed in a decline in the time necessary to reproduce the labor power–thus in the wage, relative to the total hours expressed in production..

        So, producing more goods in the same working period with a decline in the wage yields an increase in the relative surplus value, while the total value remains the same.

        Producing more goods without a decline in the wage in the same total working hours creates no additional value. and no additional surplus value.

        Producing more goods with a decline in the total wages proportional to the decline in working hours yields less total value and does not change the surplus value. That is to say if the application of machinery reduces the total working hours dedicated to production by half through reducing the number of workers by half, there is no change in the wage, the value of the labor power, no increase in value, no increase in surplus value. Only if the reduction in value of the commodity is expressed in the decline in value of the labor power can relative surplus be extracted.

        Application of machinery and reduction of working hours means that less new value is being created in the system.

        Without a decline in the value of the wage, not as a proportion of the constant capital, but as a proportion of the working day, there can be no increase in relative surplus value.

        Correct, the wage need not decline in lock-stop with the value of the labor power, leading to the notion that workers “share” in the increased productivity– but the fact remains that the value of the labor power has declined for there to be, in this circumstance, additional surplus value to be “shared.”

        I believe some time ago, in a paper, G. Carchedi remarked on this “probem”– [my term, not his] with notions of technology increasing the rate of surplus value simply by its nature of being technology. At least that’s how I remember it.

  4. Dear Professor Michael Roberts.
    I have a problem with The Falling Rate in the case of Sweden. Sweden is a nice example on how capitalism can function in the best circumstances. Until about 1990, when the game is changed totally. And not in any of the usual ways, but to a almost total stop in shortening of working hours per employed and a total stop in lessening of working hours per capita. Which as far as I can see is unique internationally and historically. Mi WP account is having problems, so I can’t upload the English version of my article, but the diagrams are up. First the diagram shoving the development from 1870. Working hours annually / employed is vertical and the total working hours made during the year divided by number of inhabitants is horizontal. The diagram for the years since 1993 is shown again in
    Is this only a local phenomenon do you think?

      1. Agreed. But other in most other OECD countries and OECD in average, the trend is towards more working hours used for the yearly consumption per capita. While Sweden almost has made a full stop in both dimensions? You can see the more common “stub” in he German data, I have that calculated Germany in the same way in a diagram at
        The short zig-zag “stub” 1997 and on looks a bit like the beginning 1870-89 though?

  5. We need to stop being abstract and let the data do the talking. As it has happened, since 2008 the organic composition of capital in the US has stopped rising. This is due to a combination of a deceleration in the rate of fixed investment which Michael has pointed to as opposed to an increased investment in labour in areas such as the gig economy. This being so, how do we explain the unbroken fall in the rate of profit for six years since 2014. I do not have all the answers but I do know that turnover has decelerated sharply, that the gains of the current phase of globalisation have been exhausted, that the US’s economic position has deteriorated and finally that some of its key companies do not produce value because they offer free to use services like Google.

    On another point. In Chapter 10, Marx provides not so much a solution, as an example, to show the direction surplus value needs to be re-distributed and by how much, in order to reconcile prices and values such that an average rate of profit can emerge. No more no less. The fact that his critics has misrepresented what he set out to achieve should not trip us up.

    Finally our day is coming. The market crashes this week attest to this. In the mean time can we have some decorum on this rare and valuable Marxist website.

    1. ‘Finally our day is coming. The market crashes this week attest to this ’.
      What is it that ‘is coming’ ?. What exactly is coming? I hope it is not winter (Game of Thrones), said so with a bit of humor. It is a concrete question for a statement just something concrete, shocking, and intriguing. Yes, you are right, a little concreteness is desirable and efficient in this blog if rare and valuable but with a certain excessive dose of abstraction. Not abstract in the articles but in the comments.

      1. You know I don’t mean it that way. I am concerned the invective overtakes the analysis. Unless we defeat capitalism intellectually workers will go down to defeat. The battle over ideas is the superior battle and I see this site as one of the few areas to debate the most fundamental aspects of theory.

      2. Point taken; but we ought to accommodate, if not welcome, polemic, and not least because the “battle” over ideas cannot be separated from the tactics and the strategy of the battle for power

    2. USA’s OCC may have stopped growing, but so has profit rate.

      There are many combinations possible in this scenario. The main one, in my opinion, is the fact that those “gig jobs” rapidly drain the industrial reserve army, therefore lowering unemployment rates, which pressure wages up again (even though from a lower base).

      Since gig economy is extensive by definition, this put a very low ceiling. Once the industrial reserve army depletes, there’s no way up for the extraction of total mass of profits. It’s like slavery in this sense: there’s a limit you can whip the slave – after that, the slave is dead.

      Another important thing to point out is that the rise of the gig economy doesn’t imply in the destruction of old, less productive capital. The capital continues to be there, as inefficient as ever – the only difference being the idle capacity rises (which makes the situation of accumulation even worse in the medium to long term). Needless to say, newer, more productive, capital won’t rise in this situation.

