Marxist Crisis Theory & the Falling Rate of Profit - Questions and Answers

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Nov 18 2012 17:04
Marxist Crisis Theory & the Falling Rate of Profit - Questions and Answers

Hello hello comrades! Long time no speak. Have recently been reading up on Marxist crisis theory and the falling rate of profit. Here are some questions on it that I'm hoping some of you will be able to answer, and I think they will spark an interesting and informative discussion.

My questions are as follows:

1. Ongoing investments by capitalists in constant capital makes production methods more efficient, which then lowers the prices of commodities. This makes sense to me. But then I think about inflation. This seems totally contradictory to me, that commodity prices can be decreasing due to increased efficiency, yet we have a longterm trend of rising prices. How can this be reconciled?

2. Does the falling rate of profit mean that (a) profits decrease in the longrun, or (b) the ratio of profits to investment expenses decrease in the longrun?

3. If it is indeed "b" -- that the ratio of profits to investment expenses decrease in the longrun -- why does this cause a recession? Even if investment expenses are higher, as long as businesses are making as much overall profit as in the past, then why should this interfere with the Money-Commodities-Money cycle? Isn't profit what is left over after capitalists have paid all their expenses (wages, machinery repairs, etc.)? So if their profits are as high as ever, doesn't that mean that they have already been able to afford their costs of production, high as they may be? Sure, the ratio of profit to investment is lower, but why is this a problem as long as operation costs can be covered?

4. Does anyone know where I can find data and statistics which support the falling rate or profit thesis? Once I better understand this thesis, I'd like to be able to explain it to others, and having empirical evidence will help me make a more convincing case.

Thanks everybody!

S. Artesian
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Nov 18 2012 17:44

Kliman's book The Failure of Capitalist Production has the statistical information, as does http://thenextrecession.wordpress.com/

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jura
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Nov 18 2012 21:34

Ultraviolet, I think the other points (1 and 3, because you are correct about 2; rate of profit = surplus value / (constant capital + variable capital)) are addressed quite well in this interview with Andrew Kliman. See also this post by Michael Roberts (and the discusssion) for one of the explanations of the connection between the FROP and the current crisis. (Anyway, if you have any questions after reading that, shoot, I'm sure more people will chip in.)

mikus
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Nov 19 2012 17:20

1. What actually matter is the rate of change in the rate of inflation. So a falling rate of inflation (for example from 5% yearly to 4% to 3% and so forth) will also produce a declining rate of profit. (This is known as disinflation, as opposed to outright deflation.)

2. B is the correct way to look at it. In fact Marx notes that the total mass of profit generally rises even as its ratio compared to total investment expenditures falls. I.e. the denominator grows at a faster rate than the numerator in the rate of profit, S/(C+V), but both numerator an denominator are growing.

3. Kliman addresses this a bit in his book "The Failure of Capitalist Production." Lower profit rates imply greater volatility and also cause stagnation. This of course doesn't necessarily translate directly into a crisis. In fact, as we have seen, generally the proximate cause of a crisis is a burst bubble.

4. "The Failure of Capitalist Production" by Kliman would definitely be the go-to book for empirical work on the US economy's rate of profit and the tendency of the rate of profit to fall.

S. Artesian
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Nov 19 2012 00:38

Interesting studies (US centric) are available in the Deloitte Shift Index, available at

http://www.deloitte.com/us/shiftindex

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Nov 19 2012 12:31

0. The proposition that the FROP is the key pillar of Marxist analysis is an orthodox shibboleth, rejected by many, if not most, heterodox Marxists.

1. In order to serve as the universal equivalent, money itself has to have an exchange value. That value can go down as well as up. See for e.g. Zimbabwe a few years back or Germany in the 1920s for episodes of hyperinflation. See also episodes like the Long Depression where persistent deflation in fact coincided with some (real) growth and continual increase in productivity.

The question of what governs the dynamics of money's value, whether up or down, and how to distinguish the effects of this from underlying growth or recession, are the source of never-ending controversy within economics, both bourgeois and anti-capitalist.

The dominant bourgeois economic position on this question is the so-called quantity theory of money (QTM). Roughly speaking the QTM assumes that a) the velocity of money is static (an utterly absurd assumption); and b) that the "multiplier effect" of private credit creation (fractional reserve banking, other credit creation by financial entities) on base money creation by the central bank, is also a fixed value, so that central banks can control the quantity (and value) of money in circulation directly. This is also known as the "exogenous" (f. Grk, exo- "έξω" = outside, -genis "-γενής" = coming from) theory of money, as it sees the value of money as external to the growth or recession of the rest of the economy.

The alternative theories are called "endogenous" (Grk: endo- "ενδο" = inside, -genis "-γενής" = coming from) because they see the growth (and decline) of both money supply and its value as being affected, to some degree, by same the processes of expansion or contraction of the overall economy - i.e. money supply is internal to the workings of the economy.

Marxists are fairly divided on this question. May post-war Marxists accepted the bourgeois neo-Keynesianism (not to be confused with Keynes' own position) consensus around the QTM. Others clung on to what they consider to be Marx's theory of commodity money (to the extent that Marx ever completed a full analysis of actually existing money, down to the concrete determinations including and full theory of credit - something which people like Heinrich, for e.g., dispute). They come in two sorts - the "goldbugs" who believe that gold and only gold ever was, and ever can be, money. The other sort is more concentrated on the socially necessary labour time taken to produce money, whatever its material (or in some heterodox cases, its immaterial) form. It should also be noted that, the commodity theory of money is potentially also an endogenous theory, although this is not always made explicit by its champions.

