Falling rate of profit-Why can't constant capital create value?

noodlehead,

Please have a go reading some of the links below before we all get bogged down in repreating ourselves.

Theres also some good background reading on this subject by Sander on the Internationalist Perspectives web site if you want to explore this further.

thanks.

noodlehead

Why can't constant capital create value?

I'm sure to be corrected by those who really understand these things, but the simple answer to the question:

'Why can't constant capital create value?'

seems to be:

'Because only human labour creates value'

noodlehead

Surely a fully mechanised industry with no/minimal wages to pay still would create value?

No, it wouldn't: 'no wages' would produce 'no value', and 'minimal wages' would produce 'minimal value'.

'Value' is a social relationship, not something a person can touch: it's not a 'thing'.

Don't forget, we're not talking here about neo-classical economics and the psychological theory of value. In other words, something an individual can identify, using their own mind, by having their own opinion.

'Value' can only be identified at the structural level. I've argued in the past that it should really be called 'Social-Value', to differentiate it from the prevailing ideological notion of 'value' (ie. what someone 'thinks' something is worth to them).

But I know more knowledgeable others here will disagree.

LBird gave the short version basically. For Marx it is axiomatic that only human labour can create value, which is mainly because value is a social relationship.

However, that is not to say that a fully automated factory can't be profitable. Businesses with a high organic composition of capital tend to suck value from those with low organic compositions (this argument comes from George Caffentzis and Midnight Notes; basically a value theoretic version of dependency theory).

Old story: Henry Ford takes Walter Reuther on a tour of an experimental assembly line, completely automated.

Says Ford to Reuther, "This is the future, Walter. Who are you going to organize when only machines are working?"

Replies Reuther, wanting always to be the good social democrat and protect capitalism from itself, "When only the machines are working, who's going to buy all those cars, Henry?"

Of course, Reuther makes it about consumption when in fact the issue is one of the value relationship, how it is derived, and how it is expressed in exchange, buying and selling, but actually originates human beings being compelled to exchange their labor time for the means of subsistence.

'Why can't constant capital create value?'

seems to be:

'Because only human labour creates value'

which begs the question of course. of course if you define value in terms of labor time the answer is tautological.

but machinery can contribute more to enhancing productivity and thus revenue than its price.

no doubt marxists will respond with metaphysical metaphors about "embodied labor time."

syndicalistcat

which begs the question of course. of course if you define value in terms of labor time the answer is tautological.

I don't think it's a question of tautology, but of definition.

If 'value' by definition is a 'social relationship', then machinery can't create it.

Of course, if one doesn't accept this definition, must must first of all provide a definition of 'value', to decide if 'machinery can contribute more'.

FWIW, I think that it's a debate between an 'economic' definition of 'material products' and a 'political economic' definition of 'human relationships', especially exploitative ones.

Furthermore, it's a debate between and about things individuals can see, and structural relationships which they can't.

I'd like to see a machine that could create more value than used in its own creation. So would the bourgeoisie. That's the political-economy equivalent of a "perpetual motion" machine.

I agree with syndicalistcat that LBird's answer begs the question.

no doubt marxists will respond with metaphysical metaphors about "embodied labor time."

Saddly, I think many would.

However, if one digs into the arithmetic in Capital 3, chapter 10, one can find simple arithmetic that claims to show the rate of profit falls when the organic composition of capital falls.

The way I would break down this result is that capitalist has to hold a larger mass of capital to while selling approximately the same product in a modified market. This modified market still brings same profit - a larger mass of capital held for same profit means a declining profit. Now in our modified market, the capitalist may even be selling far more stuff but the implicit assumption is that ultimate he will sell the larger amount of stuff for the same price as he previously sold the smaller amount of stuff since all his costs boil down to labor and he'll pay the same amount for this.

Now, the implicit assumption in all this would be that the price of labor remains more or less constant. One might argue that in increase in production of stuff would actually reduce the initial costs of labor (and with this comes all of the disproofs of the declining rate of profit that you'll finder). But I would claim it is not all given that the price of labor will decrease concomitantly - I would claim it would instead tend to "reach a plateau", decline more slowly than factory production increases; important components of labor cost involve food, medical care and other factors whose productivity does not increase at the same rate as the factory production of chips and cars.

All this is to say that in ones assumes that the price of labor is somewhat constant or declines slowly enough, the rate of profit will tend to fall as the organic composition of capital falls. Human labor is an ingredient of everything and human labor requires some portion of more human.

Further, balancing actual prices and labor-value quantities is tricky and certainly not what Marx did. It brings in the "transformation problem", which I recall everyone here seemed to hate. The later day Marxists academics who solved this and balanced the various equations of a Marxian economics were pretty much separated from the traditions of either anti-state communism or whatever other tendencies seem to be represent here on Libcom. But this branch (for example David Laibman or Paul Sweazy) had the merit of mathematical rigor.

I made a toy spread sheet model of what I describe above a while back. The link shows a declining rate of profit under the circumstances I describe while balancing the money accounting system.

Another way to put this is that you can, indeed, show entirely by definition that a capitalist's rate of profit declines when that rate of profit is measured in value terms. But if this result has no effect on the money-profits that the capitalist receives, the capitalist won't give two figs about it and logically neither should we.

To go beyond demonstrations based entirely on definitions, one has to start making one's assumptions about the world more explicit.

However, if one digs into the arithmetic in Capital 3, chapter 10, one can find simple arithmetic that claims to show the rate of profit falls when the organic composition of capital falls.