      In conclusion, I think the gig economy slowed down the fall of the rate of profit, but did not stop it – didn’t even come close.

  6. Interest being a component of profit, negative interest rates are a clear proof that average profit rate is falling.

    1. Strictly speaking that is not true. It depends on the phasing of the business cycle. There are three phases in the up-half. Rising animation, prosperity and overproduction (Marx) . Incidentaly the capitalists also identify 3 + 3 phases but name them differently. Of the three prosperity tends to be the longest phase. In this phase profits and investment rise rapidly but if investment is met largely by growing internal funds (retained profits) that is a negative for interest rates. On the other hand during the end of the period of overproduction when turnover stalls, both depressing profits and creating an urgency for more credit, interest rates spike, unless central banks intervene.

  7. ” I am concerned the invective overtakes the analysis.’

    Agreed, which emboldens me to refer again to Robinson on his island.

    ”But the law is only valid if two other laws of motion of capitalism that Marx held to are also valid.

    The first is the law of value.”

    Robinson constructed a boat that took, say, 500 hours, but it proved too large for him to be able to launch. Since this construction proved to be useless i.e. it did not constitute a use value, the value of labour employed was socially unnecessary. If it be argued that there was no society on the island I reply that Robinson constituted his own society. Robinson is adduced by Marx because he demonstrates the simple nature of the concept of value, that value equals socially necessary labour -time.

    1. Socially necessary labor time is a dialectical, historical materialist concept. Here, as you point out, Crusoe himself constitutes a social order of one. But he only produces use values. So his socially necessary labor time is specific to… what? solecistic communism?).

      Socially necessary labor time within capital’s social relation is specific to that relation, as is pointed out in this post. The capitalist mode of production increasingly produces all sorts of useless, polluting, even destructive products–from our point of view. But not so from the point of view of capital, if such products are profitable. That’s why Marx characterized such surplus value producing labor alienated labor. Under capitalism, socially necessary labor time is alienated labor time.

      1. Martha, I am not clear as to what point you are making. My own point is that the concept of value is readily grasped and that even Robinson is subject to necessary labour time. If during the year he devoted too much time to improving the comforts of his shelter and not enough to food production, he might starve.

        So too under socialism we cannot dispense with the concept of socially necessary labour time cf ”Why the Law of Value Applies in Socialist Economies” ( Cockshott ”How the World Works” 6.8 pp250ff). If you deny this, then how do you counter the socialist calculation critique of von Mises?

        Some Marxists hold up ideal societies and condemn as deficient those revolutions that fail to meet their ideal. A case in point was Bordiga, who argued ( 1954) that the Soviet Union was state capitalist because the workers paid for goods in shops with rubles. By this argument Ancient Rome must have been capitalist too, for the inhabitants of these rickety Roman tenements certainly purchased their means of consumption. In fact, and you can still see the evidence in Pompeii, they were rather partial to takeaways ( thermopolia-hotsellers, literally).

        But this on Bordiga’s part was really begging the question, and as Cockshott points out, the prices in product stores bore only a slight relation to the social labour consumed in their production i.e. they were not determined by the law of value. As Cockshott observes, as is too often the case with leftist critics, Bordiga ”was none too specific as to what alternative form of economic calculation to use” (op. cit. p 208). What the ultra-leftism of the Bordigas, with their denial of the application of the category of value to socialist calculation, gives rise to may be seen in the organ of their “International Communist Party” ( No3 May, 1977), which states that the 1949 Chinese revolution was capitalist. Now at this date (1977) 85% of the Chinese population was organised into communes, a description of the economic aspect of which is offered by Jack Chen in his ”A Year in Upper Felicity” (1974). Jack had this advantage over any bordigist that he went to live and WORK with the peasants and so had some knowledge of what he was talking about. Now in Jack’s analysis one looks in vain for any categories that express wage labour, a labour market, capital advanced by the state etc.. The subsequent transformation of the Chinese agriculture is explained by the state capitalists as a march towards private capitalism; but in fact the companies taking over Chinese agriculture to promote industrial farming are themselves state companies or state backed companies.So what alternative organisation of socialist agriculture did the bordigists offer? None! Just empty rhetoric. And this is all too common and indeed reactionary. As Cockshott observes, ”we cannot judge the real world by the standards of an ideal one. It is not the job of reality to materialise our ideals ( P209). If like Bukharin one disagrees with Marx that the ‘categories of bourgeois economy are valid for all other economic formations”, albeit cum grano salis (”Towards a Critique” P211), it is then incumbent on one to explain which economic categories one will then employ to grasp, explain and control a socialist economy.

