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

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

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.)

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.

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

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

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.

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.

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...

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.

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.

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.)

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.

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

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

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!

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.

syndicalistcat

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.

jura

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).

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"

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.

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

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

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

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.

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 :)

ocelot

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?

ocelot said:

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?

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.

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?

S. Artesian:

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.

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.

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.

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.

I was deliberately ignoring your claim about the ROP in the 1830s

as usual you mistate what I said. I said that G & P made a claim about the period 1830 to World War 2. Are you saying there are no worthwhile data about that whole period?

You see, you continue to mistate things. You see why I don't bother engaging with you?

you're a fucking fundamentalist.

It's not your claim, you just endorse G&P's claim, but it's not your claim? I apologize for not recognizing the subtlety of your position. I'm not distorting anything. You reproduce the claim, it's your claim in your post. You cite G&P to make an argument against the LTFROP.

Last time I checked G&P haven't posted here.

No, I'm not saying there is NO worthwhile data about the whole period. I am saying that calculating a rate of profit for a period that includes a significant portion of time when the data are spotty is a speculative exercise at best, and is probably best ignored.

And I can certainly see why you don't bother engaging with that, just as I can see why you keep claiming Kliman commits errors in his refutation of Okishio's theorem but never both to engage with your own claim. Or is it not "your" claim, but the claim of your radical economist friend?

getting back to ultraviolet, the problem with your suggested model of crisis is that it makes the rate of interest the determining factor rather than the rate of profit. This in turn defers the question of the "cause" of crisis to the question of what determines the rate of interest and why it should rise relative to the rate of profit in the "upswing" phase of the accumulation cycle.

IIRC Marx was keen to argue that the rate of interest was not an independent variable but was itself determined by the accumulation process. Roughly (he says, bracing himself for the inevitable flurry of corrections) Marx argued that the rate of interest was determined by the relation between the supply of and demand for loanable money capital. hoards of money capital emerge as a necessary part of the reproduction process - Marx's accumulation fund, for instance. this is concentrated in the hands of banks and other financial agents and made available to productive capital along with forms of credit-money....

Have completely lost track of where I was going with this but am convinced it was very profound!

Hi UV.

First, just one point which isn't central to your question, but is important overall for understanding the questions around the developmental tendencies of the TCC and the VCC, which underlie the argument of the FROP (whether you accept it or not)

ultraviolet

Time period 1
constant capital = $10 million
other costs (labor, raw materials, etc.) = $10 million
[...]

I thought you were doing this in your previous post, but this confirms it. You are confusing constant capital and fixed capital. Raw materials, auxiliary materials and other material inputs (included in your second item here) are all constant capital as well as the fixed capital in your first item.

Constant capital is divided into fixed capital - that lasts for multiple production cycles and only imparts a corresponding fraction of its value to the results of each cycle - and circulating constant capital* which is entirely consumed within the production cycle and passes on all its value to the end product.

This matters in terms of the technical composition (and, albeit mediated, the value comp) in the following way. Assume labour productivity increases, but that any new machinery costs no more (in inflation adjusted terms) than the original machinery - i.e. the value of fixed capital imparted to the total output of the cycle remains constant. Assume also that wages and the rate of exploitation remain constant. With the important assumption that the unit value of circulating constant capital is unchanging, then both the TCC and the VCC will have gone up. Because increased labour productivity means more units of output, meaning more units of input - i.e. more value outlay on the increased raw materials, etc needed to make more widgets (or whatever). More stuff produced per unit labour hour, generally means more input stuff and a higher stuff to labour ratio - even if the new machine is cheaper than the old one was. Tendentially, you could argue, its more likely that the necessarily increased volume of circulating constant capital, has more of an effect on the tendency to rise of the TCC & VCC, than any potential rise of the value of new technology fixed capital.

I could say that I was surprised that the "FROP faithful" didn't correct you on this basic element of the theory, but that would be transparently faux-naif.

ultraviolet

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:

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?

.

Well, if increases in fixed capital are funded out of the replacement fund accumulated by holding back a portion of profits, then it's not necessarily that case that firms need to increase their debt to increase fixed capital (or circulating constant capital). Also remember that increasing production can sometimes be achieved just by making the same amount of circulating capital (wages, circulating constant capital) go round the cycle more times (quicker) without necessarily investing in additional fixed capital. Plus there's no guarantee that the latest technology machines won't only be quicker, more efficient and capable of greater capacity, but they may themselves be cheaper (specifically, contain less value) than the equivalent plant produced by the previous decades tech.