Anyway, as you can probably tell by now, this is a non-trivial dispute within economics. For a beginner I quite like to direct people to the circuitist, Post-Keynesian deconstruction of the QTM that Steve Keen provided a few years back here. It's got a high geek rating, and Keen is no Marxist, but it's a useful introduction to why monetary circulation is not barter (as taken up more recently in Graeber's debt), and the QTM is arrant nonsense.

Apart from anything else, the US Treasury has actually tripled the supply of base money in the post-2008 crash period and the QTM predicts that if you do that, Zimbabwean style hyperinflation should be drowning the US. Which it isn't. (Of course bourgeois "New" Keynesians like Paul Krugman wave their "liquidity trap" maguffin at the problem and say that this explains the "exception to the rule"; there's a few other candidates out there are well, like Richard Koo's "balance sheet recession", but they're all basically sticking plasters on a fundamental stupid theory).

2. b.

As for 3 and 4, they both sort of assume that the FROP is both significant and valid. I would argue that in order to have the significance that the orthos ascribe to it, then the relatively tiny amount that Marx actually bothered to write on this, would have to be intepreted in a way that is invalid. If you interpret those passages in a way that make them valid, then the result is not particularly significant (i.e. there's no guarantee that the "counter-tendencies" cannot counter-act the tendency in the medium term).

Anyway, all of this was previously discussed in the OCC thread. NB that the FROP is entirely dependent on the OCC theory, which is, imo, demonstrably false.

S. Artesian
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Nov 19 2012 15:26

I don't know of many Marxists who, as Marxists, buy into the QTM theory. That may be a personal shortcoming, but the only one I know who comes even within the proximity of a version of the QTM theory is Goldner who believes that the bourgeoisie can hyper inflate themselves out of a less severe crisis and into a more severe crisis.

Orthodox shibboleth or not, the issues are: does the rate of profit have a tendency to fall, and if it does do the bourgeoisie struggle to offset that fall?

The answer to both is demonstrably "yes." The ROP has fallen in the US, the UK, the EU, Japan and...hold on to your Ipads... China. There have been sustained declines in the US, UK, EU, Japan, and momentary periods of offsets. The declines are marked by certain specific, but almost universal, responses of the bourgeoisie. Now correlation is not causation, but as we say in the railroad business, it's close enough for government work.

Marx's critique of capitalism is not a critique of money, or a monetary theory. It is based on the conflict in the organization of the power of labor as a commodity.

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Nov 19 2012 16:05

So when is that long-term falling rate of profit line due to cross the x axis? When?

I only ask, as the orthos have been saying "any day now" for over a century. Or to put it another way, "are we nearly there yet?".

The fact is that the whole orthodox concept of Zusammenbruchstheorie came out of political expediency followed by the hardening of an orthodoxy in response to the "Bernsteinian heresy".

In the first instance, SPD leaders like Bebel had the problem of how to talk about the coming of the revolution without admitting that the aim of the party, restricted as it was by the requirements of remaining a legal party, was the active overthrow of the German capitalist state. The line taken was to talk about the "inevitable collapse" of capitalism, while remaining ambiguous about whether the party, or the working class, might have any active agency in that process.

Then when Bernstein alleged that Marxism was a theory of Zusammenbruch (roughly: System breakdown), which was now outdated by recent progress, and that transition to socialism could be made evolutionarily, through successive incremental reforms. The defence of Marxist orthodoxy against Bernsteinian heresy found itself in a cleft stick. Either they could admit that they were a revolutionary party (and be banned and lose all their non-revolutionary members) or they could insist that Bernstein was wrong and the correct Marxist interpretation was the system actually really was headed to "automatic breakdown". The first position would have been unacceptable to the "centre" of the party, even if it might have found support amongst the SPD left. Hence in the end, the left compromised with the centre (as usual - its never the other way around), and the "orthodox" formulation allowed the unity of left and centre factions to, if not expunge, at least beat down the "revisionist" right within the party. But the price of that political fudge has been the nonsensical assertion of imminent automatic breakdown from about 1899 onwards. We're still waiting...

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Nov 19 2012 16:31

Is it fair to amalgamate FROP with Zusammenbruchstheorie, though? One can also argue that the FROP creates all sorts of instabilities as capitals try to restore the rate of profit, which leads to periodic crises, which devalue enough capital so that the show can go on etc.

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Nov 19 2012 16:45

Sure. But that is my point about there being an interpretation that is valid, but not that significant.

For the theory to be significant, there has to be a long-term tendential line on the historical graph that goes downwards. For all those who, like S. Artesian or whoever, say that there are good data establishing that line, then there has to be a projection point where it crosses the x axis (where presumably something drastic happens).

Also - it seems I have to keep repeating this point - the FROP relies on the long term tendency of the VALUE composition of capital to rise, not the OCC. Otherwise it doesn't work. The whole point of the OCC is that no-one has yet produced a demonstration that the VCC actually does rise (in fact, trends in the aggregate allocation of labour, estimates of worker-hours embodied in extant physical plant, shortening lengths of time taken for countries to make the transition from peasant to industrial capitalist production, etc, suggests apriori completely the opposite), so the self-evident tendency of the TCC to rise is substituted for the VCC in a basic "bait and switch" exercise.

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Nov 19 2012 18:16

The idea that the tendency of the rate of profit to fall is only "significant" if it produces a final breakdown in capitalist production is absurd. It is quite significant if profit rates continue to fall, as this implies stagnation in growth and also a more fragile economic system as any variation in profit rates is more likely to produce a zero-profit environment, which seems pretty obviously "significant" given the last few years of stagnation.

