Marx’s law of the tendency of the rate of profit to fall (LTRPF) has either been heavily criticised or ignored as being an irrelevant explanation of crises under capitalism, both theoretically and empirically. The critics are not from mainstream economics, who generally ignore the role of profit in crises altogether. They partly come from post-Keynesian economists who look to ‘aggregate demand’ as the driver of capitalist economies, not profit. But the biggest sceptics come from Marxian economists.
Even though Marx considered the LTRPF as ‘the most important law of political economy’ (Grundrisse) and the underlying cause of recurrent cycles of crises (Capital Volume 3 Chapter 13), the sceptics argue that Marx’s LTRPF is illogical and ‘indeterminate’ as a theory (Michael Heinrich). And the empirical support for the law is non-existent or impossible to ascertain. Instead, we must look elsewhere for a theory of crisis either by turning to Keynes or amalgamating various eclectic theories like ‘overproduction’ or ‘underconsumption’ or ‘financialisation’ – or just accepting that there is no Marxist theory of crises. In my view, these critics have been answered effectively by several authors, including myself.
But let’s leave aside the logical validity of the law and consider here just the empirical evidence to support Marx’s formula for the rate of profit on capital in an economy. The formula is s/(C+v), when s = surplus value; C= stock of fixed and circulating means of production and v = value of labour power (wage costs). Marx’s two key points on the LTRPF are 1) there will be a long-term secular decline in the average rate of profit on capital stock as capitalism develops and 2) the balance of tendential and counter-tendential factors in the law explains the regular booms and slumps in capitalist production.
Thanks to better data and also determined work by various Marxist economists too numerous to name all here, perhaps starting with Shane Mage back in 1963, there is now overwhelming empirical evidence to back Marx’s law. To begin with, this evidence was exclusively confined to US data, which was the most comprehensive. However, in the first decade of the 21st century some Marxist economists began to compile evidence to calculate a world rate of profit. As I argued in my own first attempt to calculate a world rate of profit, this was necessary because capitalism is a ‘closed economy’ at a global level and capitalism had spread its tentacles to all parts of the world through the 20th century. So to find better empirical support for the law required calculating a world rate.
As early as 2007, Minqi et al made the first attempt that I know of to calculate the world rate of profit, followed by David Zachariah in 2010. My first crude attempt was in 2012 (which I revised in 2017). Then came along a much more comprehensive calculation going back to 1855 for 14 countries by Esteban Maito (2014). Some Marxist economists were vehement in their scepticism in calculating a world rate of profit (Gerard Dumenil). But some of us did not desist. Given new data from the Penn World Tables 10.0 database available for the components of the law s/(C+v) going back to 1950 for economies, I made a much better calculation in 2020.
But now Marxist economists at the University of Massachusetts Amherst led by Deepankur Basu have delivered new evidence using data compiled by Brazilian Marxist economist Adalmir Marquetti. Marquetti has expanded and modified the Penn World Tables developed by the Groningen Growth and Development Centre into what he calls the Extended Penn World Tables (EPWT). The EPWT was first developed by Marquetti back in 2004 and I have used that database since then for my world rate of profit calculations. But now Marquetti has issued an updated series EPWT 7.0. And this series can be used to calculate a world rate of profit-based on a large number of countries going back to 1960.
Basu et al use the new EPWT data to construct a world rate of profit as a weighted average of country-level profit rates, where a country’s share in the world capital stock is used as the weighting. Of course, this world rate is only an approximate world average. A proper world average would involve aggregating all the s, C and v in the world. Basu et al make the point that it is incorrect to aggregate country-level profit rates using the gross domestic product (GDP) as weights. So previous studies like Maito’s and mine have used an incorrect weighting scheme when country capital stock should be used. I agree and in my latest version of the world rate of profit I went further and aggregated the s, the C and the v for the G20 countries using the Penn World Tables 10.0 going to back to 1950. So no country weighting was necessary.
So much for method. Let’s look at Basu et al’s results. They are compelling in support of Marx’s law. Here is the key graphic using all the countries with data going back to 1960.
Basu et al conclude that: “The country-aggregated world profit rate series displays a strong negative linear trend for the period 1960-1980 and a weaker negative linear trend from 1980 to 2019. A medium run decomposition analysis reveals that the decline in the world profit rate is driven by a decline in the output-capital ratio. The industry-aggregated world profit rate shows a negative linear trend for the period 2000-2014, which, once again, is driven by a fall in the output-capital ratio.”
So Marx’s law is emphatically vindicated empirically at a world level. On the Amherst figures there has been a secular decline in the world rate of profit over the last 80 years of -25%, starting with the huge profitability crisis from 1966, leading to the major global slump of 1980-82. That was followed by the so-called ‘neoliberal’ revival in profitability up to 1996 (+11%). After that, the world economy entered what I have called ‘a long depression’ when profitability slipped back, turning up briefly in the credit boom of the 2000s until 2004, before slipping again into the Great Recession of 2008-9. Since then, the world rate of profit has stagnated and was near its all-time low in 2019, before the global pandemic slump of 2020. Each post-war global slump has revived profitability, but not for long.
How does the Basu calculation compare with my own made in 2020? Bearing in mind that my last calculation was only for the top 19 economies in the world (the EU is a separate G20 member) and my method of calculation is somewhat different, my results show a striking similarity. There is the same secular decline and the same turning points. Perhaps this is not too surprising as both Basu et al and I are using the same underlying database.
Marx’s LTRPF argues that the rate of profit will fall if the organic composition of capital (OCC) rises faster than the rate of surplus value or exploitation of labour. That is the underlying reason for the fall. Basu et al have decomposed the components of the world rate of profit to ascertain whether that is correct. They find that the world rate of profit declined at a rate of about 0.5% a year from 1960 to 2019, while the output-capital ratio declined by 0.8% a year (this is a reciprocal proxy for the OCC), and the profit share (a proxy for rate of surplus value) rose about 0.25% a year. So this supports Marx’s law that the OCC will outstrip the rate of exploitation of labour most of the time and so lead to a fall in the rate of profit. I found a similar result in my 2020 paper.
Ahmet Tonak, the world’s greatest Marxist expert on national accounts, had some concerns on using the Penn Tables as the raw data source for calculation because it does not distinguish between productive (value creating) labour and unproductive (value using) labour in an economy. And that can lead to diverging results on the rate of profit in national economies – which he found for Turkey.
We can go some way to dealing with this possible divergence by considering the rate of profit in the non-financial, non-residential property sectors of an economy. It does not solve the problem of delineating unproductive and productive labour within a sector, but it does provide some greater precision. For more on this issue, see the excellent work by Tsoulifis and Paitaridis.
Basu and Wasner have also produced a profitability dashboard for the rate of profit in the US which distinguishes non-financial corporate profitability from corporate profitability. I compared the Basu et al (global) results for the US rate of profit against their results for the US non-financial corporate rate of profit. Both series follow the same trend and turning points so the divergence at this level is not a significant problem.