Should be "organic composition of capital rises."

The basic idea behind all this seems to be that competition on the market will drive the price of goods close to their cost of production, but since surplus labor is free to the capitalist, it plays no part in the production cost, hence the capitalist realizes surplus value on it, which is substantially identical to profit. The equalization of the rate of profit does imply that a totally mechanized capital can make a profit, but economy-wide the total amount of new value will equal labor time.

I think part of the rationale is that if the profit margins dip too low the cost of labor goes down, hence the cost of production will never equal prices, but in the case of machines this is not a factor. I have to go but I'll think about this more and post again.

bzfgt

However, if one digs into the arithmetic in Capital 3, chapter 10, one can find simple arithmetic that claims to show the rate of profit falls when the organic composition of capital falls.

Should be "organic composition of capital rises."

Yes and should be chapter 13, not 10. It's a weird terminology, since the organic composition rises when the amount of labor, that is "organic", falls. But it's all just a matter of what quantity you put on the denominator. The more dead labor is part of the mass of capital, the lower the rate of profit.

The basic idea behind all this seems to be that competition on the market will drive the price of goods close to their cost of production, but since surplus labor is free to the capitalist, it plays no part in the production cost, hence the capitalist realizes surplus value on it, which is substantially identical to profit. The equalization of the rate of profit does imply that a totally mechanized capital can make a profit, but economy-wide the total amount of new value will equal labor time.

Well, average, long prices of production would be (1 + r)*costs-of-productions, where r is the overall, social average rate of profit - which indeed is a function of the rate of exploitation, how much labor-power the capitalist get for free.

A "totally mechanized capital" couldn't exist as the same social relation. One could argue that it might not be able to exist at all but one could also imagine something like a total cybernetic dictatorship a la "the singularity". In neither case would our political-economic analysis of capitalist apply.

I think part of the rationale is that if the profit margins dip too low the cost of labor goes down, hence the cost of production will never equal prices, but in the case of machines this is not a factor. I have to go but I'll think about this more and post again.

The capitalist class certainly works hard and ceaselessly to lower the price of labor and sometimes succeeds. At the same time, both class struggle and social/biological survival put limits on capital's ability to do this.

In the long run, capitalists won't invest unless they have some expectation of profits so markets by themselves aren't a mechanism which would reduce prices to the cost of production (rather to the level described above - costs plus profits). When a capitalist has already invested in a machine, they may be more likely to be forced to sell below their cost of production since they may need to recoup their investments any way they can. But this still isn't the main thing - it is just a thing one would "average in".

Khawaga

LBird gave the short version basically.y human labour can create value, which is mainly because value is a social relationship.

This. Syndicalistcat and others who claim "question begging" make the mistake of assuming Marx is out to prove that human labor is "behind" something called "value".

Marx is rather out to understand how human labor is allocated in a society of generalized commodity production and exchange, and "value" is the term he assigns to the socially necessary average of this labor.

Saying this is "question begging" is like saying referring to a six-stringed musical instrument with a fretted neck as a "guitar" is "question begging". It would be nonsensical to ask me to prove that a guitar is a "six-stringed musical instrument with a fretted neck", since "guitar" is merely the convenient term I use to refer to this instrument.

Red:

A "totally mechanized capital" couldn't exist as the same social relation.

I misspoke, I meant a totally mechanized business like an automat (or at least one with almost no labor required) can still make a profit (according to Marxism) because of the eq or profit, even though no new value is created (Khawaga already pointed this out).

I agree capitalists could never sell goods for the price of production, but Marx seems to think without sufficient labor inputs they'd be forced to, hence capital would collapse; at least that seems to be part of the argument in the "fragment on machines" section of the Grundrisse. In that case however labor would still create value, but the automated industries would create no new value--value would be in a steady state or something. Anyway you seem to be suggesting capitals could still be profitable without labor inputs, I don't think Marx thinks so but maybe you're right. But this brings us to AN's post--that's mostly right but it's not that simple I don't think, because Marx thinks total surplus value=total profit, and if that's the case then Marx doesn't think machines allow for profit at all, hence to understand profit one must understand labor value. I'm not sure what the truth is here though, I have to think about it more. AN's point is well-taken that if totally automated capital was profitable, that wouldn't be what Marx calls "value."

By the way (Red) there are a lot of people who now defend Marx against Sweezy et al. by saying they forgot the temporal shift in value when they calculate inputs, most notably probably Andrew Kliman. This isn't my area but it seems worth mentioning.

http://en.wikipedia.org/wiki/Temporal_single-system_interpretation

There's a passage in Vol. 2 of Capital where Marx says the ultimate cause of all capitalist crisis is the limited capacity for consumption of the working class. That's in support of S. Artesian's anecdote above.

Ultimately, hypothetical models of whether a fully automated system of production would be profitable are kind of nonsensical. Who would buy the goods? With what income? Just a handful of capitalist shareholders buying and selling among each other? Why even use the mediation of money in that case? Wouldn't this full automation just produce a superabundance of material wealth for this lucky handful of former capitalists?