As for the fact that Marx wrote relatively little about this tendency, this is somewhat irrelevant. Marx wrote very little about the competition of capitals, or world trade, or the state, for example, and yet it would be ridiculous to say that any of these things were an unimportant part of Marx's theory. Furthermore, Marx quite clearly stated the opposite of what ocelot is saying, calling the law of the tendency of the rate of profit to fall "the most important law of political economy" both in the 1861-63 manuscripts and in the Grundrisse.

The issue of the long-term trend of the OCC is dealt with a bit in Andrew Kliman's book, which ocelot clearly has not read or he would not make the assertions that he does. He clearly demonstrates that the long-term growth of employment in the US has risen more slowly than the growth of total capital. Which is just another way of saying that the value invested in constant capital grows faster than the capital invested in variable capital. (Note that this is separate from the issue of the significance of the tendency of the rate of profit to fall and its relation to breakdown theory, or whatever other issues ocelot may have with Kliman's book, and is quite indisputable.)

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Nov 19 2012 18:29

in their new book "Making of Global Capitalism" Gindin & Panitch point out that the rate of profit in the USA was higher from the early '80s to the 2007-8 panic than during the period from 1830 to World War 2. (3.5 percent vs less than 3 percent). Thus the shift to neo-liberalism after the '70s decline in profitability did restore the rate of profit. Moreover, the reasons for the decline in profitability in the late '60s-70s do not line up with the FROP, which assumes it is investment in labor-saving equipment that is the cause. Growing state expenditures & various institutional holdovers from the working class upsurge of the '30s-'40s had encouraged militancy so that workers were driving up compensation faster than growth in productivity, and due to low workplace morale were causing slow down in growth of productivity, despite record levels of investment. Rising state expenditures were the product of the state's tendency to respond to unrest through concessions, to maintain governability & the system's legitimacy. So in that particular crisis a profit squeeze took place, tho this is not the more common cause of crises, which are more likely to come about due to financial panics, due to the tendency towards financial over-leveraging.

The FROP is derived from the labor theory of value which has its own problems.

There is also the debate over Nabuo Okishio's refutation of FROP. Okishio is a Japanese Marxist, who used Sraffa's methods to derive a theorem that shows that the change in technical composition can't cause a decline in profitability. Kliman's book, cited above, claims to refute Okishio. But a radical economist has told me that Kliman commits an elementary fallacy.

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Nov 19 2012 18:43

Ocelot, BTW, can you recommend any (Post-Keynesian, I presume) literature on money?

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Nov 19 2012 18:56

Thanks everyone for the suggestions of books and articles and etc. to look into! I will check them out. Also thanks to those who wrote out their thoughts on this topic. But in reading this thread, and as usual when it comes to investigating crisis theory, I'm getting that queasy feeling that this shit is over my head.

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Nov 19 2012 19:27

I get that all the time. (Not that I am an expert on crisis theory or anything!)

andy g
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Nov 19 2012 20:41

I think Ocelot is overstating his case a bit - not every advocate of FROP has put forward a "catastrophist" theory of breakdown as mikus and jura point out. neither do I think that the concept of the "organic composition of capital" is as redundant as Ocelot suggests, as I attempted to argue on the OCC thread. I do have some sympathy with the idea that FROP should be seen as a "law of tendency" rather than a direct or unmediated empirical trend (as Fine argues). I am persuaded that FROP makes more sense as an attempt at explaining cycles in the accumulation and reproduction of capital rather than as a secular trend. Just seems that this kind of approach gives better weight to the counterveiling tendencies. Charlie did call the FROP the peculiarly capitalist expression of the increasing productivity of labour (or something like that) which is also the basis for an increasing rate of exploitation after all.

right, I'm off now before anyone asks me to justify any of that!

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Nov 19 2012 22:48

Syndicalist is correct in that the tendency of the rate of profit to fall is directly derived from the labor theory of value, the organization of labor power as a commodity under capitalism. IMO, that's about all Syndicalist gets right.

Haven't read Gindin and Pinitch, but there are any number of studies that verify the long term decline in the rate of profit post 1907, with recoveries, and depressions, and wars, and then recoveries again.

There is no study that I know of that claims the ROP in the US, Japan, Western Europe is higher post 1970 than pre 1970.

Okishio's theorem has been refuted quite effectively, theoretically by Kliman and others, and practically by the history of the major capitalist countries 1945-1970, and then post 1970. Ditto Sfraffa.. again Kliman's Reclaiming... is about the best, that is to say most clear and precise, presentation.

To Ocelot: Nothing about the FROP implies a zero line, a line in the sand, below which capital cannot reproduce itself. The FROP is a persistent tendency in capitalism based on the very mechanism of extracting greater proportions of surplus value in the working day. It, the tendency of the rate of profit to fall comes "equipped" so to speak with its own offsetting tendencies. None of this implies "apocalypse now, or pretty soon" or "permanent crisis."

What the tendency does indicate is that at a crucial point, the "normal" mechanisms of restoring profitability-- devaluations, bankruptcies, unemployment, falling wages, concentration of capitals, etc.-- no longer suffice as offsetting mechanisms. Then the bourgeoisie are faced with the necessity of destroying the living and the accumulated means of production to "re-zero" the system of expropriation. And you can take that, that destructive necessity, to the bank.