However, during the neo-liberal period, the US rate of profit based on the global data (which does not distinguish productive and unproductive sectors) rises much more than the rate of profit on just the non-financial sector using the Basu-Wasner calculations. That suggests that the neo-liberal recovery in profitability was mostly based on a switch into the financial sector by capital – another explanation for the fall in productive investment exhibited in the US in that period.
In sum, the Basu et al study has added yet more empirical evidence in support of Marx’s law on a world level. The evidence is overwhelming and yet the sceptics continue to ignore it and deny its relevance. The sceptics of Marx’s law of profitability are increasingly becoming like the climate change sceptics.
The profitability dashboard for the US economy can be found here https://dbasu.shinyapps.io/Profitability/ and the dashboard for the world rate and various countries can be found here. https://dbasu.shinyapps.io/World-Profitability/
63 thoughts on “A world rate of profit: important new evidence”
Oh, Michael. I loved this Article except one of the last sentences;
“The sceptics of Marx’s law of profitability are increasingly becoming like the climate change sceptics.”
I am very much an exponent of Marx’ laws. I really like your blog.
However, as for “climate change” I am not a ‘skeptic’ about it. I would not even call myself a ‘denier’. I am someone who is sickened by the way people who should know better are so thoroughly brainwashed by this loathsome doctrine.
I spend a lot of time in my own blog project refuting that garbage, what I call “neoMalthusianism.” The world is overpopulated with useless people using too much resources, their consumption needs to be reduced, their numbers maintained at a low level.
Right now I am renovating my blog platforms. I will soon be inviting people to come visit and read the series I am about to roll out on the real threats to our natural environment.
Find it at https://yaxls.wordpress.com/ or https://timrourke.substack.com/
Further to this. I am surprised to find a lot of people are going from this site to my own blog but not staying long. I must assume they are looking for my stuff about environmental threats. They would be disappointed because I have not posted the older stuff. I will be putting up revised versions, probably within the next week.
The basic premise is that capitalism is indeed ruining the resource base of earth. The industrial capitalists deny the problem. The financial capitalist’s solution is to reduce the earth’s human population.
Toward this they create the phony “warming” idea. Partly it is as a decoy away from real environmental concerns. Partly it is a screen for a deliberate contraction of the global economy. It takes some figuring out.
A good piece of work!
Verlinkt im Karl-Marx-Forum:
“profit share (a proxy for rate of surplus value) rose about 0.25% a year. ”
What are the factors used to calculate the rate of surplus value? Are these the same factors you use in your work? If not what are your factors?
I dont use Basu’s categories like capital output and profit share as these are not accurate Marxist categories. All my papers on ROP try to develop OCC and ROSV categories as is the case in my own papers that I have referenced in this post. Often that is why my levels of ROP differ from those like Basu’s. All Marx’s categories can be measured in different ways which I have explained in various posts and in the Appendix to my Long Depression book.
Well done, Michael. I know how much work went into this article having tackled the Penn Tables myself.
I presume all the graphs provided by you and others are based on the formula you provided in the article: “s/C+v, when s = surplus value; C= stock of fixed and circulating means of production and v = value of labour power (wage costs)”. By this I presume you are saying the formula translates into net surplus divided by (fixed capital + inventory) + annual wages. If this is the case this cannot be the Marxist rate of profit. Firstly inventory plus wages implies duplication as we have discussed before. For example, assume a period of 90 days. Assume the new inventory has also taken 90 days to produce and is yet to be sold. Crystalized in that value are all the wages paid during those 90 days, because the value of the inventory will comprise inputs + depreciation + necessary labour + surplus labour (with the necessary labour element is equal to 90 days of wages). Setting aside periods and focusing on annual data. As these rates of profit are annual rates of profit, they are presumably based on annual wages not variable capital which is annual wages divided by the rate of turnover. Thus the rate of profit will be depressed by the use of inventory plus annual wages though more so by the latter. You have provided such a valuable and notable defense of the rate of profit and the role it plays in crisis theory. Make it more powerful by avoiding such clumsy profit formulae.
I concur aggregating the stock of capital is better than GDP weighting. I do not subscribe to the division of productive and unproductive workers when calculating enterprise rates of profit, and neither did Marx and Engels. Of course productive workers produce profits and unproductive workers cost profits, but all this tells us in the end is that the higher the proportion of unproductive workers the more profits will be reduced, the more the rate of profit will be depressed, but it does not invalidate the actual rate of profit which confronts the capitalist class and informs their investment decisions.
To be a capitalist you not only need to expand your future capital but to protect your existing capital. No capitalist ever invests without considerations of whether their return will exceed their original investment. They know if the return is negative they will lose some or all of their capital thereby ceasing to be a capitalist. Everywhere the language of capitalism is found: Price to Equity ratios, discounted cash flows, cost of capital versus return on capital, rental income vs mortgage rates, return on equity, return on fixed investment (every statistical bureau engages with this) and on and on. Only in academia is this not found. This describes how vulgar the spires of learning have become where they obscure the essence of capitalism. Like the catholic church which has buried original sin in its pre-300 BC vaults, so academia has buried the original sin of capitalism, the rate of profit, so that it may not challenge or awaken their students.
I do not doubt for a second that the central banks of this world are not aware of the fallen rate of profit. Why else would they cheapen money so? If the heart no longer pumps so strongly more adrenalin needs to be infused. So at a time when the world economy is beginning to crack open, where the first signs of panic are beginning to emerge, we need to go on the offensive. The future belongs to us not them.
Correction: AD should replace BC ie period before Roman Emperors rewrote the lessons of Jesus.
Marx’s LTRPF can not be demonstrated when one takes into account isolated nation-states (e.g. if you analyze the profit rate of Luxembourg, you may well come to the conclusion the LTRPF is false). But Marx is clear there’s only one capitalism, not many national capitalisms. The nation-state is a mere historical ossification/curiosity from the point of view of capital.
There’s only one capitalism, one world market. If one is able to gather all the proper data from all capital in existence, then the LTRPF will be proven as an absolute truth. The only impressive aspect here is the fact that Karl Marx came up with it with logic (philosophy) alone, without any precise and good data. Indeed, that’s where Marxism stands out against any other theory: it is logically sound. Only the most consolidated mathematical axioms and theories and STEM theories – built painfully throughout many generations of brilliant minds – compare to Marxism in terms of logical rigor.
So far, I never read any rigorous attempt to discredit Marxism (and there were and are many attempts to discredit him, since he was still alive). They all look like children trying to debate an adult, there’s simply no comparison. How many famous, “incontestable” economists and philosophers turned into dust, only known nowadays as footnotes in Marx’s works?
I’m convinced such attempts will never be successful, as Marx’s philosophy is logically true, therefore an universal truth. Marx is in the pantheon of the greatest thinkers in History, alongside the Greeks and the Chinese, probably even above them. He’s certainly the first true universal philosopher in History, as he seats on the pantheons of both Western and Eastern (China) philosophies. He may have been the last (serious) philosopher of History, as modern philosophy is essentially reduced to ethics/morality.