The chatter about the need to prove the concept of value arises only from complete ignorance both of the subject under discussion and of the method of science. Every child knows that any nation that stopped working, not for a year, but let us say, just for a few weeks, would perish. And every child knows, too, that the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society’s aggregate labour. It is self-evident that this necessity of the distribution of social labour in specific proportions is certainly not abolished by the specific form of social production; it can only change its form of manifestation. Natural laws cannot be abolished at all. The only thing that can change, under historically differing conditions, is the form in which those laws assert themselves. And the form in which this proportional distribution of labour asserts itself in a state of society in which the interconnection of social labour expresses itself as the private exchange of the individual products of labour, is precisely the exchange value of these products.

Actually, there's also a phrase in volume 3 when Marx says something like "in the last analysis, the cause of all crises is the poverty of the masses"-- but Marx is no underconsumptionist, and neither am I.

For Marx, overproduction is always the overproduction of the means of production as capital; and capital becomes incapable of exploiting labor intensely enough to offset the decline in profitability brought about by... its intense exploitation of labor.

Angelus makes the key point-- Marx is exploring how society reproduces itself; how it distributes the total socially available labor time to meet the needs of reproducing the society-- that is to say reproducing the class relations, the classes of the society.

Marx traces the transformation/conversion of necessary labor/surplus labor into necessary product/surplus product; necessary/surplus product; into necessary/surplus value, and Marx is able to capture that transformation, deriving value, and then from value deriving capital precisely and only because capital has "raised" [or lowered] labor, production, productive labor to its lowest/highest common denominator-- time.

Wealth is the disposition over time. The machine, fixed capital, gives up none of its time of existence in order to reproduce itself.

And that' not metaphysics, that's the real nature of human existence-- the utilization of time.

Let me know when a machine "works" part of the time simply to reproduce its value, and another part of the time for "free." Machines don't get paid wages, do they? They can't produce capital, they cannot "self-expand."

In relation to the above, as far as the rate and mass of profit go:

"It is simply the needs of the capitalist mode of production, moreover, that lead the number of wage-labourers to increase absolutely, despite this relative decline [ie. caused by the developing composition of capital]. [...] A development of the productive forces that would reduce the absolute number of workers, and actually enable the whole nation to accomplish its entire production in a shorter period of time, would produce a revolution, since it would put the majority of the population out of action. Here we have once again the characteristic barrier to capitalist production, and we see how this is in no way an absolute form for the development of the productive forces and the creation of wealth, but rather comes into conflict with this at a certain point in its development."

(Capital, vol. III.)

If the fall in the rate of profit even with an absolute increase in surplus-value leads to a situation where, as Marx puts it:

"These contradictions lead to explosions, cataclysms, crises, in which by momentaneous suspension of labour and annihilation of a great portion of capital the latter is violently reduced to the point where it can go on. These contradictions, of course, lead to explosions, crises, in which momentary suspension of all labour and annihilation of a great part of the capital violently lead it back to the point where it is enabled [to go on] fully employing its productive powers without committing suicide [Manuscript repeats itself]. Yet, these regularly recurring catastrophes lead to their repetition on a higher scale, and finally to its violent overthrow."

(Grundrisse)

Then an attempt to reach a state of full automation would have problems even beginning, let alone being fulfilled.

no doubt marxists will respond with metaphysical metaphors about "embodied labor time."

It's not our fault it's metaphysical. We didn't start that fire.

I agree capitalists could never sell goods for the price of production, but Marx seems to think without sufficient labor inputs they'd be forced to, hence capital would collapse; at least that seems to be part of the argument in the "fragment on machines" section of the Grundrisse

Well indeed but a fairly, clear real-world way to model this is to notice that this would cause the rate of profit to go to zero and then use the formulation that producer prices.

Anyway, I'd agree with the point Artesian and Angelus make, as statements. The problem is that I don't see these fine points, in themselves actually explaining the falling rate of profit. Marx's arithmetic in v 3, c13 does do this - but since it is modeling the real world, it is a technical subject where more than years of debate has resulted some reevaluations and progress.

Now, in the opposite to camp to progress and rationally inquiry, Andrew Kliman's Marxist-fundamentalist theories are fundamentally flawed and not worth much discussion. As far as I know, his math has generally been recognized as a crank mathematics by all the mathematically sophisticated people outside of his cult who've looked at it (not just me). Among other sins, his basic illustrative model is that of the self-reproducing capital, which Angelus and others correctly call as not being worthwhile.

And I'm well aware the hostility people have towards actually balancing equations and using qualitative models.

Ultimately, hypothetical models of whether a fully automated system of production would be profitable are kind of nonsensical. Who would buy the goods? With what income? Just a handful of capitalist shareholders buying and selling among each other? Why even use the mediation of money in that case? Wouldn't this full automation just produce a superabundance of material wealth for this lucky handful of former capitalists?

Yeah, totes. It seems like we got on this because I suggested value comes from labor because competition reduces the other factors to their cost, I think that's right (at least for Marx) and it's a good point that a totally automated "capitalism" would not be possible and hence isn't necessary to invoke.

Khawaga

However, that is not to say that a fully automated factory can't be profitable. Businesses with a high organic composition of capital tend to suck value from those with low organic compositions...

All that Khawaga is really saying here, I think, is that while a single firm can be fully automated and make a profit (which answers noodelhead's OP in the affirmative), but that is because that firm is parasitic on other firms within the wider economy.

Which is to say, that 'value', as we have defined it earlier, can't be created by machinery. 'Value' works at the socio-economic level of the whole human economy, not at the level of the individual firm.

RedHughs

I agree with syndicalistcat that LBird's answer begs the question.

Well then, you have to provide a different definition of 'value'.