Re crisis theory: Remember for Marx, crisis is always a short-term actor. If you want to link the short term and the long term, then IMO we find that link in overproduction, that is to say the overproduction of the means of production as capital, unable to exploit labor intensely enough to offset the tendency of the FROP. Overproduction [which is certainly not underconsumption] is, as I see it, the "unified field theory" of Marx's critique, linking big force and small force, cyclical and structural, immediate and historical.

mikus
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Nov 20 2012 04:43
syndicalistcat wrote:
Kliman's book, cited above, claims to refute Okishio. But a radical economist has told me that Kliman commits an elementary fallacy.

This is the exact type of argumentation which is absolutely useless and adds nothing to the debate. Something an internet dude was told by some other dude does not make an argument.

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Nov 20 2012 14:44
jura wrote:
Ocelot, BTW, can you recommend any (Post-Keynesian, I presume) literature on money?

Not really, other than the Keen stuff already mentioned/linked. But he's more interested in his own projects these days (i.e. debunking the pseudo-mathematical basis of most convention DGSE-style economics and playing with Mathcad to produce dynamic & non-linear models). The founding text (at least of the circuitist stuff - the chartalist stuff is less interesting) appears to be Augusto Graziani's "The Theory of the Monetary Circuit"*. There's a couple of text books around (e.g. Stephen Rousseas), but I'm not sure how useful they are. I know people like Riccardo Bellofiore have tried to recombine (post-operaist) Marxian genes with Luxemburgist, Schumpeterian and Post-Keynesian (in the shape of Minsky) DNA, but I haven't read his piece on "The Monetary Aspects of the Capitalist Process in Marx; A Re-reading from the point of view of the Theory of the Monetary Circuit" (available here), so I couldn't comment on how successful or interesting his Frankentheory may turn out to be.

Incidentally, in a marginally connected vein, here's a fun letter from Marx to Engels, from 2 April 1858, which states, inter alia (NB the whole letter's worth a read, if you don't already know it).

Quote:
b) Money as a means of exchange, or simple circulation.

Here we need only consider the simple form of circulation as such. All the other conditions by which it is determined are external to it, and hence will not be considered till later (presuppose more highly developed relations). If the commodity be C and money M then, although simple circulation evinces the two circuits or final points: C-M-M-C and M-C-C-M (this latter constituting the transition to C), the point of departure and the point of return in no way coincide, save by chance. Most of the so-called laws put forward by economists do not consider money circulation within its own confines, but as subsumed under, and determined by, higher movements. All this must be set aside. (Belongs in part to the theory of credit; but also calls for consideration where money appears again, but further defined.) Here, then, money as means of circulation (coin). But likewise as realisation (not simply evanescent) of price. From the simple statement that a commodity, in terms of price, has already been exchanged for money in theory before it is so exchanged in fact, there naturally follows the important economic law that the volume of the circulating medium is determined by prices, not vice versa. (Here, some historical stuff on the polemic concerning this point.) Again it follows that velocity may be a substitute for volume, but that a certain volume is essential to simultaneous acts of exchange in so far as the relation of these themselves is not that of + and -, an equalisation and consideration which will only be touched on at this juncture by way of anticipation.

(italic emphasis in original, my bolding). The inversion of the QTM relation between money supply and prices is definitely endogenous. Compare, for e.g. with the following from a review of the Rousseas book - "In a complete repudiation of the teachings of monetarism, the major emphasis is on the endogeneity of the money supply with the causal arrow running from the price level to the demand for money."

----

* Which I haven't found online, but if you can handle the geekery, you could try Keen's paper on "The Dynamics of the Monetary Circuit"

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Nov 20 2012 15:12

FWIW, in Vol I he says basically the same thing about an inversion of the QTM. If I had a tattered old copy of Capital that I used in a reading group 4 years ago with me, I could pull the quote and the notes I wrote in the margins. But I don't.

Anyway, a quick google, shows that the relevant section seems to be "B. The currency of money" of Chapter 3.

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Nov 20 2012 16:00

I think Marx's argument about how overproduction relates to the short-term periodic crises, also applies to how ROP crises relate to epochal crises. That is, the short-term crisis necessarily appears in the form of a crisis of overproduction because if the capitalists could sell all the results of production, there wouldn't be a crisis, ipso facto. Similarly an epochal crisis (which for me is a crisis of the dominant global regime of accumulation) must necessarily take the form of a ROP - or to use the bourgeois vernacular, ROI - crisis, for the reason that if there were opportunities for renewed profitable investment at a decent ROI, there wouldn't be a global stagnation crisis. But in both cases, the form of appearance, as Marx argued in the case of overproduction, does not speak to causation.

And causation is what I am talking about in terms of "significance". Because the object of the exercise is to find the "laws of motion" that govern the dynamics of capitalism, the difference between laws and tendencies matter. At a sufficiently high level of abstraction I can validly outline a tendency that tells me nothing about the laws of motion at a more concrete level of determination, other than outline the limits of its motion - water cannot flow uphill, but I can't determine the dynamics of how it will flow from a high point to a lower point without incorporating the concrete morphology of the intervening terrain.

S. Artesian wrote:
To Ocelot: Nothing about the FROP implies a zero line, a line in the sand, below which capital cannot reproduce itself. The FROP is a persistent tendency in capitalism based on the very mechanism of extracting greater proportions of surplus value in the working day. It, the tendency of the rate of profit to fall comes "equipped" so to speak with its own offsetting tendencies. None of this implies "apocalypse now, or pretty soon" or "permanent crisis."