      2. Like you, I really am confused about whether we agree or not. Maybe neither of us was very clear.

        What I attempted to show is that the concept of socially necessary labor time is a measure of value (exchange or use value) that varies with (and reflecting) the social relation within particular social orders (not simply their modes of production, which reflect their social relations): hierarchal verses egalitarian; production of use values verses production of exchange values; mixed economies, etc.

        I was not arguing against the universality of the concept of socially necessary labor time, but against the assertion of the universality and timelessness of the capitalist law of value which is based on (bourgeois) socially necessary labor time, on the privileging of the production of exchange value over use value.

        Do the fundamental characteristics of the capitalist mode of production–a reserve army of labor, private property in the means of production, wage labor, production for profit rather than use,etc.–apply to the Chinese communes you exemplify? You seem to imply that they do not. Or to any use value producing social formation present of past? to any “socialist” regime, existing or defunct, in all their varieties? Things debated ad infinitum, but not by me.

        What did Marx mean when he asserted that all categories of bourgeois economy are valid for all other economic formations, when the Critique of Political Economy itself is a critique of such liberal assumptions by Smith, et. al.?

        As I understand the metaphor, when one takes a proposition with a grain of salt, one takes note of its apparent or partial truth, but rejects it in essence, as in fact, he does.

      3. ‘Do the fundamental characteristics of the capitalist mode of production–a reserve army of labor, private property in the means of production, wage labor, production for profit rather than use,etc.–apply to the Chinese communes you exemplify?’

        No, and that is just the point. I read an essay years ago by Trotsky, which I would have thought Bordiga must certainly have read, and which decisively refuted the whole thesis of the Soviet Union as state capitalist. Now unless one suspects Trotsky of latent stalinism, why do Marxists of the stature of Bordiga continue to spout such nonsense? Some of these Chinese communes did not even have money, and as outlined by Jack Chen they demonstrate none of the characteristics of a capitalist economy, but note the peasants could sell their surplus products at peasant markets albeit at government regulated prices. But would the peasants sell their products at just any price? Clearly not; the price of any surplus goods they have to sell would have to compensate them for the labour spent on production, but such production has been carried on under communal relations with a view to social need, not under capitalist ones. Where in any of this economic activity is there any exchange of capital with wage labour? And it is not regulated by exchange value.

      4. That is exactly my point. Socially necessary labor time under non-capitalist social relations would be expended on the production of products useful to the community rather than useful for the production of private accumulation of surplus value.
        I’ve not read Bordiga, but lots of Trotsky, though I’m not a Trotskyist. But I think he was right about the Soviet Union. It was not state capitalist in the same way that your commune was not state capitalist…though, for tragic historical reasons, necessarily tending in this direction…. But let’s not open that putrid can of worms. We should honor the work of both revolutions for obvious reasons and move on.

      5. There is no reason to suppose that socially necessary labor time cannot be applied even under communism. Use value is, after all, a “value” too, and can be measured in labor time–but non-alienated labor time.

        Assuming a strong communist global position and an abundance of products satisfying basic need, in the decisions of the associated producers regarding what to produce and how, the question of greater need (of the community) would probably trump labor time (the opposite of capitalism).

        Probably the same would hold true even in exchanges between communities featuring free, non-alienated labor.

    2. Exactly what society, what social labor, is Robinson Crusoe performing, when he’s producing only for himself? Value does not exist separate and apart from its social expression of exchange value, which is precisely why, IMO, Marx begins Capital with the investigation into the commodity.

      If Robinson Crusoe produces a canoe too heavy or bulky to be launched in his solo existence, then he has produced no use value- time is NOT exchange value. Time BECOMES exchange value, becomes value, under specific social relations of production. If in a communal society 40 member produce a canoe that requires 12 members to launch and crew, have the 40 produced an exchange value, a “value” where time is “independent” an is itself the environment of production? Of course not. The 40 have produced with the agreement and cooperation of as a “free association of producers” the canoe, not for 12, but for the entire society. The time is not exchanged for the means of subsistence, the labor itself provides all in the society with the means to obtain subsistence. Those not of the 40 are not denied the benefit, the use value, of the canoe

      1. Let us suppose Robinson has escaped the shipwreck along with 29 crew. They decide to divide into two teams to build two boats to escape that will take 50 days of labour for each team. Because of their maritime experience they know that it will take them 30 days to reach, say, Chile. They therefore require means of subsistence for 30 people for 80 days. One team A completes its task in the estimated time, but the other team B that has spent too long lolling in the sun and will require an extra 10 days labour, so they will be facing a food shortage.

        Why does Marx use the illustration of Robinson but because it demonstrates the concept of value without the complications of exchange value i.e. necessary labour time that applies to all societies, e.g. if you devote too much labour to one department of the economy you run the risk of shortages elsewhere? The Soviet Union demonstrated this truism surely? What suggestions does Anti-capital have for rectifying such deficiencies?

        ‘Marx begins Capital with the investigation into the commodity.’