Angelus Novus

Marx is rather out to understand how human labor is allocated in a society of generalized commodity production and exchange, and "value" is the term he assigns to the socially necessary average of this labor.

Yes, if one doesn't assign this meaning to 'value', then one is free to assign another, but must declare this other meaning, so that we can see where our differences lie.

Marx

The chatter about the need to prove the concept of value arises only from complete ignorance both of the subject under discussion and of the method of science.

In this discussion of 'value', I don't think we can get away from this consideration, either.

Metaphysics or science? For some, Marx's 'value' is an intangible dream, whereas for others it's a scientific category.

I'm inclined to think that 'value' only works at the structural level of explanation, not the individual level of 'things'. This brings us back to the OP and the question of the productivity of machinery.

To add to my previous post:

Marx

Where science comes in is to show how the law of value asserts itself. So, if one wanted to ‘explain’ from the outset all phenomena that apparently contradict the law, one would have to provide the science before the science. It is precisely Ricardo’s mistake that in his first chapter, on value, all sorts of categories that still have to be arrived at are assumed as given, in order to prove their harmony with the law of value.

What is 'the science before the science'? Nothing less than unexamined, empirical, human individual experience.

Science is axiomatic and then the axioms are tested against reality.

To start from 'where one is', 'what one can see' or 'the bloody obvious', is unscientific.

A firm's output can be seen, as can the products of machinery. But that is nothing to do with 'value', which is about explaining 'exploitative human relationships'.

'Value is a social category' - axiom.

If someone doesn't agree with this statement, then it is incumbent upon them to provide their definition, their 'axiomatic understanding', of 'value' first.

LBird

RedHughs

I agree with syndicalistcat that LBird's answer begs the question.

Well then, you have to provide a different definition of 'value'.

Apologies. Reading the question more carefully, it can certainly be answered by providing the definition of (labor) value as you did. Constant capital cannot produce (labor) value because labor produces labor value.

I interpreted the question to be asking for a general explanation of why despite a capitalist's constant capital, the rate of profit still declines. But that may not be the best interpretation of the question.

RedHughs

LBird

RedHughs

I agree with syndicalistcat that LBird's answer begs the question.

Well then, you have to provide a different definition of 'value'.

Apologies. Reading the question more carefully, it can certainly be answered by providing the definition of (labor) value as you did. Constant capital cannot produce (labor) value because labor produces labor value.

I interpreted the question to be asking for a general explanation of why despite a capitalist's constant capital, the rate of profit still declines. But that may not be the best interpretation of the question.

Thanks for the apology, RedHughs. I'm quite flattered, really, because you know, and understand, more about Marx's political economy than I ever will!

Anyway, I'd agree with the point Artesian and Angelus make, as statements. The problem is that I don't see these fine points, in themselves actually explaining the falling rate of profit. Marx's arithmetic in v 3, c13 does do this - but since it is modeling the real world, it is a technical subject where more than years of debate has resulted some reevaluations and progress.

Except, I'm not trying to explain the tendency for the ROP to fall; I'm explaining why fixed assets do not create, expand, supply new value.

Presupposing that the labor theory of value (or the value theory of labor or whatever you want to call it) holds, Marx's assumption that products of past labor cannot create new value is analytical (i.e. LBird is correct). If anyone wants to argue otherwise, I don't see how that's possible without giving up the presupposed theory (which opens up a whole lot of new problems) or producing inconsistencies in the theory (say good bye to the explanation of the origin of surplus-value).

The fact to which syndicalistcat points above, that machinery enables increases in productivity and hence (temporary) increases in profit (i.e. so-called "extra profit") is perfectly compatible with Marx's theory of value and with the FROP. In fact, extra profit is Marx's explanation for the rapid technological progress in capitalism. Moreover, it is one of the fundamental components in explaining what practically constitutes the "law of value": in search of extra profit, the competing capitals are driven to outrun each other in introducing labor-time saving measures.

I took the question to be asking why Marx defines value as labor value; I agree that he is interested in how labor, as well as social relations in general, is allocated, but the question remains: if constant capital can create products that can be sold for more than the cost of the machinery, why have a labor theory of value? I think the answer for Marx is that competition reduces the factor of price accounted for by constant capital to its cost whereas this cannot happen with labor because labor is composed of necessary and surplus components, hence the term "variable capital."

syndicalistcat

'Why can't constant capital create value?'

seems to be:

'Because only human labour creates value'

which begs the question of course. of course if you define value in terms of labor time the answer is tautological.

but machinery can contribute more to enhancing productivity and thus revenue than its price.

no doubt marxists will respond with metaphysical metaphors about "embodied labor time."

of course its tautological. let me rephrase your question in marxist terms: why cant tools create average necessary labor time? does the question still make any sense at all?of course to produce a certain use-value, tools can only save average necessary labor time, not create it! the thing here again is a different understanding of exchange value from participants of this thread. try to make a suggestion how exactly cc goes into exchange value or "creates value" and we will see how you do... i expect you to run into a bunch of walls (in a theoretical kind of way ^^) and then with a bloody nose consider the labor theory again. id be suprised if any idea how this could work out (cc->value) lasts a day untill someone comes up with an example where u can see it must be wrong. the labor theory is not nice because its possible but its nice because its true! just alike you could come up with an example that falsifies the labor theory.. thats interesting too and usefull also for this board because such examples are legion in bourgeois theory of value.. and yet it was always possible to point out their fault.

edit: above i wrote "tools can only save average necessary labor time".. that is of course not a necessary condition but humans generally dont use tools that actually create more work to make the same thing. generally. over a learning phase... *thinks of his workplace*

LBird

Thanks for the apology, RedHughs. I'm quite flattered, really, because you know, and understand, more about Marx's political economy than I ever will!