As for the Marxians, well, I know this is an Economy blog, but allow me to just make one very quick observation from a historical point of view. Theories are not actors in History; if there’s a theory, then it has a time, a place, and a class (which implies in a group of people). I’m not a Marxianism specialist, but, in my experience, those universalist schools, doctrines and theories usually only have an internationalist/cosmopolitan rhetoric, but, deep down, they’re talking about very specific locations or, in this case, countries. Hence Trotsky and the other followers of the “Permanent Revolution” theory were actually aiming at Germany (the Deus ex Machina that would solve the problem of a revolution first breaking out in a backward nation-state like Russia), while the Marxian are clearly talking about the USA (sometimes, for more sophistication, about the UK , or the First World, best case scenario the OECD). When the Marxian talk about China as “the elephant in the room”, they’re not really talking about China, but about what the USA (the West) should do about China.
My tip is this: always look at universalist schools/doctrines/theories with a pinch of salt. True universalist theories like Marx’s don’t grown in trees and are the exception – not the rule – of History.
Could the the crisis of profitability related to the the independence movements? If so, how?
Well, I think that the movement of average profitability is related to changes of capitalist production, investment and trade. The economic foundations of the rise in modern imperialism were driven by the fall in profitability in the advanced capitalist countries 1873-97, in my view. That led to renewed colonialism and eventually war. The independence struggles of the 1960s and 1970s took place during a similar collapse in profitability in the imperialist economies.
But what was the causal link? Did the colonial struggles cause the profitability crisis? Consider the socialist victory in China and in the 2nd World War, this was a huge subjective push towards the central capitalist powers. Likewise, after their victory, there was the integration of the local bourgeoisie to the world market. Perhaps this was also the cause of neoliberalism, that is, the peripheral countries could now fulfill the work done by the central powers, so the wages and living of the latter’s workers had to be slashed. Does this make sense? What do you think?
The nationalist struggles in so called third world and the revolutions against military dictatorships in Southern Europe took place just before and during the profitability crisis of 1965-82. As you say perhaps cause and effect mixed. Could be an interesting study
Thanks for this very nice post, Michael.
Regarding (1) exploitation rate vs profit share and (2) organic capital composition vs output-capital ratio. Unless the issue is the empirical measurement or estimation of the flows of surplus value, variable capital, and value added, and the capital stock based on available data, then there is *no real difference* between using one measure or the other. Why? Because it can be easily shown that, mathematically, the profit share and the rate of exploitation are positive monotonic transforms of each other. One is measuring the same thing, just on a different scale. Similarly with OCC and Y/K ratio: they are negative monotonic transforms of each other. The information conveyed by one measure is essentially the same as the information contained in the other measure. Two cents.
Julio – I agree that these measures can show the same thing. But there is on important objection that I have to the capital-output ratio compared to the organic composition of capital measure. The first hides the origin of the value created suggesting that it is ‘capital’ that delivers value. V has disappeared. Does this matter? Maybe for not measurement but for the causes of exploitation and value creation, it does.
By the way, great work you guys are doing at Amherst. And not just on these measures
Thank you, Michael!
Just for the record: I’m not at Amherst — I’m at St Francis College, Brooklyn, and at John Jay College CUNY. But the rest of the collective are indeed all affiliated with Amherst, so it’s a predominantly Amherst collective. 🙂
Julio apologies for that shoddy reference
Awesome article, thanks Michael and all others for this great contribution!
I know this is not the focus of this article, but I’d appreciate your opinion on this question about the causaltity of capitaist crisis: you insist on the cause being the fall in the profit rate, and while there’s no doubt it’s present there, to me the profit rate is something that, by definition, can only be ascertained after the fact of overproduction has already taken place. And by definition a cause is something that “comes before”, thus I cannot but think, like Marx himself, that overproduction is the main cause. I tend to equate overproduction with overaccumulation and overinvestment, but maybe we could even separate them in time. What’s decisive to me is that the capitalists can only calculate the profit rate once they have already committed to (over)production, and once the profits have failed to materialize because the overproduced merchandise couldn’t be sold. Thus again, I think causality, what comes first, is overproduction.
How do you see this?
Daniel – this is a big subject and I have discussed the arguments in my books and papers and much disputed. Overproduction is really a definition of a slump, ie when capitalists have produced too many commodities compared to demand at existing prices. In the slump, prices and production fall and workers lose their jobs. That ends the slump and overproduction and a new cycle starts. But overproduction is not the cause but the result. The cause in Marxist theory (backed up by evidence) is as you say overinvestment, but overinvestment relative to profits realised. Capitalists find that existing levels of investment no longer deliver previous levels of profits.
Why does that happen? Because over time, the average profitability of capital invested starts to fall and eventually reaches a point where it affects the mass of profits, starting with the weakest capitalists. Then all capitalists find that they have overinvested. They start laying off labour and closing down plant etc. Workers lose their jobs. People need commodities and capitalists have lots but cant sell them – crazy world. I think that shows the causal direction of boom and slump. And the empirical evidence confirms that it is the change in profits first, then capitalists decisions on investment and only later is there overproduction, unemployment and lack of incomes.
I would add one, IMO, important factor: the default condition of capitalism is overproduction– that is the foundation of capitalism is surplus labor converted into surplus value where the workers are compensated only partially, and thus NEVER able to express an “effective demand” equal to the total product.
Thanks Michael, but the logic of your last sentence would seem to work only for the boom part of the cycle, capitalist would see rising profits thus invest and end up overproducing. So the bust part of the cycle, the falling profits, would not be the cause of the crises, as I’ve always understood it from your writings? Because only on the bust part would you see a falling rate of profit, right?
Rising profits in boom leads to rising investment which eventually leads to falling profits and then falling investment and slump. Thus the cycle of boom and slump rather crudely. Profitability starts falling before the slump; the slump creates conditions for rising profitability and the boom and then repeat.
It is important to distinguish the relative from the absolute fall in the rate of profit. Only the latter provokes a recession. What happens towards the end of the industrial ( business) cycle fuelled as it is by investment is that some sectors of the economy experience a relative fall in the rate of profit because profits do not rise sufficient to compensate for the increase in investment. In turn this leads to a slowdown in sectoral investment to counter rising debt. This is experienced by the rest of the economy as a fall in demand. The spectre of overproduction now makes an appearance. Crucially this phase is marked by a fall in the rate of turnover which is experienced by the capitalist class as a rise in inventories. At this point there is an enhanced requirement for working capital coupled to a difficulty in realising profits because of the extension to the period of circulation (the inverse of the rate of turnover). This converts a relative fall in the rate of profit into a generalised absolute fall heralding recession.
I have show over and over again with the exception of 2008, that every recession has been preceded by a sharp deceleration in the rate of turnover immediately before the outbreak of an industrial crisis.
Hope this helps.