In practice, sufficiently large and sophisticated firms manage their actual "capital structure" to take best advantage of the anticipated interest rates in the coming period - and can hedge against unanticipated movements of the rate, via IR swaps or other derivative instruments.

Where you are right, is that the Small and Medium Enteprise (SME) firm sector, which actually employs most people, does have a problem with accessing operating credit - once we're in a recession or depression period. But that is more by way of effect rather than initial cause.

The QTM theory of monetarist policy believes that the central bank can control the rate at which finance moves from savings into investment (or vice versa) via setting short-term interest rates using Open Market Operations. The theory is that as the ROP falls towards the interest rate (IR), investors will shift money out of the stock and corporate bond (credit) market, and into treasuries, etc. Vice versa, if the economy is slowing, then dropping the interest rate should encourage financial capitalists to liquidate low-return savings instruments and buy into the stock market, etc, to fund investment in productive capital. By extension, it could be argued that as the rate of profit drops towards the IR, the slowing down effect will take hold and eventually the state will run out of room (that zero bound) to drop the IR any lower to re-invigorate productive investment.

But even the monetarists accept that the state (or central bank) can't control anything other than the short-term rate, and the endogenous folks dispute (rightly imo) even that. Witness the current spectacle of zero interest rates, near-zero growth and central bank "quantitative easing" measures that push out base money into bank reserves, in the forlorn hope that that will achieve anything - what Keynes called "pushing on a string". But I digress... The point is, the drying up of capital market liquidity for firm operating credit, is a result of the crash, not its cause.

Having said that, the US did jack its IR down to 1% to fund the invasion of Iraq in 2003, and when it finally jacked it back up to 5% in 2006, that did lead to the bursting of the housing bubble. But then the bubble was driven by MBS - up until 2008 seen as a savings instrument, so much so that the Fed accepted them as counterparty assets for their OMO, alongside gold, treasury bonds and forex. The housing bubble was driven by a flood of credit occassioned by a huge demand for savings instruments with high liquidity or "money-ness" (not unrelated to that $3 trillion the Chinese state had to find somewhere to put), not a charge into the capital market.

That doesn't feel like a very satisfactory place to wind up, but I'm out of time.

* actually the circulating/fixed and variable/constant distinctions refer to different aspects of capital, so variable capital is actually part of circulating capital as well - hence the clumsy three-hander "circulating constant capital"

Yes, I did notice that UV had conflated raw materials with variable capital, but it was kind of immaterial for the central point he was trying to make.

Yes, indeed the US Fed did drop interest rates in the attempt to mitigate the recession that had started in EDIT: 2001, but the real story of that recovery, or one of the real stories, is the push-back against wages in the US and draconian restrictions on capital spending. As I never tire of repeating, for a period the fixed asset replacement rate for US industry dropped below 1, as fixed assets were used up more quickly than they were replaced.

And in fact this restriction on capital spending impacts the financial network, as the mix of assets in US banking changes from 50/50 consumer/industrial to 30/70,EDIT: with the 70% being consumer... that's what built the bubble.

Wages, and capital spending, do recover in 2006/2007 in the US, just in time to catch the downturn in profitability.

I think one of the best examples of what happens can be found in the maritime shipping industry, dry; bulk, tankers, and container fleets. The rate of expansion was pretty breathtaking, and hire rates simply could not be sustained at a level to offset operating costs, given the overcapacity, much less capital costs.

The UN produces an annual Maritime Review which, for the years 2006, 2007, 2008 was really illuminating.

redundant comment

TCC = technical composition of capital, the "physical" or use-value make up of the means of production

S. Artesian, thoughts?

http://critiqueofcrisistheory.wordpress.com/historical-materialism-and-the-inevitable-end-of-capitalism/

ultraviolet

p.s. i was called he, but i'm a woman... no problem, though, i usually also unconsciously assume posters on here are males. (currently most anarchists/communists are men, and i've heard that most users of internet forums are men, so probably a fair guess!)

Whhaaaatt? A female anarcho-communist?

BTW, the above is just a joke. As she said, most anarchists/communists are men, unfortunately.