Well I am flattered as well. Indeed I have to demure and say directly I wouldn't claim any "deep" understanding of Marx's political economy at all. Definitely not. I certainly haven't fully navigated the complex highways and byways of Marx's huge opus. Indeed, the various folks here who seem to truly dig deep into Marx's text (say Mikus, Jura, Angelus Novus, Artesian, and others) have certainly surprised me in many ways here concerning all the different implications of just Das Capital.

At best I'd hope to aim for my own consistent political economy maybe inspired by some thing Marx has written and probably at least as inspired by Dauve and Debord.

Given this, I've been trying to stay away from threads focusing on what Marx intended to say, what he really said, etc.. I am more interested in the question of what causes present day capital society to be subject to crisis. The "Marxian model" as filtered through Desai, Laibman, Sweazy etc seems very useful here - as do Hyman Minsky, Guy Debord, Benoit Mandelbrot and Hyman Minsky.

Anyway, perhaps all my prejudices caused me to wildly misinterpret the original question as something like "how do you explain the declining rate of profit in light of the way that fixed capital really seems to produce profit for its owner". A more careful read shows that the question just "Why can't constant capital create [labor] value" where the answer is "well, by definition, only labor creates labor value".

All that apologized for, I will say that I am still more interested in an explanation of the decline rate of profit in light the apparent ability of fixed to produce capital for its owner. Because this does seem on the surface mysterious. And my overall discussion of this is in the earlier post.

RedHughs

Well I am flattered as well. Indeed I have to demure and say directly I wouldn't claim any "deep" understanding of Marx's political economy at all.

Well, perhaps we can come to an amicable agreement that you don't have a 'deep understanding' compared to some here, but it's still a 'deep understanding' compared to mine.

RedHughs

All that apologized for, I will say that I am still more interested in an explanation of the decline rate of profit in light the apparent ability of fixed to produce capital for its owner.

I wouldn't even enter a discussion about the Tendency of the R of P to Fall (or not), because I don't know enough.

My concern was only to ask the OP what they meant by 'value'.

We have to have some agreement on that before anyone attempts to explain any further about anything else.

noodlehead

Falling rate of profit-Why can't constant capital create value?

Surely a fully mechanised industry with no/minimal wages to pay still would create value?

It will save an awful lot of time and sore fingers for us all if we get noodlehead to give a definition first.

Otherwise, we'll all be talking at cross-purposes.

FWIW, I think one of the big failings of those who attempt to explain Capital, etc., is that they don't define the meanings of Marx's terms first, which I think leads to continuing confusion, if someone is attempting to understand and is holding onto some 'psychological' theory of 'value', or think that 'value' is a physical 'product' or 'output' that can be measured.

RedHughs

I certainly haven't fully navigated the complex highways and byways of Marx's huge opus. Indeed, the various folks here who seem to truly dig deep into Marx's text (say Mikus, Jura, Angelus Novus, Artesian, and others) have certainly surprised me in many ways here concerning all the different implications of just Das Capital.

Yeah, but what surprises me most is the lack of any seeming agreement about even the simplest concept from Capital.

It makes it almost impossible to get a 'hook' into the book. Perhaps this can never be done, and Capital will remain a mystery for most workers.

I just don't think it should be beyond the people you've mentioned above, and many others, like Khawaga and ocelot, given their tremendous depth of knowledge, to put together a form of introductory explanation, without all the disagreement which just confuses the new reader.

I suspect Marx is to blame, if anyone is. Failing that, perhaps it's just me.

Reading the original question, there seems to be two questions: why CC can't create value, and why the increase in productivity brought about by mechanization can't compensate for the lower rate of profit by producing more total profit.

bzfgt

Reading the original question, there seems to be two questions: why CC can't create value, and why the increase in productivity brought about by mechanization can't compensate for the lower rate of profit by producing more total profit.

Yeah, I agree.

And the first, 'why CC can't create value?', is a philosophical question, really about ontology, I think.

Whereas the second 'why the increase in productivity brought about by mechanization can't compensate for the lower rate of profit by producing more total profit' seems to be already making philosophical assumptions, and these seem to be based in modern economics, not in Marx's critique of 'political economy'.

Nothing's fuckin' simple, is it?

bzfgt

Reading the original question, there seems to be two questions: why CC can't create value, and why the increase in productivity brought about by mechanization can't compensate for the lower rate of profit by producing more total profit.

In any case, this latter question, phrased positively as "why mechanization can't compensate for the lower rate of profit by producing more total profit", is the more pressing one to me.

Another way to put it is, why couldn't the rate of exploitation keep rising with increased organic composition of capital? If all industries, including food, were to increase their material output equally and rapidly, workers might, purely hypothetically, experience a greater and greater rate of exploitation but a simultaneously increased standard of living.

This is hypothetical, however, considering that industries don't experience such a uniform increase in output.

Still, it seems like questions of this sort are where theory and practice actually meet.

I think Marx thinks this can happen but relegates it to a "countertendency." From there it seems like an empirical question, to evaluate his larger claim...