OK, I get that most advocates of the FROP nowadays, shy away from Grossman's Zusammenbruchsgesetz signification. But Grossman himself occasionally retreated into Zusammenbruchstendenz (gesetz = law, tendenz = tendency). But you don't get away from the ambiguity between law and tendency by simply distancing yourself from the more overtly deterministic aspects of Grossman's (and others) formulation. The ambiguity is that while you accept the tendential nature of the FROP on an analytical level, you try at the same time to reintroduce its explanatory power as a causative effect on the dynamics of capitalist development - its "law of motion" signification. Its a case of trying to have your cake and eat it at the same time.

The problem is that it ends up being simply a more Marxist-sounding version of underconsumptionism, with the same problems. Just as underconsumptionism can explain every bust, but never the following recovery, so the FROP claims every epochal crisis as the "final one", but can never explain the recovery when new global regimes of accumulation emerge to replace the previous, broken one. Temporary upturns in the ROP are explained away as contingent "counter-tendencies" (see Foster & Magdoff for e.g.) in a transparently post-hoc way. Without any seeming awareness that causative efficacy is being eliminated in the process.

Luxemburg may have been wrong about the underconsumptionist causation behind the crisis of the colonialist global regime of accumulation, but she was correct that it was a crisis of the existing regime - unfortunately she never got the chance to see the crisis was not of capitalism itself, simply that particular regime. My problem with the comorbidity problems of ortho analysis is its "closed economy Marxism" that mistakes the insight that crisis is immanent to capitalism, to the notion that capitalist crises must appear from within the boundaries of the nation state, and directly from within the nature of abstract value itself, without any further levels of increasingly concrete determination. It seems ironic to me that Trots and ultras charge Stalinism for imagining "socialism in one country" and then go on to analyse "capitalism in one country" or more precisely "capitalist crisis in one country". As if Marx was mistaken for planning to write volumes on International Trade and the World Market.

And that is my problem with Kliman. He takes the USA to be the world and assumes, from the point of view of an economistic analysis, that the Vietnam war and the collapse of the Bretton Woods global regime of accumulation either never happened, or were "merely political" events.

S. Artesian wrote:
What the tendency does indicate is that at a crucial point, the "normal" mechanisms of restoring profitability-- devaluations, bankruptcies, unemployment, falling wages, concentration of capitals, etc.-- no longer suffice as offsetting mechanisms. Then the bourgeoisie are faced with the necessity of destroying the living and the accumulated means of production to "re-zero" the system of expropriation. And you can take that, that destructive necessity, to the bank.

I totally accept the difference between periodic crises and the "normal" Schumpeterian mechanisms that "correct" them, as you listed above, and the epochal crises where a historical global regime of accumulation has entered into crisis. However, whether or not the transition from regime to another necessarily requires the substantial destruction of a "critical mass" of existing capital (as per WW2), is less clear. Not all transitions are equally destructive, for instance the transition from Bretton Woods neo-colonialism to Neoliberal globalisation post-colonialism did indeed involve the Vietnam war - but there was hardly a major destruction of US fixed capital. It took globalisation to shut down the US factories the Viet Minh couldn't bomb... One thing is for sure though, capitalism never re-establishes a new regime of accumulation without a new increase in the level of global consumption.

S. Artesian wrote:
Re crisis theory: Remember for Marx, crisis is always a short-term actor. If you want to link the short term and the long term, then IMO we find that link in overproduction, that is to say the overproduction of the means of production as capital, unable to exploit labor intensely enough to offset the tendency of the FROP. Overproduction [which is certainly not underconsumption] is, as I see it, the "unified field theory" of Marx's critique, linking big force and small force, cyclical and structural, immediate and historical.

Well, I agree with you that overproduction and the FROP are linked at least, as above. Just not in the causative "laws of motion" way that you take them.

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Nov 20 2012 23:44
Quote:
To Ocelot: Nothing about the FROP implies a zero line, a line in the sand, below which capital cannot reproduce itself. The FROP is a persistent tendency in capitalism based on the very mechanism of extracting greater proportions of surplus value in the working day. It, the tendency of the rate of profit to fall comes "equipped" so to speak with its own offsetting tendencies. None of this implies "apocalypse now, or pretty soon" or "permanent crisis."

What the tendency does indicate is that at a crucial point, the "normal" mechanisms of restoring profitability-- devaluations, bankruptcies, unemployment, falling wages, concentration of capitals, etc.-- no longer suffice as offsetting mechanisms. Then the bourgeoisie are faced with the necessity of destroying the living and the accumulated means of production to "re-zero" the system of expropriation. And you can take that, that destructive necessity, to the bank.

Re crisis theory: Remember for Marx, crisis is always a short-term actor. If you want to link the short term and the long term, then IMO we find that link in overproduction, that is to say the overproduction of the means of production as capital, unable to exploit labor intensely enough to offset the tendency of the FROP. Overproduction [which is certainly not underconsumption] is, as I see it, the "unified field theory" of Marx's critique, linking big force and small force, cyclical and structural, immediate and historical.

This is the way of looking at it that I agree with. I'm working on a review of Kliman's, "Failure of Capitalist Production" for a blog project where a central part of it is outlining the difference between overproduction and underconsumption; that overproductionist arguments do not necessarily equal underconsumptionist conclusions (and takes issue with his interpretation of Luxemburg in that respect).