It’s the opposite. The reason for that is very simple: overproduction is not category. You can only overproduce in relation to something.
This “something” can only be the (social) profit rate. So profitability always underlies over/underproduction in capitalism.
It is very easy to visualize that: is you say something is overproduced, you could as validly state that it is the society that is unable to catch up with what it produces, that is, that the development of the productive forces are advancing faster than the relations of production. So, it is as much as a case of a given social system not knowing what to do with what it produces than it producing “too much”, in which case you would only be correct if you said that capitalism overproduces something in relation to capitalism itself, which a subjective relation par excellence. The only way to break such circular argument is by identifying the main engine of the system, which, in this case, is the profit rate.
In the social world, it is absurd to use the concept of overproduction. Human beings are natural beings, therefore are naturally bound by the natural world. True overproduction is the precursor of the extinction of humanity itself. The same is not true for underproduction (absolute scarcity), which is not only feasible, but the norm in the history of human social formations – specially the older ones, which are closer to “natural economy” than capitalism (hence the infamous definition of Economy as the art of administering scarcity).
No better discussion of the historical specificity of capitalist overproduction than the Grundrisse Notebook IV, Chapter on Capital.
In its ultra-compressed form there is this summation by Marx in Vol 3, Chapter 15:
“Over-production of capital, not of individual commodities — although over-production of capital always includes over-production of commodities — is therefore simply over-accumulation of capital. To appreciate what this over-accumulation is (its closer analysis follows later), one need only assume it to be absolute. When would over-production of capital be absolute? Overproduction which would affect not just one or another, or a few important spheres of production, but would be absolute in its full scope, hence would extend to all fields of production?
There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”
Even shorter version: Overproduction is always overproduction of the means of production as capital, such that the increment in surplus value, if any, is not capable of offsetting the decline in the rate of profitability of the accumulated capital.
Correct, but here Marx is clearly talking about overproduction of capital, not overproduction in general. They’re completely different things (see David Harvey’s comment below to see an example of such confusion).
Capitalism as we see today is not even near absolute overproduction (which would imply reaching the very limits of the natural world and human capacity and imagination). We are obviously living in very primitive times. We don’t even dominate nuclear fusion energy yet.
@Anti-Capital cant help but interpret what Marx is describing here as the capital accumulation reaching a turning point in the mathematical sense. That is, a point where, simply put, the derivative becomes zero (because for any -continuous function f, an interior point where df /dC=0 is a stationary point, with f being a profit dependent variable and C being the independent, Capital, variable). However, it should be said it is not necessary that after such a point the trend will reverse – in general.
I think we may all agree that this is Michael’s most valuable contribution to date. It must have cost him no little intellectual effort. Certainly, I do not feel competent myself to address the empirical evidence that he attests, but I should like to raise two points on the logical validity of the law: Marx himself states ”The progressive tendency for the general rate of profit to fall is thus simply the expression, peculiar to the capitalist mode of production, of the progressive development of the social productivity of labour” (Vol.3 p.319). Now, is there any economist, Marxist or not, who doubts the progressive development of the social productivity of labour? Marx may not in the view of some have sufficiently analysed such development, but the undeniable development in itself affirms the historical validity of its thesis. Second, apparently Engels reversed the original order of Chapters 14 and 15. The Counteracting Factors came first and then the Law. Is it not the case that Marx wished to explain the counteracting factors as themselves expressions of the Law, which is the point of departure in explaining their movement. Consider the concentration and centralisation of capital at one pole and the immiseration of labour at the other; is such not a dialectic movement to be explained by the operation of the law? In any case, the historical reality of Marx’s predictions of the tendencies of this movement cannot now be gainsaid, unless there are those economists who hold that the trajectory of capitalism in the last 150 years has been towards smaller capitalist workshops and labour becoming more independent with control of its own implements of production!
”The historical reality of Marx’s predictions about the trends of this movement cannot now be denied, unless there are those economists who hold that the trajectory of capitalism in the last 150 years has been towards smaller capitalist workshops”
Exactly. That is the underlying economic phenomenon: the concentration of capital. And of economic subjects and living subjects, by the way, seen from evolutionary biology. And that is, therefore, the fundamental economic error of the liberals (mainly Austrians) since their desire for production to expand to competition, perfect or imperfect, is, on the one hand, unreal since it has never happened and , on the other hand, is undesirable because the economies of scale of concentration achieve subjects and economies superior to those of small separate and independent producers. Another thing is that the collective subject that concentrates economic production must have an equal distribution of benefits, property and decision-making power among its individual members. But that is precisely Socialism. The desired socialism
I find it very unlikely people got Marx’s theory wrong just because Engels (allegedly) inverted two chapters.
”I find it very unlikely people got Marx’s theory wrong just because Engels (allegedly) inverted two chapters.” I got the inversion , I think, from Fred Moseley, who has studied the original manuscripts. You may wish to follow his example to confirm or refute the question. In no way do I suggest this has anything to do with Marx’s theory’s validity. Did you wish to comment on the TRPF as ‘ the expression, peculiar to the capitalist mode of production, of the progressive development of the social productivity of labour” (Vol.3 p.319)? Such would be most useful!
J. Lowrie is correct. Moseley identifies the reversal of chapters in his intro toe Marx’s Economic Manuscripts 1864-1865. Moseley, working in conjunction with the MEGA project makes it pretty evident that Engels did not change Marx’s analysis, critique, or conclusions while editing the manuscripts used to assemble Vol 3. And FWIW, the disagreements I have with Engels’ own work do not extend to the editing of Marx’s manuscripts. Engels’ efforts are nothing short of heroic.
Ok, but in the context of this blog post, it looked like you insinuated the discord between modern-day Marxians arise from a trivial mistake by Engels (which I don’t think is the case; I read the original order and I don’t think I misunderstood the LTRPF).
I don’t think there’s any logical mistake on Marx’s theory. I disagree with that hypothesis.
It is not a question of a mistake by Engels, trivial or otherwise, but of the order of exposition. You will recall that Capital opens with ‘ The wealth of societies in which the capitalist mode of production prevails presents itself as an immense collection of commodities.’ How does the capitalist mode of production present itself at the world level? Does it not manifest itself above all in the phenomena of the Counteracting Factors: cheapening of the elements of constant capital, foreign trade, the increase in share capital, and I would add the concentration and centralisation of capital, and the immiseration of labour. Marx never managed to address in detail the question of the world market; and while I agree absolutely with Anti-Capital’s affirmation of Engels’ heroic efforts, I feel such counteracting factors need to be readdressed in light of current conditions: in particular, how they articulate and determine one another. Hegel, I believe, says somewhere that a phenomenon attains the status of a law not by its continual recurrence but by its necessity. In short, I should argue that the status of the Counteracting Factors cannot be fully grasped by seeing them as only a response to the TRPF but as the necessary expression of the Law under varying aspects, and thus posits the Law as the groundwork for the logical explanation of the reasons that such factors must manifest themselves. I feel however that a lot more work has to be done on those aspects. It is certainly not enough to refer to Lenin’s ‘Imperialism’, which I think demonstrates exactly the wrong approach i.e. it is not enough to demonstrate what capitals do, but why they MUST, for no capital can escape capitalism’s pitiless laws.