I think a lot of this gets obscured in very complicated language which is why no one really, outside of marxists, as a large demographic, understands the concepts behind Marx's falling rate of profit. Many Marxists like to use big words in describing the concept, or refer to terms which really only have meaning when linked back to Marx's writings; and if one has never read Marx it tends to sound like a load of giberish.

The way I explain it, I try to avoid terms like value, socially necessary labor time, etc, for simplicities sake. Think of the arguement as similar to technological unemployment. Capitalists make money through exploiting workers, and then selling the products of that exploitation to make a profit. Well who buys this stuff, a massive flaw in most people's understanding of economics is that there is a guarenteed purchaser, but this is not the case. If capitalists continue to automate production, which is often in their interest (it actually was cancelled by neoliberalism, as the slave wages paid to east asian factory workers for example are so low that is inefficient, money wise, to automate any more than they have. Credit has had a similar affect). So, if capitalism continues to automate, it has less and less need for workers, meaning less and less money goes to the working class, aka, the proletariate. If less and less money is being distributed to people primarily responsible for buying goods, then less goods will be baught. The capitalist might try to offset this loss of profit by lowering wages or to continue automation, but the same problem arises. The cycle continues. Wages lower, or workers get laid off, less can be consumed, thus profits fall, and capitalism begins to fall in on itself.

What has made many people, including many marxists, reject this arguement is that after 150 years it has not happen. Capitalism has continued to resolve its contradictions over the years, first with war, then with credit, finance, neoliberalism. There is a dialectical advancement of capitalism it seems within capitalism. How long can this go on? Perhaps you are seeing the final stages now.

There are plenty of purchasers besides workers: managers, capitalists and the government. It is a different theory to claim that capitalists reducing wages cut off demand for their products and cause the crisis.

It is true that a lot of quite sophisticated Marxists do revert to this approach when attempting to explain things to the average person.

The point of a declining rate of profit is that the capitalist aren't making money or making enough money on the goods they do sell.

I don't claim to be a Marxist so if I have something wrong here please correct me, but this is how I have come to understand the argument.

Worker Goal: C-M-C ; production of commodities to make money to buy more commodities
Capitalist goal M-C-M ; investment of money into commodities for a return of money

Rate of profit = R = Profits/Capital
Capital = Constant Capital + Variable Capital

R = P / (C+V)

The natural tendency for markets is to increase the ratio of C/V in order to increase efficiency. Value is generated by Surplus Labor Value bellow the socially necessary labor time. Thus by reducing the C/V ratio, less money goes to variable capital. If less money goes to variable capital, wages to workers, the C-M-C-M-C chain becomes more and more bias. Even if there are alternative people to sell to, Marx argues, if I am correct, that all value is generated from surplus labor, therefore the real value in society falls. If real value in society falls due to automation, how is this different from what I said?

NoRefunds, I think your explanation is incorrect. The FROP in itself has nothing to do with a decrease in wages or with problems of realization (i.e. "noone to sell to"). The claim is that due to an increase in the organic composition of total capital (c/v), the rate of profit (s/c+v) falls. A few points which may not be immediately visible from that:

- an increase in the organic composition of capital does not preclude an inrease in the rate of exploitation. If each worker is made to operate two machines instead of one on the same working day as before, then the intensity of labor, and hence the rate of exploitation (s/v) may increase. The rate of profit (s/c+v) may still fall.

- an inrease in the rate of exploitation may act as a countertendency, as bzfgt pointed out, to the FROP insofar as it does not involve an increase in constant capital or only a disproportionate increase of constant capital (i.e. c/v rises slower than s/v). This can be achieved by lengthening of the working by and by increasing the intensity of labor without new investments in constant capital.

- an increase in the organic composition (c/v) does not necessarily mean that less workers are employed, or that the wages of individual workers fall ("less money to workers"). It only means a disproportionate increase of constant capital relative to variable capital. Thus the organic composition can rise even with more workers being employed (hence more labor and surplus labor commanded by capital, leading to a rise of the mass of surplus value and the mass of profit) or with an increase in wages.

- as suggested in the previous point, an increase in the organic composition does not preclude an increase in the mass of surplus-value and the mass of profit. The mass of profit can rise tremendously, while at the same time the rate of profit can fall.

Now, to come back to the OP. The rate of profit is s/c+v. If we divide both the numerator and the denominator by v, we obtain: (s/v)/(c/v+1). Here it is plain to see that the rate of surplus-value (s/v) and the organic composition (c/v) are the determinants of the rate of profit. In other words, the rate of profit will only fall insofar as the organic composition rises faster than the rate of surplus value. The organic composition may increase tremendously, but insofar as this is kept in check by an increase in the rate of surplus-value, the rate of profit remains the same or even increases.

Crap, I had it twisted.

agree entirely with Jura's post, I didn't respond to NoRefunds' explanation because I didn't understand it.

To wrap up my "deal"

1. I agree with Jura's summary of the declining rate of profit. Notice that there's no definite prediction that the rate of profit will fall. The increase in the organic composition takes it down and the increase in the rate of exploitation takes it up.

2. If we lived in a society where workers consumed only good from factories and the factories' production of physical goods was constantly and uniformly rising sufficiently, the rate of exploitation could rise indefinitely - by the factories producing more and more, the cost of simple survival could go down and down allowing more and more of the workers' production to go to the capitalists. This is in line with the infamous Okishio theorem which proves (in one given model) that "constant real wages" plus increases in productivity of capital always results in an increased rate of profit. Moreover, we have to consider that in such a hypothetical situation, an increased rate of exploitation might not look like material deprivation to our hypothetical workers since they could wind-up with more material goods even if those goods represented a smaller portion of their labor expended.