Stan Milgram

S. Artesian, thoughts?

http://critiqueofcrisistheory.wordpress.com/historical-materialism-and-the-inevitable-end-of-capitalism/

Going to take some time. But right from jump street, just let me state (1) it's a bit more than just a bit too teleological for me (2) I don't think that bourgeois political economists think capital's social organization is always in concert with the growth of the productive forces, rather their arguments always sooner or later come down to the "free market" being in concert with our, human, "nature." (Some) bourgeois economists will freely admit to overproduction taking place in sectors, among sectors. "Capitalism isn't perfect, it just works better than the alternatives" is the argument. (3) not too sympathetic to the notion of monopolies garnering super-profits, thereby undermining the general rate of profit, and the equalization of profits. "Super-profits" are IMO one of the mechanisms by which allocation of profits according to size of capitals, and thus the motion toward a general rate of profit is established... think of the oil industry post 1998, after oil broke below $10/barrel, and OPEC had to ride to the rescue again. The author refers to GM's as an example, but when did GM have a monopoly on auto production in the US?

I don't buy into the "obsolescence" of capital being determined by capital's restrictions on the "productive forces," as if there's this mechanical, or digital, or virtual, or cybernetic Prometheus, here called "productive forces" chained to a rock, having his liver pecked out daily, and he/she/it is just waiting to be released so more productive forces can be created. I mean to some small degree that's true, but the presentation takes on the characteristics of a parable, or another iteration of god in the machine, god is the machine.

I think we need to concentrate on the conflict between value production and the reproduction of human beings as fully, social, human beings.

And, I also don't buy into the "inevitability" doctrine. What is inevitable is the struggle, the conflict, not the resolution.

But that's just for starters-- if we're going to continue, we should start a separate thread.

S. Artesian. You're right, it's more so concerning breakdown theory not necessarily crisis theory. I'll start a new thread when I have time.

ultraviolet

sorry, i'm confused... are you saying my last comment is redundant? or did you think you did a double post and then edit one of them to say "redundant comment"? you didn't do a double post... the "redundant comment" post is your only new one.

btw, ocelot, i've figured out that VCC means value composition of capital, but what is TCC?

Sorry. I should've prefaced that with EDITED: or something. I had posted a correction on the she/he thing to S.Artesian's post, but when it published, it turned out that you'd already set the record straight on that, so my comment was redundant.

TCC is the technical composition of capital. Conceptually it is initially (mainly) used to distinguish between the cases of an individual firms profit increasing due to the cheapening of one or more of its inputs, or due to a transformation in its own actual production process that changes the proportions of the "mass" of labour to the "mass" of raw materials. "Mass" here taken to refer to a measure of each different component of productive capital, in its (incommensurable) material "thing-ishness" - i.e. hours of labour, kW of electricity, tonnes of plastic, etc.

ultraviolet

you say that the falling rate of profit can occur even if prices of fixed constant capital stay the same, because expanded production means increased quantity of circulating constant capital is purchased. but i wonder, though, couldn't the price of total circulating constant capital stay the same even as it's purchased in ever greater volumes? because the more efficient machinery and production methods will bring the cost of this circulating constant capital down. i.e.: if in 2012 production is twice as efficient as in 1990, then in 2012 buying twice as much circulating capital as was bought in 1990 could in theory cost as much as it did in 1990 to purchase half the 2012 amount.

In my opinion, yes, the value of the increasing "technical" mass of constant circulating capital could actually decrease - due to uniform productivity increase across all sectors - at a rate that balanced the increased quantity. In FROP parlance this is a "counter-tendency" - the implication being that, in the long run, the tendency is more powerful than the counter-tendency, and overcomes it. As a FROP-sceptic, I have to say that I've not yet seen any convincing demonstration of this. In the OCC thread, I looked at the effects that different rates of productivity increase in different sectors (considered by input-output chains, e.g. primary, secondary, tertiary etc) would have on the development of aggregate VCC. My initial impression was that for aggregate VCC to rise, the rate of productivity increase needed to be faster the higher up the chain you move, but this would have the contrarian effect that as production increased, labour would have to be reallocated down the chain to compensate - which is counter to the historical development of capitalism. Anyway, that's a digression. I probably need to write that stuff up properly some time and put it out there to invite some counter-criticism.

I did find ocelot's take on the VCC interesting - it was cast in a way I'd not considered before which is always good. Have lingering reservations about it but will have to think about it a bit more - concern is to do with the conflation of concrete private lavour and abstract social labour but I am not sure where it'll take me if I try and follow it through!

on the issue of rising productivity reducing the cost of constant capital - is it worth pointing out that the effect of this on fixed constant capital actually serves to exaccerbate the (alleged) FROP tendency for functioning productive capital, at least in the short term? In that as the cost of new fixed capital investment declines existing fixed capital is forcibly devalued at a loss to the capitalist.