        Yes, the opening sentence runs, ”The society in which the capitalist mode of production prevails…’

        Let us assume a communist society. It produces a surplus of, say, tomatoes, which it tries to sell to a neighbouring capitalist society. If it cannot achieve this exchange does one then conclude that the goods have no value? Clearly they still have a use value.Does the category of value not apply to their production because they have failed to sell? Under capitalist relations of production they have no value; but under communist relations the situation is different, for the goods still have a use value. Nevertheless, even here TOO MUCH SOCIAL LABOUR TIME has been devoted to their production.

      2. You need to question your assumption. Why is one “team” “lazier” than the other? If your scheme allots for lazier and less lazy, then the entire basis for your value formation and formulation is skewed because there isn’t any equality established by abstract labor– there’s no way of determining equivalence. So in your very efforts to preserve value but do away with exchange you have destroyed the very basis for value itself– abstract labor expressed as time; and it is time that is being exchanged with the production of value.

      3. “Let us assume a communist society. It produces a surplus of, say, tomatoes, which it tries to sell to a neighbouring capitalist society. If it cannot achieve this exchange does one then conclude that the goods have no value? Clearly they still have a use value.Does the category of value not apply to their production because they have failed to sell?”

        You assume the market, the relations of exchange, and then you try to argue that value exists without the market, the relations of exchange.

        Marx, somewhere in Volume 2 I think talks about how once the products of non-capitalist formations, whether be a commune society or feudal or semi-feudal modes, come into contact with commodities in the market, these products function exactly as commodities in the circuits of capitalist reproduction.

        So products produced in conditions other than value relations get VALUED according to the conditions of their reproduction in capitalist society.

        That’s one answer to your speculation.

        The historical answer is that you have expressed exactly the reason why there can be no such thing as socialism in one country, or in a collection of countries– that exchange definitely entangles the isolated producer, whether it be a subsistence agricultural producer in China, or the latinfundista in Mexico, or the isolated “socialist” state, in the circuits of reproduction and exposes all to the corrosive impact of the law of value. Doesn’t make the subsistence producer a capitalist, or a value producer, but makes him or her subject to the law of value.

      4. In a post capitalist society the proportions in which resources are to be distributed among the various facets of the economy and a ratio established between production and consumption which unit of calculation do you envisage such proportions will be expressed in ?

      5. ”You assume the market, the relations of exchange, and then you try to argue that value exists without the market, the relations of exchange.” No, the communist society produces for use. However (purely by way of example) let us assume one year it has produced a surplus and decides to attempt to sell this to another society whose production is determined by capitalist relations. The capitalist society, if it has a need for tomatoes , will offer the market price. The commune might accept this, but on what basis? That whatever they get in return will be a rough compensation for the time they have spent producing their tomatoes. The commune does not produce commodities but once their product leaves the commune it is subsumed under the market relations prevailing in the other society. The productive relations of the commune are not determined by so-called market forces.

        Why did Marx get bogged down in his Russian studies? As J.D. White explains,”Marx and Russia” (2019) Marx had assumed that as capital circulates it subsumed other spheres of production so that eventually every product would become a capitalist commodity. His Russian investigations demonstrated that this was untrue. The commune as elsewhere was undermined by state power. In Africa for example the British Colonial power imposed a money tax to force the natives to engage in production for exchange.

        ”So products produced in conditions other than value relations get VALUED according to the conditions of their reproduction in capitalist society.” Of course goods that enter the capitalist market sell at their market value, but this value is determined outwith the relations that determine their production within the commune, which is geared to social use not exchange.

      6. That’s a good question, and I’ll try an answer when you answer the objections raised to your theory that the law of value persists without capitalism, and without exchange value, and that indeed, socialism rather simplistically rationalizes the law of value into “time chits”– distributing products according to chits representing hours of labor vs. the hours of labor embodied in the …..commodities, because essentially, you are preserving commodity production, simply providing a different name for the means of exchange.

        I’m not being snide or facetious about this. You’ve made specific claims which I think I’ve shown assume as existing conditions you claim are abolished. That’s the first issue we need to explore.

      7. ”socialism rather simplistically rationalizes the law of value into “time chits”– distributing products according to chits representing hours of labor vs. the hours of labor embodied in the …..commodities, because essentially, you are preserving commodity production, simply providing a different name for the means of exchange.”

        You do me too much honour. The idea of certificates of labour is that of Marx himself, who explains that citizens draw means of consumption according to the value of their labour certificates, that is they exchange labour in one form for labour in another. Such certificates no more ‘circulate than theatre tickets.’ Critique of Gotha Programme.

        What worries me is that critiques of previously existing socialism are all purely negative. What to do instead? It opens the door to super revolutionaries and ‘instant communism’ !