Thank you for distilling and synthesizing this recent work on the falling rate of profit so brilliantly. I am not, as you sometimes depict me, an enemy of the theory but I do think it tells only half the story of where crises come from. Y ou cite Marx as saying the theory is “the most important law of political economy.” This is not what Marx says. So permit me to take you back to the context.
In the Grundrisse Marx states that “a capital of 100 with a profit of 10% yields a smaller sum than a capital of 1,000 with a profit of 2%.” Expressed “in general terms” this means that “if the profit rate declines for the larger capital, but not in relation to its size, then the gross profit rises although the rate of profit declines. If the profit rate declines relative to its size, then the gross profit…remains stationary. If the profit rate declines more than its size increases, then the gross profit of the larger capital decreases relative to the smaller one in proportion as its rate of profit declines.” This is a typical Marx tactic of outlining a range of technical possibilities in the relation between gross profit and rate of profit. “This,” he then goes on to say, “is 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.” It is clear that “this” refers to the numerical possibilities of relations between gross profit and rate of profit he has just outlined. The relevance of “this” is set up most clearly in Volume 3 of Capital. Marx there writes that “despite the enormous decline in the general rate of profit,…the number of workers employed by capital…..hence the absolute mass of the surplus labour absorbed, appropriated by it….hence the absolute magnitude or mass of the profit produced by it, can therefore grow, and progressively so, despite the progressive fall in the rate of profit.” The same laws “produce both a growing absolute mass of profit, which the social capital appropriates, and a falling rate of profit.” “How, then,” Marx asks, “should we present this double-edged law of a decline in the rate of profit coupled with a simultaneous increase in the absolute mass of profit arising from the same causes? It is the relation between a falling rate and a rising mass that is “the most important law.” It expresses the simple rule that “a large capital with a lower rate of profit accumulates more quickly than a small capital with a higher rate of profit.” A 20 percent rate of profit in El Salvador means nothing compared to a 2 percent rate of profit in China which signals a huge absolute increase in total output. This has relevance for how you understand the relation between the profit rate and overaccumulation/overproduction in the production of crises . You believe overaccumulation, if it exists, follows on (is produced by) falling profitability. But Marx reasons they necessarily co-exist. Crises can arise out of both or either simultaneously. That is why the chapter in volume 3 that begins with the falling rate of profit ends up analyzing the creation of the world market and the consequences of overaccumulation.
In the lines quoted by D. Harvey, the arithmetic relationship between the mass of profit and the rate of profit is presented on the basis of individual capital. Apparently, quite different relationships between the mass of profit and the rate of profit are possible – without any tendency? What Harvey omits, however, is the historical direction, the trend of this lawfulness for capitalism as a whole, which Marx only goes into in the following pages.
Wal Buchenberg, Hannover
Good to see that you are keeping an eye on the empirical work for the LTRPF. You say that you are not an enemy of the LTRPF but you want to emphasise the role of the mass against the rate as both being connected. This takes me back to our debate that we had at Historical Materialism London in 2019. I think my summary of that debate still stands in helping to explain the connection between the rate and mass of profit and where we differ. https://thenextrecession.wordpress.com/2019/11/11/hm1-marxs-double-edge-law/
I think the debate on whether it is the mass of profit or the rate of profit misses the point in Marx’s analysis. I’ve hinted at this in my previous comment here using a rather mathematical paradigm (which in this case is applicable 100%) but, I believe, the important contribution by Marx here is not so much whether the crisis is triggered when a certain threshold is crossed (be it a rate of profit, mass of profit or a combo), but revealing the STRUCTURE of the relation(function) of profit (i.e. wealth generation) with capital(investment). The rate of profit is simply the derivative of this function and Marx’s emphasis on the rate and the TRPF is, the way I see it, due to the fact that it is the rate of profit that reveals the STRUCTURE of this relationship(function). That is, even though capitalist innovation leads to a betterment of the forces of production, this doesn’t lead in an ever increasing productive capacity to satisfy more or better existing needs, but instead leads to an ever increasing SLOWDOWN of profit, and therefore wealth, (which is revealed by the TRFP) because of the profit relation. What professor Harvey is describing by quoting Marx is exactly what one sees in functions that have such a structure: in low values they posses a steep slope (rate) but as you move to higher values (higher accumulation), this rate is lower and lower, until it reaches a turning point, where in a region close to that point, further increase in the independent variable leads to no change in the function(profit). A simple illustration of such a structure:
The distinction is important because the argument made here by Daniel and prof. Harvey – that capitalism only suffers from a problem of absolute over-accumulation, not of profitability – leads us to the logical conclusion that capitalism’s faults are natural faults, therefore can be fixed by punctual policies and reforms forever. It would give reason to the “economists are plumbers” hypothesis of Esther Duflo et al.
What Marx argues in Capital is the polar opposite: even if everything works out for capitalism indefinitely, it will still collapse. Capital is a book that always presupposes everything goes right for capital, i.e. he excludes all the “perturbations” in the system (danger of revolution, mass extinction events, natural catastrophes, corruption, cronyism etc. etc.). Even then – even in a perfect capitalist system – he proves the system is unsustainable.
In other words, I don’t think this debate is a mere question of emphasis on this or that aspect of Marx’s theory. It is an existential debate, between those who interpreted it right and fight to preserve it, and those who want to distort and destroy it from within.
I don’t see how the argument for the mass of profit is “reformist”, and I am not saying I agree with it. Ultimately, what determines the accumulation of profit is its rate. A rate that tends to zero naturally leads to a stationary value for the profit. Marx’s argument is that the rate will tend to zero due to the inherent properties of CMoP (less and less surplus value available etc), so looking at the rate in a “bigger picture” makes more sense to me, but I am not an expert on this ofc. Prof. Harvey seems to be saying maybe there is a trend in the rate of profit to fall but if the existing mass of profit is already big enough, a smaller and smaller rate of profit can still mobilize workforce and invest etc due to the sheer volume of existing profit. That may be true but an ever decreasing rate of profit in a sector is surely a bad sign for capitalists, isn’t it? Because it makes less sense to say that it is the mass of profit that determines the onset of a crisis, since every new increment in the mass is naturally determined by the rate. Even if the rate of profit becomes *negative* and there is a sheer volume of mass, in the next increment, there would still be massive amounts of existing profit, just a bit less than previously. That can still theoretically be used for investment etc, but capitalists will not do that because further investment will not lead to an increase in existing mass of profit, whether that mass is large or small.
That’s exactly the problem with prof. Harvey’s analysis. He claims the mass of profits is more important than the rate of profit in capitalism. That is only true if capitalism was a force of nature, which it is not.