Trotsky wrote a paper just after NEP started to take effect called, "The Curve of Capitalist Development" in 1923 that argues it is not crisis or depression or big raises in standard of living for parts of the working-class (i.e. 1945-1970) that in themselves produce rupture but it is the movement of the rate of profit and accumulation in one direction or the other itself that produces such a rupture where class struggle is intensified (possibly to the point of revolution). In my mind these aspects of the specifically Trotskyist crisis theory are valid when coupled with Kliman's economic analysis [*edited for terms] of the US economy- that the social effects of a massive destruction of capital (which is necessary after decades of neo-Keynesian and now neo-liberal measures to offset LTFROP since the late 60's resulting in stagnation) would be too great to be weathered by the international working-class- however unlike the Trotskyist type crisis theories which suggest capitalism simply 'stops working', I think Kliman's arguments suggest strongly that following a period of destruction of capital, it is very likely it would create a new boom cycle. I just don't find it likely that people (re:workers) will simply accept the giant plunge in living conditions and chaos in the social relations even if it is only temporary; it would be material interest that moves them to act (probably in ways described by communisation proponents).

Be gentle; I've still got a lot of ground to cover and reading to do to have a fixed position on this smile

S. Artesian
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Nov 20 2012 20:18
ocelot wrote:
And causation is what I am talking about in terms of "significance". Because the object of the exercise is to find the "laws of motion" that govern the dynamics of capitalism, the difference between laws and tendencies matter. At a sufficiently high level of abstraction I can validly outline a tendency that tells me nothing about the laws of motion at a more concrete level of determination, other than outline the limits of its motion - water cannot flow uphill, but I can't determine the dynamics of how it will flow from a high point to a lower point without incorporating the concrete morphology of the intervening terrain.

Actually, I agree with this, which is why I think real concrete studies of the FROP, and subsequent responses to the decline are absolutely critical.

Look, at bottom, when we are talking about the reproduction of capital, the laws of capitalist motion, what exactly are we talking about? We're talking about the reproduction of classes, the reproduction of the social relation between classes. Basically, the real law of motion of capital is class struggle. Economics becomes concentrated history, the moment of class relations, and... the moment when class struggle threatens that relation.

What drives all of this? The organization of labor-power as a commodity. Syndicalist is right. The LTFROP is simply another expression of the labor theory of value.

The "law of motion of capital" is that in order to aggrandize greater portions of labor time as surplus value, capital must expel, and disproportionately so, greater quantities of labor from its production processes. To expand, capital must exchange itself with wage-labor. Yet the more of itself it exchanges with wage labor, the proportionately less of itself it is exchanging with wage-labor.

But Grossman himself occasionally retreated into Zusammenbruchstendenz (gesetz = law, tendenz = tendency). But you don't get away from the ambiguity between law and tendency by simply distancing yourself from the more overtly deterministic aspects of Grossman's (and others) formulation. The ambiguity is that while you accept the tendential nature of the FROP on an analytical level, you try at the same time to reintroduce its explanatory power as a causative effect on the dynamics of capitalist development - its "law of motion" signification. Its a case of trying to have your cake and eat it at the same time.

Well yes, and no. How's that for ambiguity? Yes, Grossman does argue that capitalist reproduction cannot continue forever; that at a certain point the entire system cannot produce enough surplus value to sustain rates of investment, (although I don't recall that he argues that too little is extracted to support any rate of investment).

As an abstract exercise, I think Grossman is right. But in the world of the concrete, real classes take real actions, actions driven exactly by that same abstract revealing itself to be what's just around the corner. The law of the tendency of the falling rate of profit drives the bourgeoisie to beggar they neighbor bourgeoisie; to attack the working class (which started well before the "neo-liberal" ideological reign, and before globalization); to seek to reverse measures of social progress, as in racial integration, health and education programs; to liquidate assets (leveraged buy outs, private equity sales etc etc).

Certainly Bretton Woods is more than a political event, but I would argue that the US abandonment of gold convertibility was symptomatic, derivative from the declining profitability of production and represented an attempt by the US bourgeoisie to shed costs, and aggrandize a bit more of the available capitalist wealth-- not that it worked all that well, at least not until OPEC 1 road to the rescue and whipped global cash flows into the US financial network through the rush of petro-dollars.

So yes, I think FROP is a law of motion of capital, but I don't think any law of motion of capital means capitalism will collapse on its own. The FROP does signify that capital becomes the obstacle to capitalist accumulation. And the bourgeoisie spend night and day trying to offset that decline, leading to intensified class struggle.

To devoration1: I don't think we can possibly construe Kliman's analysis as an "economist" examination of the US economy. Certainly not in the historical sense of the word "economism."

BTW, I hate this whole business of "upping" and "downing" posts. But for the record, I upped Ocelot's because he poses relevant questions, provides a critical analysis, that deserves consideration and answer. What more could you ask for, or want, in a discussion?

andy g
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Nov 20 2012 21:01

ocelot said:

Quote:
And causation is what I am talking about in terms of "significance". Because the object of the exercise is to find the "laws of motion" that govern the dynamics of capitalism, the difference between laws and tendencies matter. At a sufficiently high level of abstraction I can validly outline a tendency that tells me nothing about the laws of motion at a more concrete level of determination, other than outline the limits of its motion - water cannot flow uphill, but I can't determine the dynamics of how it will flow from a high point to a lower point without incorporating the concrete morphology of the intervening terrain.

hmmm.... without inviting LBird to jump in isn't this contrast between "abstract tendency" and "concrete reality" a feature of (social) science in general? Given societies are open systems where multiple determinations act and interact you can never go directly from a systemic tendency arising from one set of determinations to the actual movement of a concrete society where others are also in play, least of all the responses of agents to events?

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devoration1
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Nov 20 2012 23:43
Quote:
To devoration1: I don't think we can possibly construe Kliman's analysis as an "economist" examination of the US economy. Certainly not in the historical sense of the word "economism."

Was trying to verbalize emphasis on his presentation of economic analysis without also agreeing with/taking on his political conclusions. Didn't mean to accuse him of 'economism' as its understood- mistake in articulation.