      8. One very useful way to see and measure the progress of socialist states is the forced progress in capitalist states at the same time. Especially in states bordering to socialist countries. In the case of Sweden the progress stopped and turned to regression and then stagnation when the Soviet Union was dissolved. See link 1)
        I think that the capitalist class has understood the danger in further development of the forces of production – including but not only the lessening of profitability – and prefers “development” in the direction of some kind of nobility. I think Karl Marx saw this danger very early and that is why the Communist manifesto says “The proletariat will use its political supremacy to wrest, by degree, all capital from the bourgeoisie, to centralise all instruments of production in the hands of the State, i.e., of the proletariat organised as the ruling class; and to increase the total productive forces as rapidly as possible.” 1)

      9. Yes, I know Marx wrote that and where he wrote that and it’s all too clearly a “placeholder” stop-gap answer to a fundamental question which goes the very core of the differences between socialism and capitalism.

        I think Marx’s positing of time chits is not a very good answer that has been made that much worse by those who have seized on it, because no what Marx says, or what we think, or what Cockshott proposes (electronic chits linked to a specific identity), they will circulate, either fraudulently, or in a black market, or in a gray market, where I use my chits for you in exchange for something you do for me.

        It’s a scarcity based system; and scarcity based systems always, but always, engender classes, private property.

        I don’t know about super-revolutionaries, but I’ve got nothing against instant communism; immediate abolition of banks; opening of the borders; and all the other “irrational idealism” or excessive exuberance that accompanies revolution.

        After that, after we get beyond the point of excessive exuberance I think the actual methods of distribution will be developed by class itself, for itself, and for others, that actually makes the revolution. The notion of time chits is marked, scarred actually, by the conditions of its origin– the creation of individuals who divide workers into “good” and “bad,” “productive” and “lazy” etc etc etc. when in fact the revolution is supposed to provide the basis for transcending all that dross that clings to us.

        Keep in mind what Marx wrote way back when in the Poverty of Philosophy:

        ” If the mere quantity of labor functions as a measure of value regardless of quality, it presupposes that simple labor has become the pivot of industry. It presupposes that labor has been equalized by the subordination of man to the machine or by the extreme division of labor; that men are effaced by their labor; that the pendulum of the clock has become as accurate a measure of the relative activity of two workers as it is of the speed of two locomotives. Therefore, we should not say that one man’s hour is worth another man’s hour, but rather that one man during an hour is worth just as much as another man during an hour. Time is everything, man is nothing; he is, at the most, time’s carcase. Quality no longer matters. Quantity alone decides everything; hour for hour, day for day; but this equalizing of labor is not by any means the work of M. Proudhon’s eternal justice; it is purely and simply a fact of modern industry.”

        “…we should not say that one man’s hour is worth another man’s hour, but rather that one man during an hour is worth just as much as another man during an hour.”

        I think your “administered scarcity” has at core more in common with Proudhon’s eternal justice, and less in commone with Marx’s emancipation of labor.

        Do I know how, post revolution, goods will be distributed? Hell no, or rather, I know how they WON”T be distributed: on the basis of value; on the alienation of labor time as a means of exchange. I know that to become more than a poor copy of capitalism, a mimic, distribution will have to be determined by need, and by dropping all the pretense about “undeserving” and “shirkers’ and all that primitive anti-communist baloney brought back unfiltered from the corpse of Leninism that says: “he who does not work, neither shall he eat.” The bourgeoisie have been beating that drum forever. Our task is not to make a universal equality of that class’s pettiness, viciousness, mean-spiritedness.

        OK enough poetry, have to go back to work now and earn my nightly baguette and Bordeaux.

      10. ”because no what Marx says, or what we think, or what Cockshott proposes (electronic chits linked to a specific identity), they will circulate, either fraudulently, or in a black market, or in a gray market, where I use my chits for you in exchange for something you do for me.”

        If I were to surrender my credit card to you, I should not be able to access means of consumption myself. Moreover, these credit cards can be encoded with rationing and cut off dates, which would help planning.

        ” I think the actual methods of distribution will be developed by class itself, for itself, and for others, that actually makes the revolution” Why do you exclude yourself from this process? This suggests,”Don’t ask me. It will be all right on the day.” People want concrete answers. This is an abrogation of intellectual responsibility.

        ”the creation of individuals who divide workers into “good” and “bad,” “productive” and “lazy” etc etc etc. when in fact the revolution is supposed to provide the basis for transcending all that dross that clings to us.”Which basis? The Cultural Revolution in China? The New Man in Cuba? Failed!

        ”I think your “administered scarcity” has at core more in common with Proudhon’s eternal justice, and less in commone with Marx’s emancipation of labor.

        Do I know how, post revolution, goods will be distributed? Hell no, or rather, I know how they WON”T be distributed: ”

        Well, I have challenged you before on scarcity. We socialists hold that production will be organised to address social need. Social need is socially determined and not individually identified. Some goods will be distributed free at the point of use. In Scotland women are all soon to receive sanitary products free, as is already the case with medicines. But these are still rationed. The doctors distribute medicines according to perceived need and their budget. It is not a help yourself to what you think you ‘need.’