Could well be stating the obvious, in which case just roll your eyes appropriately :roll:

Ocelot

My initial impression was that for aggregate VCC to rise, the rate of productivity increase needed to be faster the higher up the chain you move,

.

1. But isn't that what happens, except with a swapping of cause and effect, i.e. that the aggregate VCC, or OCC does in fact rise, and this rise increases the rate of productivity faster the "higher up the chain" (I assume you mean the size of the capitals deployed) you go?

I think this chain is a) what gives the more "asset heavy" sectors where labor is such a reduced portion the "pulling weight" in the overall system (think petroleum or semi-conductors); drives the price of the "final commodities" through such whipsaw oscillations (again think oil and semiconductors) as price is the mechanism by which the asset heavy sectors seek to claim the profit proportional to their sizes.

2. Andy G makes a crucial point, IMO, that the cheapening of the means of production is part of the constant devaluation of capital, or devaluation of constant capital that is at one and the same time a manifestation of the LTFROP and an offsetting factor

3. There is another aspect, and that is the more extensive the technical component deployed in production, then in general the longer the turnover period of the entire capital and the slower the rate of profit. I remember Marx talking about this in Vol 2 (? maybe?), pointing out that agriculture is not the only capitalist sector where the increased use of machinery lengthens the time of turnover.

My take on it.

I don’t mind comparing bourgeois models to Marxist ones to see how they fit together.

I think Karl’s model is OK and better.

The model of large scale capital intensive industrial manufacturing is one model; but there are others eg cheap labour intensive sweat shops and assembly work etc, however.

Fixed Capital

Where I work over the last 15 years ‘we’ have doubled output, as a volume of use values, and reduced the labour force by a half through the introduction of more, in terms of value, fixed capital; faster, less labour intensive and better plant and robots etc.

It is the same across the group which includes about 7 factories in the UK.

My peers in other similar industries tell me the same thing.

So it happens and everyone knows it.

Constant Capital

Minimising the amount constant capital has also become a new ‘business model’ in itself, it is called the ‘Just In Time’ and ‘computerised stock control system’.

By reducing stocks of raw material and finished product, potentially to zero, it reduces C and thus increases the rate of profit, they know and understand it as it is; it is almost as if it is straight out the volume III manual.

In fact ‘for lucky us’; as the rate of profit is dependent on Fc+C +V;

C is much less than 10% of Fc, and V isn’t worth talking about, much.

It is not hard to get access to the data.

They are even starting to think of us, V, as capital, human capital, and are investing in us by sending us on courses to encourage us to cooperate, work as teams and learn to love each other, sensible fellows.

As handmaidens to their fixed invested capital.

[But as again it is a different situation in an Indonesian sweat shop.]

But that finds its Marxist paradigm in us selling stuff above its value and them below etc

Rate of Interest

On the rate of interest as it pertains to manufacturing industrial capitalism, as opposed to usury and ‘student loan’ debt peonage etc.

As a model, the finance or ‘money capitalists’ loan money to the ‘functioning capitalists’ or ‘profiteers of enterprise’.

Part V volume III.

The ‘functioning capitalists’ extract surplus value from the workers and split it with the ‘interest bearing capitalists’.

What the money capitalist or ‘interest bearing capitalists’ get, as a proportion of the surplus value, or profit if you like, is ‘interest’.

In fact there can appear to be a bit of tension, reflected in the media perhaps, between the ‘money capitalists’ (the ‘banksters’), and the ‘functioning capitalists’ as Karl predicted their could be.

It doesn’t all come from the, anti capitalism section, OWS movement.

In fact the pro capitalist and famous Max Kaiser of RT goes as far as to compare the ‘finance capitalists’ with the feudal aristocracy.

Anyway surplus value or total ‘profit’ is thus normally greater than ‘interest’.

Looking at it from just a perspective of different areas of production

I suppose if total ‘real profit’, potential ‘surplus value’ or whatever in one area is much greater than the rate of interest, you get ‘safe’ lending and borrowing for productive investment in that area, then an increase in supply; maybe even over production, and perhaps falling prices/profits etc etc.

Thus on the one hand it can cause crises in departments of production or, on the other hand, just result in an equilibration of the average rate of profit within capitalism as a whole.

Some crises of the 19th century appeared to have been produced by too much finance capital rushing into new areas that appeared to be making super profits, or potential thereof, to grab a piece of the action.