3. The way that I would claim that an Okishio-like model of a constantly increasing rate of exploitation breaks down is when you consider that the real world, workers need not just increased goods from factories but simple services, food and goods where progress in their production does not follow a pattern of rapid growth over time. Thus there are limits to the increase in the rate of exploitation and thus there is a real-world tendency for the rate of profit to decrease.

4. All these arguments are following the conventional assumption of economic relations involving equilibrium and so I think they show that you can predict a declining of rate without the incoherent mumbo-jumbo of Andrew Kliman's "TSSI". Whether that mumbo-jumbo is the original theory of Marx is a different question and one that seems to me less interesting to address.

Points 2+ are not following Marx as far as I know. Sorry to wrap-in my own approach into this but I feel like it adds some needed detail about how the basic theory relates to the world we see.

2. If we lived in a society where workers consumed only good from factories and the factories' production of physical goods was constantly and uniformly rising sufficiently, the rate of exploitation could rise indefinitely - by the factories producing more and more, the cost of simple survival could go down and down allowing more and more of the workers' production to go to the capitalists. This is in line with the infamous Okishio theorem which proves (in one given model) that "constant real wages" plus increases in productivity of capital always results in an increased rate of profit. Moreover, we have to consider that in such a hypothetical situation, an increased rate of exploitation might not look like material deprivation to our hypothetical workers since they could wind-up with more material goods even if those goods represented a smaller portion of their labor expended.

3. The way that I would claim that an Okishio-like model of a constantly increasing rate of exploitation breaks down is when you consider that the real world, workers need not just increased goods from factories but simple services, food and goods where progress in their production does not follow a pattern of rapid growth over time. Thus there are limits to the increase in the rate of exploitation and thus there is a real-world tendency for the rate of profit to decrease.

I don't buy this one bit. Not a single line of it. What in fact is being claimed here is simply the reverse-- the Marx's critique, analysis, is not of the inherent tendency, necessity of the rate of profit to fall, but rather the "situationism" where a rate of profit might fall.

So, what is being claimed is that in practice, Marx is wrong, as is his theory-- the latter of course being derived from the actual mechanisms of accumulation, because the possibility exists for the organization of capitalist production where the rate of profit does not encounter its own immanent tendency to decline-- that is to say the necessity of its decline based on its very organization.

Moreover, the unevenness of capitalist exploitation, the different rates of productivity is accounted for in prices of production, and the distribution of profit that this accomplishes.

The limit to the rate of exploitation exists in the material world of human labor time, and the raising of productivity by the expulsion of labor from the value process, and this existence is not a "failure" of the real world to live up to the theoretical possibilities of capitalism, but is an expression of the conflict at the very heart of capitalist accumulation, which Marx presents in his critique.

Uh, So Artesian do you also disagreed with the argument of Jura that an increase in the rate of exploitation could compensate for a decline in the rate of profit?

No, I don't disagree with that. Certainly it can. To a point. I disagree with exactly what I said I disagree with.

That Marx's analysis is, in essence, incorrect; that there is no causal relationship between the need to aggrandize a greater portion of the working day as relative surplus value, the expulsion from labor from the value process which is the "macro" of the very same principle, and the tendency of the rate of profit to fall.

What does studying the metaphysical aspect of political economy have to do with communism? I am genuinely curious, comrades. I know this issue- or whatever, has been raised before. I realize that communism has been questioned as being an academic's cobwebbed attic, meant for scholars and other such nincompoops. But just to butt in to this current thread. Because communism means seizing the machinery of the economy. Theoretical speculation and historicizing are useful but the blood of communism is firing up worker consciousness. And that's not going to be done in mathbooks. That's done on streets and in barricades

This is not "metaphysics," or it is if you consider Marx's critique of capital "metaphysical."

Silly Marx, spending all that time grappling with political economy, schemes of reproduction, when he simply should have built barricades.

What we are talking about has everything to do with revolution, in that revolutions just don't happen, they are precipitated by the internal conflicts of the economy; that old contradiction between labor and the conditions of labor.

That is exactly what the issue of value, and how it's created, is all about.

qbbmvrjsssdd

What does studying the metaphysical aspect of political economy have to do with communism? I am genuinely curious, comrades. I know this issue- or whatever, has been raised before. I realize that communism has been questioned as being an academic's cobwebbed attic, meant for scholars and other such nincompoops. But just to butt in to this current thread. Because communism means seizing the machinery of the economy. Theoretical speculation and historicizing are useful but the blood of communism is firing up worker consciousness. And that's not going to be done in mathbooks. That's done on streets and in barricades

I think you answer your own question here.

In any case, you're not making an argument, and a debate on your question would be both off-topic and uninteresting, so it's probably not worth it.

But most of the above appears to rely on the basic assumption behind the term "organic composition of capital" itself. Namely that "Between [the technical composition and the value composition of capital] there is a strict correlation". Marx asserts this, but it's never justified anywhere, afaics. Personally I don't see that it is evident at all that the inexorable rise of the technical composition (which has major implications for environmental sustainability, nb) necessarily implies a corresponding rise in the value composition. In terms of fixed capital, it's perfectly plausible that advances in science and technology mean that the new, more productive machinery, itself requires less socially necessary labour time to create. As for raw materials (circulating constant capital) again it's not clear that advances in productivity in mining (see the industry in Australia feeding the maws of Chinese manufacturing currently) cannot offset the increased mass of their flow. What is the justification or defence for the OCC concept?