        It is quite metaphysical to posit scarcity to abundance as absolute rather than socially determined categories.All societies must produce a surplus of goods. I think however it is a misreading of Marx’s ‘Uberflussigkeit’ to translate it as ‘abundance’ rather than ‘a superfluity.’ I have no ides where all this abundance is to come from. Those who asserts its productive veracity certainly keep to themselves the mysteries of its practical viability.

        I for one advocate that in the face of global warming we socialists should be clamouring for a wartime economy, which certainly involved widespread planning and rationing (Cockshott, ”How the World Works” Ch 6). However a leading Scottish socialist told me people would not like it. Now I am old enough to remember coupon rationing in the UK. My breakfast consisted of toast with a half a fried egg. The showpiece of the week was a Friday when my ration card entitled me to my weekly bar of chocolate. Shortly after when rationing was abolished, I discovered I was poor, for though I noticed other children were now able to buy as it seemed to me a surfeit of good things, my daily breakfast continued to be half an egg and my weekly confectionary one bar. The mode of rationing had changed from coupon to money!

        Fortunately, that is no longer the case for the immediate future at any rate, and like yourself surrounded by abundance I look forward this evening to my favourite Bordeaux.


  8. If the average hours of labor per worker approaches zero and the average cost of living – counted as the labor-time contained in their consumption – also approaches zero, it seems it would become difficult to reproduce a class division like today. Rather one would expect some new type of society built on the greater productivity of human labor. Sweden’s history up to 1990 (or 1983 depending on what kind of turning in the policies one choses to define as the end) is an example of capitalistic development in that direction. And also of course an example of the falling rate of profit. The problem that falling profit rates is for the private capital was in Sweden solved by the state taking over as the ideal collective capitalist, administering Sweden for the owners (14 or 16 “families”) until it was time for restoration.
    A rather daring solution to the Kalecki “Political aspects of full employment”. Which depended on Sweden being a “family”-business.

  9. Michael Roberts, Can you please give me permission to use your G7 ROP graph from your blog of September 9, 2017 to include in an essay on Marxism and America to be published by Manchester University Press. Or send me your email address and I will send you a permission form for MU Press. Thank you
    Kim Moody

  10. The article is fantastic in terms of synthesis of Marxist and socialist knowledge, but, in my opinion, it contains a fallacious argument. Error that does not detract from the whole, without a doubt.
    ” The second capitalist will then introduce it and also gain some profitability (but not as much as the first did) at the expense of the other less efficient ones. But once all capitalists adopt the technology, the extra profitability for introducing it will have dissipated. ‘’
     In this reasoning there is, I fear, a non-sigitur fallacy. When it is said that all the capitalists introduce the new technology, it should also be indicated that it happens to that rest of the capitalists, as happens to the 2nd capitalist, that ” also gain some profitability (but not as much as the first did ”. The key is that except the 1st innovative capitalist (Apple / Google / Amazon / etc ..) ALL other companies in the same productive sector cannot introduce the SAME technology, unless Apple’s license and patents are available (assumption not seen) in the markets), competitors will always be introducing different samrtphones, software, hardware, etc. with less innovative potential.The reality of the market is that Apple competitors always have different and less innovative technologies, different and worse know- How, different and worse human capital, etc … and quite a few smaller benefits. In Apple’s monopoly income there is no ‘spill’ of any benefits to other competitors.
    Does anyone else criticize that fallacy non seguitur ?. Many and I think … you. same. See this correct and accurate analysis in your article Capital ’Capitalism without capital – or capital without capitalism?’. This reasoning is the antithesis of the first. And it is the right one.
    Under ’Under capitalism, the rise of intangible investment is leading to increaed inequality between capitalists. The leading companies are controlling the development of ideas, research and design and blocking ‘spillover’ to others. The FANGs are gaining monopoly rents as a result, but at the expense of the profitability of others, reducing them to zombie status (just covering their debts without the ability to expand or invest).
    Finally, if it is very likely that the rate of profit tends to fall in capitalism in all its markets. His graph of that declining rate in 150 years of capitalism is impressive. But this drop in the joint rate should not be due to the new technology reducing profitability by increasing the C.O.C of companies. The profitability of the innovative monopolist remains as you even affirmed in the 2nd analysis. This joint decreasing rate must happen, rather, because of the decreasing rate of profits of non-monopolistic companies. Only your profit rate is the one that decreases. If your rate decreases and if your profit mass is the majority (more than 50%) of the market, the government rate should decrease, no doubt.
    That is, the Law of the Decreasing Income Rate remains true, but its existence has this other cause mentioned: the declining rate of non-monopolistic companies.