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ultraviolet
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Nov 21 2012 01:05

OK, I've taken some more time to think this over. Of the four questions I asked, the one that I'm most stuck on is #3, but I think I may have figured it out(?). I'm not sure if my analysis is correct, so I'm hoping others will be able to either confirm that I'm correct or point out my error.

Here's the question again for review:

Quote:
3. If it is indeed "b" -- that the ratio of profits to investment expenses decrease in the longrun -- why does this cause a recession? Even if investment expenses are higher, as long as businesses are making as much overall profit as in the past, then why should this interfere with the Money-Commodities-Money cycle? Isn't profit what is left over after capitalists have paid all their expenses (wages, machinery repairs, etc.)? So if their profits are as high as ever, doesn't that mean that they have already been able to afford their costs of production, high as they may be? Sure, the ratio of profit to investment is lower, but why is this a problem as long as operation costs can be covered?

Thinking this over, here's the answer I came up with:

As more and more is spent on constant capital (machines, tools, etc.), debt owed for financing the buying of constant capital becomes increasingly high, which means the interest owed is increasingly high. But meanwhile, profits -- although they may rise -- do not rise fast enough to keep up with the rising costs of constant capital, and hence keep up with the rising debt+interest owed. So eventually a point is reached where profits cannot cover interest payments. There are mass defaults on loans, businesses go under, unemployment jumps, demand falls, banks freak out and become stricter with loans -- and it all spins down into a recession.

Is this on the right track?
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(Here are some simple equations to illustrate the above.)

Time period 1
constant capital = $10 million
other costs (labor, raw materials, etc.) = $10 million
this is paid for with $5 million of the company's savings from past profits plus a $15 million loan
debt = $15 million
interest = $3 million
sales = $20 million
profits before interest payments = $5 million
profits after interest payments = $2 million

Between now and time period 2 there is much capital accumulation. Profits before interest payments rise fivefold, but they still don't keep pace with rising costs of constant capital, which increase tenfold, so interest payments eat up more of profits. Other costs have risen sixfold due to expanded sales increasing materials needed and number of workers employed.

Time period 2
constant capital = $100 million
other costs (labor, raw materials, etc.) = $60 million
this is paid for with $40 million of the company's savings from past profits plus a $120 million loan
debt = $120 million
interest = $25 million
sales = $145 million
profits before interest payments = $25 million
profits after interest payments = $0

Dave B
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Nov 21 2012 00:46

To clarify when money is an actual commodity the general increase in productivity does not result in inflation, or for that matter deflation.

Thus as below, if all the items below represent quantum’s of labour time, say 10 hours.

20 yards of linen
1 coat
10 lbs of tea
40 lbs of coffee =2 ounces of gold
1 quarter of corn
½ a ton of iron

Then the relationship stands unaltered if due to the general increase in the productivity of labour across the board all those items come to represent 2 hours of labour or for that matter 1 hour of labour.

To get nominal ‘inflation’ or deflation the amount of labour time required to produce the money commodity would have to change relative to the ‘collective basket’ of commodities.

The increase in the productivity of labour ‘can’ result in the lowering of prices relative to the ‘price’ of wages however.

Thus generally things like watches, cars and television sets are more affordable and cheaper than they used to be, and they thus they ‘deflate’ in value, as a fraction of your pay packet.

They require less labour time to make them because of technology on its own.

As well as by using methods that involve less labour time by the use of more (in terms of value) productive fixed capital Fc ie machines etc; which is were the falling rate of profit comes in.

Which is perhaps best looked at ‘generally and for simplicity’ only in terms of modern machine based industrial production

Thus the rate of profit on one turnover is;

P`= S/ {Fc+ C +V}

the question is; what happens to the surplus value, S?

‘If’ the value of S, generated on each turnover, generally is used to expand and accumulate more productive machinery etc.

(The reasons for that require another kind of analysis.)

Then Fx + C increases and therefore the rate of profit falls.

Unless the rate of exploitation, S`, increases.

To examine that; we need to do Sweeezy transformation, which Karl never spotted, and divide the numerator and denominator on the right hand side by V.

To produce;

P` = S`/ { (Fc+C)/V + 1}

Actually Fc+C)/V, for a modern work place, is quite a simple concept; it is the ‘value’ of the stuff you work with divided by your wages basically.

It is in the order of several hundred in modern industrial manufacturing like where I work.

As; Fc+C)/V + 1, or say 500 + 1 is close to 500 you can legitimately approximate Fc+C)/V + 1; to Fc+C)/V and simplify the equation to;

P` = S`/ { (Fc+C)/V }

If the rate of profit is to stay the same in this case, with surplus value continually augmenting and increasing(Fc+C) then the rate of exploitation S` has to increase to compensate.

But if S` is continually increasing then the amount of surplus value that goes back to increase (Fc+C) on each turnover increases with it too.

And you have a reiterating positive feedback, exponential paradigm etc as (Fc+C) mushrooms because of the increasing rate of exploitation.

The ‘Luxembourg paradox’, put simply, is that if the workers are producing more than they consume and don’t/can’t buy back what they produce then the whole thing collapses etc.

However if surplus value finds a ‘sink’, home or utility in increased Fc+ C then, although it is still ‘kicking the can down the road’ a bit, it can go on ‘forever’, almost.

It would have been clearer to see if Karl had had 3 departments of capital instead of two, including the extra one for Fc..

In fact if you stand back even further and take a more macroscopic view of it.

Some workers produce stuff for all workers to consume.