RedHughs

I agree with Jura's summary of the declining rate of profit.

I hope you still agree with it when I tell you that Michael Heinrich says the same thing in this very fine book.

Also a good book for dealing with some of the confused questions that persist in this forum, such as "why can't machines create value", etc.

ocelot

But most of the above appears to rely on the basic assumption behind the term "organic composition of capital" itself. Namely that "Between [the technical composition and the value composition of capital] there is a strict correlation". Marx asserts this, but it's never justified anywhere, afaics. Personally I don't see that it is evident at all that the inexorable rise of the technical composition (which has major implications for environmental sustainability, nb) necessarily implies a corresponding rise in the value composition. In terms of fixed capital, it's perfectly plausible that advances in science and technology mean that the new, more productive machinery, itself requires less socially necessary labour time to create. As for raw materials (circulating constant capital) again it's not clear that advances in productivity in mining (see the industry in Australia feeding the maws of Chinese manufacturing currently) cannot offset the increased mass of their flow. What is the justification or defence for the OCC concept?

This

My argument above actually gives a multi-production unit answer to this argument btw. But further, this is an argument that the critics and defenders of Marx have not ignored either. And some portion of the counter-arguments of Marxists sound a lot like metaphysics. If there's some marvelous deep refutation of the above argument already in Marx, could someone give a relatively concise summary of it.

I just read Modern Political Economics by Yanis Varoufakis, and he brought up the idea of a matrix economy. Does such an economy create value? No. It's a pretty interesting textbook for anyone interested in Economic theory, and he is a self-identified Marxist to boot. Although you will see lots of Keynes in the topical debates he has in Europe.

Also, wouldn't a fully automated assembly line lead Capitalists down the road of producing things at cost? Since eventually competition would shrink the profits to near nothing?

What is there to exploit if there is no labor in the process?

I'm pretty new to all this, but this is the conclusion I came too after reading all that I have.

ocelot

But most of the above appears to rely on the basic assumption behind the term "organic composition of capital" itself. Namely that "Between [the technical composition and the value composition of capital] there is a strict correlation". Marx asserts this, but it's never justified anywhere, afaics. Personally I don't see that it is evident at all that the inexorable rise of the technical composition (which has major implications for environmental sustainability, nb) necessarily implies a corresponding rise in the value composition. In terms of fixed capital, it's perfectly plausible that advances in science and technology mean that the new, more productive machinery, itself requires less socially necessary labour time to create. As for raw materials (circulating constant capital) again it's not clear that advances in productivity in mining (see the industry in Australia feeding the maws of Chinese manufacturing currently) cannot offset the increased mass of their flow. What is the justification or defence for the OCC concept?

Some of the big mines in Australia now have driverless trucks. Driverless trains are coming soon IIRC and Rio Tinto is working on unmanned excavators.

End Notes no.2 is an easy read and enjoyable too.

ocelot

But most of the above appears to rely on the basic assumption behind the term "organic composition of capital" itself. Namely that "Between [the technical composition and the value composition of capital] there is a strict correlation". Marx asserts this, but it's never justified anywhere, afaics. Personally I don't see that it is evident at all that the inexorable rise of the technical composition (which has major implications for environmental sustainability, nb) necessarily implies a corresponding rise in the value composition. In terms of fixed capital, it's perfectly plausible that advances in science and technology mean that the new, more productive machinery, itself requires less socially necessary labour time to create. As for raw materials (circulating constant capital) again it's not clear that advances in productivity in mining (see the industry in Australia feeding the maws of Chinese manufacturing currently) cannot offset the increased mass of their flow. What is the justification or defence for the OCC concept?

Marx, IIRC, makes the distinction between the value and technical composition of capital in the production process. And indeed, improvements in the production of fixed assets and the other components of constant capital can offset the tendency of the rate of profit to decline.
I think he explores this is several iterations in his Economic Manuscripts, published in vols 30, 33, 34, and maybe 28. [As I get older, my memory becomes a bit suspect, but hey... only the lucky ones get to forget things. ]

I think that's part of the reason why Marx identifies the tendency of the rate of profit to decline. It's a tendency, it's part of the accumulation of capital, the expanded reproduction of value, the overall development of capital as a whole, not just of any single sector of capitalist production.

On the most fundamental level, what, after all is capitalist reproduction? -- It's the accumulation of the means of production as values. It is the expansion of the rule of "dead labor"-- dead labor of a specific type, a type that must always engage living labor in order to maintain its expansion.

And without that expansion, the value disappears.

Within that meta-framework, there is certainly the "uneven development" of different industries with different rates of profit, yet there is the "transmission" so to speak of the tendency throughout the system through the relations of all capitals to each other and the principles that profit is apportioned in accordance to the size of the capital employed and capitals of equal size claim equal profits. These interactions work to establish the general or average rate of profit, and transmit the decline throughout the system.

I think that's the argument Marx indicates, but if it isn't [see above remarks] it's the response I would give. This is a tendency, the tendency is immanent to the accumulation of the means of production as value, the value can maintain its existence only through greater accumulation, the tendency thus is expressed through the totality, the social whole of accumulation.

can someone suggest literature which explain relation between value creation and value in different ways? i mean different marxist branches,