  11. Hi Michael,
    Marx calculates the rate of profit as s/(c+v). This is the rate of profit that capitalist is supposed to look at to decide whether to invest or not. Then, why on earth would she be interested in the wage component? All that matters to her is to know, after a certain period of time, how much she can add to her initial capital. That is s/c where s is what is left after paying for the factors of production (wage, input, capital depreciation etc.). If she invests 100 units on capital and sets up the business, and surplus is 10 and wage is 30 then which one would matter to her?
    10/100=10% or 10/(100+30)=7.7%
    Which one do you use in your analysis and reporting?

    Also, Marx divides nominator and denominator by v (i.e. (s/v) / (1+c/v) ) to show that increase in organic composition increases the denominator and hence decreases the rate of profit whereas at the same time increase in organic composition means a smaller v and increased rate of exploitation (i.e. the nominator). So, when both nominator and denominator increase how can we be sure that the rate of profit decreases? It can increase, decrease or remain constant.

    1. Hi Ari two good questions. My answer to the first one: in your example if the capitalist starts with a money investment of 100, the wages (V) of 30 come out of that. If the surplus value is 10 in your example, then the constant capital (C) must be 60. The rate of surplus value (S/V) is 33% and the rate of profit (S/C+V) is 10%. You cannot add your 30 in wages as separate from the money invested of 100. – only if you start with 130.

      Yes, the example of C/V versus S/V would suggest that the rate of profit is indeterminate in the sense that the CV could rise less than S?V or rise more. But Marx’s point is that there is no limit in the rise of C/V but there is a physical limit in the rise of S/V, as V is living labour and it cannot work on air. Indeed, V will also depend on the historical and social norms in a a particular economy. As C/V rises, it increases the productivity of labour and thus reduces the cost of reproducing V in labour time. So V tends to fall and so S falls too (unless capitalists can raise the rate of exploitation), So C/V tends to rise while there are finite limits on the rise in S/V. In that sense, the law is not indeterminate but logical and realistic. And empirical evidence backs it up.

      This article by E George sums it up more precisely.

      Anybody else want to comment?

      1. First circumstance: Competition. The capitalist has no knowledge of a solitary source of profits in wage-labor. The capitalist has every knowledge as to cost. If capitalist A’s cost is 30% greater than capitalist B’s cost, capitalist B capture’s “the market” through differential prices of the commodities, which means in essence a reallocation of the total surplus value in favor of capitalist B. How does A reduce the cost of production? Through the substitution of accumulated labor, of capital, of machinery for labor power, getting us to the second issue.

        Second circumstance: I think the reason is a bit different than the “physical limits” explanation. I think the smaller v is not offset by a higher rate of exploitation, by a higher rate of surplus vale. No additional value is extracted when v declines as a portion of c. 8 hours is 8 hours regardless of the number of pieces of bubble gum produced Only if v declines as a portion of the total working hours is there an increase in the mass and rate of surplus value.

        The path of capital accumulation is that labor is expelled from production, meaning the v declines as a proportion of c, without impact on the rate of surplus value. The system is sustained again through price, through “markets”– where the total surplus value is reallocated through price– including an increase in price, to support the more technically intensive sectors. Think oil production, by far the most technically intensive of industrial sectors, with generally reduced rates of profit, sustained by market prices well above the cost of production.

        That’s my explanation and I’m sticking to it until I find a better one and maybe even after.

      2. Thanks Michael. I agree with you on your second point. But not on the first one.

        Lets consider simple production cycle of M -> C -> (M + delta M)
        no matter what, profit here is defined as: (delta M) / M

        I assume that there is no input material involved in the process.

        if M=100 includes C+V where C=70 and V=30, then
        sales revenue (R) would include capital depreciation and surplus.
        R = S + delta C
        after paying for the capital depreciation, all that is left for the capitalist is S + C so (M + delta M) = S + C.

        A 10% profit in this case would mean:
        p = 10% = ((M + delta M) – M) / M = [S+C – (C+V)] / (C+V) = (S-V) / (C+V)
        = (S-30)/(70+30) => S=40 & p = (S-V) / (C+V)

        if M=100 only includes C and wage is to be paid from the sales proceeds at the end of the production cycle, then
        sales revenue (R) would include capital depreciation, wage and surplus.
        R = S + V + delta C
        after paying for capital depreciation and wage, all that is left for the capitalist is again S + C, so (M + delta M) = S + C

        A 10% profit in this case would mean:
        p = 10% = ((M + delta M) – M) / M = [(S+C) – C] / C = S / C
        = S / 100 => S=10 & p = S / C

        This example shows that even if we go by your definition of M=S+C,
        the rate of profit would not be S / (C+V) but rather
        p = (S-V) / (C+V) = (S/V -1) / (C/V + 1)

  12. Dear Mr. Roberts:

    Could the declining rate of profit be the reason why “factories without workers” is not going to happen in Capitalism?