Every social system, when abstracted to the level of nature, can be sustainable indefinitely. We could still be living in ancient slavery, or feudalism, by that logic. The thing is that those systems are not natural, therefore they don’t follow the logic of the natural world.
The rate of profit is more important than the mass of profit in the regulation of capitalism. The capitalist class can disinvest and deindustrialize to increase the profit rate – even though that rarely means the absolute destruction of fixed capital, but just the increase of exploitation of labor. Indeed, that’s what the rise of neoliberalism was – a call for disinvestment and deindustrialization (at least in the West). Neoliberalism won the war against Keynesianism and Social-Democracy on the argument of the profit rate, not the profit mass.
If prof. Harvey’s hypothesis was correct, then an episode like the rise of Neoliberalism would be impossible: having a lower profit rate would more than be compensated by the higher profit mass. Keynesianism would simply get going well after 1975, eventually solving any alleged material crisis of capitalism (some could claim the oil crisis would impede that, thus confirming an over-production hypothesis, but the oil crisis was not caused by the lack of oil, nor by by the oil prices themselves). History shows that’s not what happened: capitalist looked at the falling profit rates and simply adopted a new ideology/doctrine.
In fact, if profit rates didn’t matter, outsourcing manufacturing to China would not even start to begin with: why start anew on a very low capital base if you can continue to go all-in in a very elevated capital base in the First World Countries? The fact prof. Harvey mentioned China as an example in his comment makes his case even more ironic.
But the most decisive factor that demonstrates profit rates are more important than profit masses in capitalism is logic: if profit mass were what mattered, then there would be no problem of over-production/over-accumulation at all. The more would always result in the better. If you produced one million pair of shoes but you only needed half million, then you have double the need, therefore double the mass of profit (because profit here would mean the very natural, objective existence of wealth, not some imaginary number in an accountant’s book). The way capitalists and economists thought about the world would be completely different. We evidently don’t live in such parallel universe: capitalists and its economists and experts definitely think and use terms such as “excess capacity”, “overheating”, “over-production”, “over-accumulation” etc. etc., and they do think about contraction measures (e.g. austerity, rise of interest rates).
Wait a minute: What comrade Harvey reproduces is NOT the entirety of Marx’s remarks in the same notebook, page, paragraph on the tendency of the rate of profit to fall. A more complete citation will clarify the problem. We are talking about Notebook VII of the Grundrisse “The Chapter on Capital” Here is the introductory sentence in the paragraph cited by comrade Harvey:
“The general laws developed previously here briefly summarized thus: The real surplus value is determined by the relation of surplus labour to necessary labour, or by the portion of the capital, the portion of objectified labour, which exchanges for living labour, relative to the portion of objectified labour by which it is replaced. But surplus value in the form of profit is measured by the total value of the capital presupposed to the production process. Presupposing the same surplus value, the same surplus labour in proportion to necessary labour, then, the rate of profit depends on the relation between the part of capital exchanged for living labour and the part existing in the form of raw material and means of production. Hence, the smaller the portion exchanged for living labour becomes, the smaller becomes the rate of profit. Thus, in the same proportion as capital takes up a larger place as capital in the production process relative to immediate labour, i.e. the more the relative surplus value grows – the value-creating power of capital [i] – the more does the rate of profit fall [/i]. ”
We should not, we cannot isolate what follows from this introductory sentence BEFORE getting to “the range of technical possibilities,” Marx formulates the general law, the general tendency:
“We have seen that the magnitude of the capital already presupposed, presupposed to reproduction, is specifically expressed in the growth of fixed capital, as the produced productive force, objectified labour endowed with apparent life. The total value of the producing capital will express itself in each of its portions as a diminished proportion of the capital exchanged for living labour relative to the part of capital existing as constant value. Take e.g. manufacturing industry. In the same proportion as fixed capital grows here, machinery etc., the part of capital existing in raw materials must grow, while the part exchanged for living labour decreases. Hence, the rate of profit falls relative to the total value of the capital presupposed to production – and of the part of capital acting as capital in production. The wider the existence already achieved by capital, the narrower the relation of newly created value to presupposed value (reproduced value). Presupposing equal surplus value, i.e. equal relation of surplus labour and necessary labour, there can therefore be an unequal profit, and it must be unequal relative to the size of the capitals. The rate of profit can rise although real surplus value falls. Indeed, the capital can grow and the rate of profit can grow in the same relation if the relation of the part of capital presupposed as value and existing in the form of raw materials and fixed capital rises at an equal rate relative to the part of the capital exchanged for living labour. But this equality of rates presupposes growth of the capital without growth and development of the productive power of labour. One presupposition suspends the other. This contradicts the law of the development of capital, and especially of the development of fixed capital. Such a progression can take place only at stages where the mode of production of capital is not yet adequate to it, or in spheres of production where it has assumed predominance only formally, e.g. in agriculture. Here, natural fertility of the soil can act like an increase of fixed capital – i.e. relative surplus labour can grow – without the amount of necessary labour diminishing”
In certain states, certain relations the capital and the rate of profit can grow in the same relation… IF. Then Marx points out that the “IF” “contradicts the law of the development of capital, and especially of the development of fixed capital. Such a progression can take place only at stages where the mode of production of capital is not yet adequate to it,”
Marx then adds, directly ahead of the section cited by comrade Harvey: ” The gross profit, i.e. the surplus value, regarded apart from its formal relation, not as a proportion but rather as a simple magnitude of value without connection with any other, will grow on the average not as does the rate of profit, but as does the size of the capital. Thus, while the rate of profit will be inversely related to the value of the capital, the sum of profit will be directly related to it. However, even this statement is true only for a restricted stage of the development of the productive power of capital or of labour.’
If must be kept in mind that Marx presents the LAW, as a Tendency; as an inexorable, gravitational force that exerts itself latently, beneath and within the accumulation of capital. There are circumstances where this immanent tendency, this chronic feature, is NOT acute, where it is indeed offset (look at that 1992-1997 period in the US). But the tendency is still at work, and actually strengthened by the prior accumulation. So we come to the point, the final example in the list of technical possibilities: “If the profit rate declines more than its size increases, then the gross profit of the larger capital decreases relative to the smaller one in proportion as its rate of profit declines.”
THAT condition is “the most important law.” To emphasize that specific condition, to make it clear exactly what is most important, Marx continues:
“Since this decline in the rate of profit is identical in meaning (1) with the productive power already produced, and the foundation formed by it for new production; this simultaneously presupposing an enormous development of scientific powers; (2) with the decline of the part of the capital already produced which must be exchanged for immediate labour, i.e. with the decline in the immediate labour required for the reproduction of an immense value, expressing itself in a great mass of products, great mass of products with low prices, because the total sum of prices is = to the reproduced capital + profit; (3) [with] the dimension of capital generally, including the portion of it which is not fixed capital; hence intercourse on a magnificent scale, immense sum of exchange operations, large size of the market and all-sidedness of simultaneous labour; means of communication etc., presence of the necessary consumption fund to undertake this gigantic process (workers’ food, housing etc.); hence it is evident that the material productive power already present, already worked out, existing in the form of fixed capital, together with the population etc., in short all conditions of wealth, that the greatest conditions for the reproduction of wealth, i.e. the abundant development of the social individual – that the development of the productive forces brought about by the historical development of capital itself, when it reaches a certain point, suspends the self-realization of capital, instead of positing it. Beyond a certain point, the development of the powers of production becomes a barrier for capital; hence the capital relation a barrier for the development of the productive powers of labour. When it has reached this point, capital, i.e. wage labour, enters into the same relation towards the development of social wealth and of the forces of production as the guild system, serfdom, slavery, and is necessarily stripped off as a fetter.”