Fictitious Capital

With the introduction of the ‘joint stock’ system or shares/dividends in companies a new ‘problem’ arises ie with Karl’s ‘fictious capital’.

To follow this you have to think like a money capitalist.

If a company is making say a profit £4 million a year and the interest rate is 5% , then the question is; what is it worth as an investment opportunity to buy it up.

Well £80 million might seem like the top price, and £40 million a bargain.

A Marxist might want to look at the embodied labour time value of the fixed capital, and any constant there might be.

And seeing that it runs out of a rented building with a couple of 1980’s ‘mini computers’, a few dozen or so PC’s and 40 skilled but potentially fickle computer programmers, you might think it is worth jack shit.

But £40 million is what it sold for in a real life example; they wrote software for Just In Time computer stock control systems as it happens.

The new owners learned what fictious capital was later on ; and should have read their Marx.

On the stock exchange low interest rates on money capital versus higher returns on dividends encourages finance money capitalists, perhaps through intermediaries, to buy ‘shares and stock’ and that drives up the nominal prices of shares, even though the actual real ‘Marxist value’ of the enterprises remains the same.

The difference is Karl’s fictious capital.

Even ‘bourgeois economists’ sort of understand that and it is written into their popular Price–earnings ratio and share price paradigm;

http://en.wikipedia.org/wiki/Price%E2%80%93earnings_ratio

Although the inverse ratio is perhaps more interesting.

P/E ratio is flawed a bit though as it doesn’t necessarily take into account internal reinvestment and plowing back surplus value back into Fc.

It can be viewed as just a measure of the consumption fund of the capitalist class; views differ.

In the past if some bods were making super profits the temptation for finance capitalists would be just to set up a new enterprise in competition with borrowed money and hired specialized ‘profiteers of enterprise’ who knew the game; rather than buy them out at inflated fixed capital prices.

But finance capitalist are just lazy short sighted gits out for a fast buck.

Also some areas of manufacturing require massive amounts of concentrated capital and might involve only a few players. So if you are going to go in you are going to have to go in big and play the long game.

And face up to a potential over production or for them supply problem.

The big players making ‘super profits’ can also come to some mutual understanding and form cartels, as they do, to price out the ‘little people’ entering the market; Karl covered that in volume III as well.

You can get situations where interest rates are above the ‘rate of profit’; but that is when the money capitalists think things are going to go pear shaped.

Cash out and won’t lend for love, fictitious capital or profit.

There is a thesis by others that they are deliberately trying to lower the rate of interest on money capital by quantitative easing and printing free money to flush out hoarded money capital, albeit paper, back into circulation and into investment in productive fixed capital.

[Karl, as explained by Deville, saw the withdrawal of money from circulation as ‘symptomatic’ of economic crisis.]

With interest rates on, albeit fictitious paper, money capital at near or less than zero (when you take inflation into consideration), if you have a good AAA rating, then it is a temptation.

Over the last five years they have been really splashing at ‘our’ AAA rated place with borrowed productivity enhancing ‘free money’, originating from Japan.

Also new scientific inventions and technology, which can come out of thin air almost, can wipe out the value of fixed capital by making the labour time that it is intended to utilize, socially unnecessary, and the labour time embodied in it doubly unnecessary.

So that is also a threat and an opportunity.

And so for those of us who do consider the Marxist Labour Theory of Value and FRP theory to be central to an understanding of the capitalist crisis which is still raging today this short explanation and update is worth a read:
www.leftcom.org/en/articles/2016-08-23/there-is-no-capitalist-solution-to-a-deepening-economic-crisis

Also this short positive if critical review of a more recent book by Michael Roberts who was mentioned earlier in this discussion thread:
www.leftcom.org/en/articles/2016-10-31/is-capitalism-past-its-sell-by-date-review-of-michael-roberts-the-long
Kondratiev long cycles get another mention here as well.

1: Inflation does not tell us much about the rate of profit itself. Inflation simply refers to the money supply rather than the profitability of capitalist industry.

2: The Falling Rate Of Profit implies that over time the amount of profit that the capitalist class is capable of making falls.

4: I would recommend Michael Robert's stuff on the falling rate. He graphs all this stuff out and explains it really clearly.

And for those not prepared to read the whole book there is a very good interview with Michael Roberts here:
https://soundcloud.com/novaramedia/novarafm-the-long-depression-michael-roberts-on-capitalism-and-crisis

I Note that Michael Roberts has another book out on a similar theme jointly with the interesting Guglielmo Carchedi mentioned elsewhere on this site.