    In this case, I understand that the market would not pay for the enterprise profit. The market only pays for profit if there are workers and wages. Is it so?

    The point is Why? Why the market doesn´t behaves in a similar way with workers? I mean, shouldn´t the market just pay for the cost of wages in the same way as they pay for the cost of machines or raw materials?


  13. If the number of workers and working hours don’t increase :
    The amount of s+v will be the same and any change in productivity just changes the proportion of s over v
    s+v = q and q is constant
    So s = q-v
    The s/c+v can be expressed as
    If v becomes very small amount (because of cheapening of consumed goods of workers) It can be ignored
    So rate of profit in the long run will tend to be q/c
    q is constant but c is increasing because we have accumulation of capital

  14. “As capitalists spend more of their profits on means of production to boost the productivity of labour and reduce costs”

    But what if they start to spend their profits on investments in the financial sector? If the profitability is falling, they can just buy bonds and earn much more.

    1. Bruno – yes they have been doing just that but finance cannot live on air, only on surplus value and the productive sector is where that is created. There is a limit to profits from fictitious capital.

  15. How does the idea that only human labour creates value mesh with lights-out manufacturing? You can leave a factory going by itself and when you come back the next morning there’s a load of new product waiting for you. Is that a far more extreme form of dead labour or is it something else?

    Going the other way, what about capitalist improvements that don’t require new machinery or other technology? The Toyota Production System includes reducing waste, improving workflow and plant layout, and having a well-trained workforce who can take more responsibility for production. Do those kind of changes represent other aspects of relative surplus value, or are they something different? Does they also reduce the value of labour?

      1. There is such a perfect factory going on today. It gives out the most aqutely neccesary substance for human life: Oxygen. When a factory or a tool or a thing is not used as a means for sucking out surplus value out of human work it becomes like a part of nature. And is treated as value-less by capital.

        If productivity reaches a level where the human wage-labour needed for reproduction of humanity gets small enough the capitalist method for organizing production will become impossible. If the owners of factories etc. cannot get a workforce into wage-slavery by threatening with starvation or even poverty, other means of persuation will have to be used to get prodution done. Today imperialism supplies war- and starvation disciplined migrants. And NAIRU is supplemented by workfare – as when Friedrich Engels wrote about the english Poor Law amendment.
        And still the globalized capitalism can’t keep the profits up…

    1. Roger – Let’s start from Marx’s theory of value that only labour (power) creates value ie without human labour going to work nothing gets produced. Your example of a factory continuing overnight without any human labour power being involved does not show that value can be produced without labour power being applied. The machines must be monitored and checked (and does everybody leave a factory of machines to do its thing without any humans checking, if only by webcam?) and by the next morning humans must arrive and sort out production and distribution. All your example shows is that the organic composition of capital (investment in means of production relative to labour power) can reach very high levels. This of course, reveals the contradiction between the increased productivity of labour in use values and the relative decline in value (falling profitability) – this is key to understanding capitalist accumulation. Indeed, in my posts on robots and automation on this blog I point out that if robots take over and even design and build robots and we have a hypothetical economy where no human labour power is exerted, then there is no value or profit. Capitalism is no longer capitalism. Of course, well before that could happen (if ever) capitalism would face intense crises as profitability dropped towards zero.

      Your second example simply shows that capitalism can expand surplus value absolutely by employing more workers and making them work longer hours. And it can increase relative surplus value by increasing the intensity and efficiency of the workforce. But there are limits to this; eventually and historically forcing capitalists in competition to invest in technology that replaces labour – a rising organic composition of capital ensues.

      All these steps by capital aim to reduce the cost of labour power and in so doing reduces the value of labour power and value in general. Such is the ultimate contradiction of the capitalist mode of production – rising productivity and falling profitability.

      1. I didn’t know you’d written articles anout robotics and I’m reading them now. I looked a few pages back in your blog but it’s not easy to browse. You might want to think about an archive that is just titles and links to every post in chronological order.

        What do you think will be the future of methods to improve workforce efficiency, be they Toyota Production System, Training Within Industry, Crew Resourse Management, etc, once capitalism is…no longer an issue? 🙂

        It’s not really a problem as a lot of people already know, but you shouldn’t use someone’s real name if they’ve got another public name listed. Especially discussing what we’re discussing. 🙂

      2. Fred, I’ve heard that described as ‘natural capital’. Proletarian labour may mine the coal, but even the brawniest proletarian can’t squeeze leaf litter hard enough to make the coal. 🙂

      3. Monopolizing, “enclosure” of natural resorces as coal and oil can’t make those into capital or even a tool for capital except by wage labor. Natural gas though seems to be an even better tool for capital, where fewer wage laborers are needed to execute capitals control of the output of energy. This freedom from the colliers has only worsened the problem with diminishing profit quota and the over production crises. As well as the problem with greenhouse gases.

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