Clear? “It is evident [that “since the rate of profit is identical in meaning with…”] that the material productive power already present….existing in the form of fixed capital….-that the development of the productive forces….suspends the self-realization of capital, instead of positing it….the development of the powers of production becomes a barier for capital…”
And we are right back to Marx’s introduction to A Contribution to the Critique of Political Economy where he identifies the conflict between the FORCES of production WITH the RELATIONS of production as the motor force of revolution.
The importance of the law of the tendency of the rate of profit to decline is NOT that it completes Marx’s critique, his analysis of capitalism, (which it does) but that it marks the transition from “critique”– from intellectual activity to CLASS STRUGGLE and revolution.
Portuguese translation at
But the web site add this footnote about the final observation on climate change:
The analogy is bad because there is good reasons to deny the so-called anthropogenic global warming, now renamed “climate change”.
This article develop this topic
Why do we have to keep going back to Marx’s hypotheses. By doing so we act purely as theoretical scientists. We need to act as applied scientists because we can and must in order to apply and test these hypotheses. Marx would have expected no less.
The proof is in the data, as found for example, in NIPA Table 1.14 (line 37). The last two peaks in the mass of US pre-tax non-financial corporate profits occurred in Q3 of 2006 and Q4 of 2014. The peaks in the rate of profit as measured by both fixed and circulating capital occurred in Q3 of 2006 and Q3 of 2014. If we use a two period average trend, we find that leading up to these peaks there is a slowing down in the increase in the rate of profit (quarterly data is too jagged). In addition there is no precipitous fall in the rate of profit after the peak because the financial crisis does not coincide with the peaking in the rate of profit. In short, the mass of profits is rising less quickly, and it falls more slowly before and after the peak than is usually assumed. We can also see quite clearly the movement from a relative to an absolute fall in the rate of profit. Generally, the absolute fall in the rate of profit takes place, that is the rate governed by turnover, when the rate of profit has fallen below its mid-point in the business cycle. This occurs in our example at the end of 2008 and 2015. Those phases coincide with the actual outbreak of economic crisis, usually within 7 quarters of the peaking in the rate of profit.
I will put two graphs on my website later today with a brief description to show the interaction.
Here is the link to the article promised which I have dedicated to Michael in recognition of all the hard and exemplary work he has put in to defend Marx’s Crisis Theory. https://theplanningmotivedotcom.files.wordpress.com/2022/01/reply-to-comments-on-nextrecession-website.pdf
” ”The progressive tendency for the general rate of profit to fall is thus simply the expression, peculiar to the capitalist mode of production, of the progressive development of the social productivity of labour” (Vol.3 p.319). Is nobody able to cast light on this thesis of Marx. Clearly, nobody would dispute the fact that the social productivity of labour has advanced far beyond what even Marx himself could have anticipated, and therefore would confirm the trajectory that he projected for capitalism’s development. If one denies the logical status of the TRPF, does that mean one also denies the progressive development of social labour?
With the little understanding I have, they do deny it and more. I am acutely aware of the fact that Marxian economists are nowadays a bit like Copernicus’ supporters before Galileo and Kepler came along with irresistible evidence: supporting heliocentrism in a hush-hush, subdued way, in little bubbles away from the eyes of the mainstream.
I mean, even though I learned here that the Labour Theory of Value was just adopted and developed by Marx, but actually goes back to Ibn Khaldun’s “Prolegomena”. And yet right now there’s a rambling commenter to Paul Cockshott’s latest video insisting that the LTV is wrong and thus socialism cannot work.
I try to read a bit of non-Marxian economics here and there to make sure I’m not guilty of tunnel vision, but other than some institutional economists like Ha Joon-Chang and “not quite Marx, but close enough” economists like Jack Rasmus and Michael Hudson, I feel like economics commentary is made to obfuscate rather than clarify.
[Labor] Theory of Value is 100% Marx. Up to Marx, it was common sense among all economists that labor was the ultimate source of all wealth – it was just a matter of discovering how it worked. Marx was the one who discovered how it worked (i.e. it takes the form of value).
Ibn Khaldun couldn’t have developed a theory of value because he lived in the Middle Ages: labor only becomes value in the capitalist system.
The abandonment of the axiom that labor is the source of all wealth is a very recent phenomenon, from the end of the 19th Century (i.e. after Marx’s death). They are vulgar economics, which gave birth to all mainstream and most of heterodox economics we have today. So yes, Economy is a curious case of a science that involved instead of evolved in our times.
Some caveats, and qualifiers are required:
“[Labor] Theory of Value is 100% Marx. Up to Marx, it was common sense among all economists that labor was the ultimate source of all wealth – it was just a matter of discovering how it worked. Marx was the one who discovered how it worked (i.e. it takes the form of value).”
Yes and no. Adam Smith maintained a labor theory of value. Ricardo based his investigations on a labor theory of value. What Marx created, contributed, discovered, proposed was the solution to the problem posed by that part of the theory that says equal values exchange with equal values: how does profit, surplus value, come into being. Marx’s answer is through the organization of labor itself as a commodity; a value, so that in the capitalist exchange values equivalent to reproduce the laborers, the capitalistS gain ownership of the labor-power of the workers for the length of the working day, which length involves a surplus labor time, a time beyond that necessary to “replenish” or provide a value equal to that of the value of the means of subsistence provided by wages.
“Ibn Khaldun couldn’t have developed a theory of value because he lived in the Middle Ages: labor only becomes value in the capitalist system.” \\
Yes…and no. Labor becomes value in limited circumstances in other pre-capitalist systems. Marx identifies the exchange of commodities in “primitive” systems that occurs “at the edges” of the community when it trades with a different community. What is distinct in Marx’s analysis is that value production is the dominant social mode of production and thus posits as laws governing exchange and production its own social relations.
Not familiar with the work of Ibn Khaldun, but keep in mind how close Marx says Aristotle came to recognizing the essential make-up of value.
The political economists were getting there, but didn’t. They had a feeling labor must have been the source of wealth, but they all got it 100% wrong. There’s only one valid theory of value, and that’s Marx’s. Marx had to dismantle Political Economy in order to reach to a scientifically valid value theory, which means it wasn’t going the right direction (contrary to the neoclassical myth, Marx wasn’t an economist).