The excess of what they produce goes to workers who produce productivity enhancing machinery etc

And the rest goes to workers who produce stuff for the ruling class.

That can go on forever; until the productivity of labour increases to a point where we can, as humans, produce all our wants with a couple of hours labour a week and the ‘narrow horizon of bourgeois limitations’ is crossed and free access socialism with token voluntary becomes possible.

Unless the conspicuous consumption of the bourgeoisie is inculcated and adopted by the working class itself.

The potential ‘Luxembourg’ crises happens and things start to go pear shaped when the capitalist class decide not to re-invest, in the invisible for her, department III, and Fc, shuts down.

(likewise, reasons for that require yet another analysis)

However there used to be another outlet for that in the “department IV” of capitalism, the production of the money commodity.

The capitalist class could with their surplus value/product theoretically use it to accumulate, and generate a hoard, of the money commodity gold;rather than fixed capital.

And purely theoretically, admittedly, the working class in department III, formerly producing fixed capital for the capitalist class to accumulate out of surplus value (capitalism proper), could shift to the production of the money commodity, gold (for miser capitalism), and become gold miners and money commodity producers.

Without for a moment disputing the catastrophic effects of the ‘temporary’ economic dislocation of the ‘inter-departmental’ change etc.

An indicator of whether or not the capitalist class are hoarding money ‘capital’ and not re-investing it, or as Karl put it, not throwing their cash back into circulation to augment and expand ‘productive’ exploitative capital, is a fall in the rate of money circulation or ‘velocity, a measure of hoarding money capital, a term he used in an identical way as ‘bourgeois’ economists use it.

‘Bourgeois’ economists claim that the velocity of money, albeit with paper money, is at record lows, and I am inclined to believe them.

The still ‘functioning’ capitalist class proper must be exchanging the ‘real’ value of their surplus product/value to accumulate a hoard of green paper.

Who gains apart from the shareholders of the green paper mine?

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syndicalistcat
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Nov 21 2012 02:04

S. Artesian:

Quote:
There is no study that I know of that claims the ROP in the US, Japan, Western Europe is higher post 1970 than pre 1970.

And Panitch & Gindin didn't say that & neither did I. Reread what I said. They were referring to the average rate between 1830 and World War 2. They claim this is 2.5 percent. David Harvey claims the historical average in that period was about 3 percent. No doubt these divergences are rooted in different ways of calculating this. Panitch & Gindin claim the 1945 to 1973 rate of profit was 3.5 percent but others claim it was over 4 percent. Again, probably different ways of calculating this. The period from 1945 to 1973 was historically unique in a number of ways. Rate of profit in '80s and '90s was around 3 percent according to various sources. As David Harvey points out, this is roughly equal to the historical average rate of profit pre-World War 2.

If I thought refuting the orthodox religion were worthwhile, I might lay out the logical fallacy Kliman falls into in his reply to Okishio. For one thing he attributes a fallacy to Okishio that isn't there.

I tend to agree with David Koch & Gindin & Panitch that to a large extent the fall in the rate of profit in the late '60s-'70s was a profit squeeze related to high levels of working class protest & resistance, both forms of protest that, in the institutional context of the post-New Deal class truce, led to rapid increase in social welfare expenditures, plus increased resistance & lower morale on the job, reducing productivity gains from new investment, plus strike waves in numerous advanced capitalist countries, plus the institutional capacity at that time of the class to force rises in compensation that recovered whatever gains were won in labor productivity, which occurred in the context of relatively low unemployment & other structural advantages for labor.

This was the point to the neo-liberal offensive launched by the plutocracy in the '30s, through mobilizations through their organizations, creation of many new organizations, think tanks, etc.

So we don't need the LTV or TOFPR to account for the declining profit rate in that period. Good riddance.

S. Artesian
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Nov 21 2012 02:16

The problem with the "Luxemburgian paradox" is if that the dilemma of capital is that "the workers can't buy back what they produce" then capitalism should never have gotten off the ground, because the very basis of capital accumulation is the worker is not paid for his labor time, but for the value of the labor-time.

If the workers could then there would be no surplus value and no accumulation.

As for the "Sweezy shift" -- never heard of it,or at least referred to as that-- well of course the rate of surplus value can, at times, and in certain circumstances be augmented to the point where it offsets the fall generated by the increase in the constant capital. However what happens with that increased surplus value? It becomes simply capital, more capital that must be exchange with wage labor, so consequently we are in the loop of exponentially expanding the accumulated labor, while reducing, arithmetically, the living labor. Marx did note this in his remarks on offsetting factors.

S. Artesian
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Nov 21 2012 02:26

Here's a shocker, Syndicalist, I was deliberately ignoring your claim about the ROP in the 1830s, referring instead to the post WW2 where the data is a bit more reliable than what people claim occurred in the 1830s, when even the most advanced capitalist countries didn't bother to keep critical categories in their records.

Panitch and Gindin can claim what they want about the 1830s. It's immaterial. Everybody gets to pick his/her favorite rate of profit numbers.

S. Artesian
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Nov 21 2012 02:32

Ultraviolet--

The problem with your analysis is that in the concrete world, interest rates do not eat up "too much" of profits. As a matter of fact, the recovery in the US post-2003 is configured around reduced industrial and manufacturing debt; debt levels did not "bleed profits" out of corporations post 2007-- on the contrary, the profits simply weren't being generated-- look for example at the maritime transport industry. It wasn't debt that brought about bankruptcy, it was the inability to generate profits due to the overproduction, the overcapacity, the brought daily hire rates down to record lows-- and is bringing them down to record lows again.