We know for sure those pre-capitalist thinkers couldn’t have come with a theory of value because it is a scientific theory. Science didn’t exist in the Middle Ages and before that, they didn’t think in terms of science, scientific method or scientific truth. Science was only invented in the Modern Era.
It would not only be an anachronism to claim thinkers of bygone eras to have developed, independently, theories of value, but it would also be a non-materialist view of History. It would be considering History as the history of the ideas and not of class struggle.
We should be extremely careful when we gratuitously imprint modern concepts and inventions to older eras.
Vk says: ’(contrary to the neoclassical myth, Marx was not an economist)’’ and says ‘’the economy involutes’’
But many Marxist historians (which you should know as a historian) say that Marx, after his time as a philosopher, reader and refutor of Hegel) decided that philosophy was not enough to understand the functioning of society. And he decided to study the political economists of his time (Smith, Ricardo, etc…)
My point of view is that economics in general and political economy in particular has the great advantage over the other social sciences that economics INCLUDES the other sciences (social and natural) within it and includes, of course, economics. own philosophy.
As it does?. Taking physical and social data from the rest of the sciences. Data to which an economic valuation applies. The other social sciences do not make this integration with the rest of sciences and remain sciences of partial aspects of society.
Economy in involution according to his opinion? The dominant bourgeois economy is the one in involution. But the socialist economy is not. Two proofs of that non-involution:
1º With something of a joke.- His presence in a blog of socialist economy. Not only you visit but more than 500,000 visitors, and counting, has this Marxist economics blog. Other Marxist blogs (Rolando Astarita, etc.) confirm this increase due to interest in the socialist economy. The interest grows and about the quality of the texts, theses and exposed data it is not necessary to say anything.
2º More seriously. What is in involution is the economic structure of world society. Also in China, despite himself. What is in decline is the common ownership of productive capital (Socialism) and, therefore, private ownership of capital (Capitalism) is on the rise. – And it has been doing so, exactly and not before, since the 1980s. regression of a cycle of class struggle. I will not give you data or arguments of that cycle and I will only leave you a test of its effect on the cultural substructure in your section on the language used. This recent research from Wageningen University, in the Netherlands, and Indiana University, in the United States, discovers the following involution: throughout the World-System, and since the 1980s with the rise of neo-liberalism, there are the words used associated with the individual and emotions increase and the words associated with the social and rational decrease.
The rise and fall of rationality in language. Marten Scheffer et al. Proceedings of the National Academy of Sciences (2021). DOI :https://doi.org/10.1073/pnas.2107848118
Since this has extended into a discussion of the LTV, and thus we’re not departing from economics, allow me to bring here the contentions of one Rainer Lippert, the person who I mentioned earlier as arguing against Cockshott’s solution of labour tokens for a planned economy. He says he’s lived in the GDR and insists socialist economies failed because they didn’t have a functioning market, and that labour tokens cannot make up for that.
His comments are long, and if anyone is curious, just go to the latest video in Cockshott’s channel, about Pay Rates under Communism. I’ll just showcase his example:
“An entrepreneur produces umbrellas. According to the labor time spent, such an umbrella can be purchased for 10 tokens.
Since the entrepreneur knows that working hours are more important to society than the benefit that comes from working hours, he has holes punched in the fabric of the umbrella. So he spends more working time and can offer a screen for 12 tokens.
But nobody wants to buy these umbrellas, although a lot of work has gone into them.
This is certainly an extreme example, but it should show that when it comes to value and normal money, the results of the work also matter. Only if these are OK, under normal monetary conditions, will the expenses be reimbursed.
But what is OK cannot be derived from working hours.
This concerns e.g. the design of the products, the functionality, the meaningfulness of the products in the current economic and social environment. One could still build video recorders today and circulate tokens for them because labor time was used for it. But nobody would buy them.
All the subtleties that exist in products from different manufacturers for the same tasks cannot be derived from different working times.”
The reason I’m writing this is because it’s the one thing about socialism/communism I can’t quite figure out myself.
It boils down to the question of “what are people after in socialism”?
In capitalism, it’s clear: the market makes it so that some are after wages (workers) and others, after profit (capitalists). The two groups foster each other’s pursuits: capitalists, by telling workers what they want done to achieve profits, and making sure they don’t get paid unless they comply; workers, by supplying the labour and consumption power that enable capitalists to realise profits.
I understand how planning can substitute for the market in the economic calculation that attaches consumer prices to goods. And I know that even from an information theory point of view, Hayek’s contention that the market is a uniquely efficient information processing unit and the only means to ascribe value to things is bollocks.
But where does the arrow of progress come from in socialism? As in, what stops a socialism society from becoming technologically stagnant? If workers don’t have to fear unemployment, and industries don’t have to compete, where does the motivation to innovate come from?
(I know the USSR wasn’t stagnant, on the contrary, but then again it was under pressure from the capitalist world. I mean a situation in which the world becomes socialist and such pressure does not exist.)
If the question is too basic, I’m fine with being pointed to reading material, too. I’ve read Brian Green’s outline of a consumer-driven planned economy, but I’m yet to digest it.
may be like research done by scientists( like USSR weapon industry) creating new products like cell phone and whole economy geared towards to raise the population to that standard. after that space frontier etc.,
also we saw nations competing in covid deaths ( i found it very nasty)
”labor was the ultimate source of all wealth ” ”labor only becomes value in the capitalist system.”
I am sorry, but such is not Marx’s contention. Nature is also a source of wealth, and and labour may produce value in all modes of production. Are you arguing that the category of value does not apply in the huge economy of the Roman Empire etc.?
Nature is a source of wealth but not value.
Nature is a source of use values. You need to apply more rigour to your conceptual intelligence. You seem to identify the concept of value with that of exchange value.
Exactly. Marx talked about use “values”. But these can be measured only by degree of social need, which is subjective. Of course, in a hypothetical communist social ordrer, surplus product and exchanges of products between sectors of production or between communites, labor time might be calculated in determiing the size of social accumulation and equal exchanges, but such calculations are primarily determined by degree of need among the producers, who own the means of production. Many of the producers’ “rational” calculations would seem “irrational” to a bourgeois mind. The Soviet Union was deemed guilty of such irrationalities by Western political economists, but production primarily for social need worked quite well… for a while, despite their isolation within a hostile, more technically advanced, capitalist world, whose aggressions distored their production for need, into the need for weaponry to defend themselves.
My comment is in support of VK, who refers to hisorical social orders, specifically here, one in which the owners of the means of production produce for profit rather than need. jlowrie seems to think that exchanges beween merchants in any era is capitalism.
But these can be measured only by degree of social need, which is subjective. ” Sounds suspiciously like the theory of marginal utility.
;; jlowrie seems to think that exchanges beween merchants in any era is capitalism.” Of course I affirm quite the opposite, namely that exchange value indeed precedes capitalism; moreover, labour never becomes value, but is a source of value in all modes of production.