Understanding Marx's Economic Laws: Value, Accumulation, Profitability

Marxs law of the tendency of the rate of profit to fall Michael Roberts SOAS 18 February 2020

A falling rate of profit The progressive tendency for the general rate of profit to fall is thus simply the expression, peculiar to the capitalist mode of production, of the progressive development of the social productivity of labour. This does not mean that the rate of profit may not fall temporarily for other reasons as well, but it does prove that it is a self-evident necessity, deriving from the nature of the capitalist mode of production itself . Marx: Capital Volume 3, Chapter13.

The controversy A few manuscripts from the late 1860s and 1870s suggest that Marx had doubts about the law of the tendency of the rate of profit to fall , which he no longer mentioned after 1868. Michael Heinrich I find Heinrich s account broadly consistent with my own long- standing scepticism about the general relevance of the law David Harvey Marx s LTRPF remains the only credible competitor left in the contest to explain what is going wrong with capitalism . Alan Freeman

Three laws of motion in capitalism The law of value The law of accumulation The law of profitability

The law of value Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish. Every child knows, too, that the masses of products corresponding to the different needs require different and quantitatively determined masses of the total labor of society . Science consists precisely in demonstrating how the law of value asserts itself. Marx to Kugelmann 1868

Marx: from the process of capitalist production M- C- P- C - M

The law of value The labour theory of value is intuitively the best explanation of the prices of commodities in capitalist production. It explains where and how profit comes from and why capitalist production is just another method of exploitation of labour (those without property) by those with the means of production (property). And it is empirically provable and proven

The law of accumulation Competition among capitalists forces them to continue to expand their production in order to accumulate more profit or be driven out of business by others. So the law of capitalist accumulation says that competition drives each individual capitalist to increase the productivity of labour ie lower their costs of production.

Rising organic composition The law of accumulation is that, as capitalists spend more of their profits on means of production, the ratio of the value of means of production compared to the value of the labour power employed would tend to rise. This ratio Marx called the organic composition of capital. It is a law in capitalist economic expansion that the organic composition of capital will rise.

Rising organic composition

Dual nature of accumulation Tendency to increased unemployment from technology Rising productivity of labour New technology creates new jobs Cyclical and uneven employment: the general movement of wages is exclusively regulated by the expansion and contraction of the industrial reserve army and this corresponds to the periodic alternations of the industrial cycle

Technology and jobs If you substitute platforms for textile mills, machine learning for steam engines, Twitter for the telegraph, you have exactly the same dynamics as existed 150 years ago when Karl Marx was scribbling the Communist Manifesto. Mark Carney governor of the Bank of England

Law of accumulation C/V rises over time. This means increased centralisation and concentration of capital. Rising C/V creates a reserve army of labour: technological unemployment. The size of reserve army will vary cyclically with the strength of accumulation. The law can be empirically verified and has been by many studies

Two assumptions The first two laws of motion lead to the third law: the law of the tendency of the rate of profit to fall. The first law says that only labour creates value. The second says that capitalists will accumulate more capital over time and this will take the form of a faster rise in the value of the means of production over the value of labour power i.e. a rising organic composition of capital.

Law of the tendency of the rate of profit to fall in every respect the most important law of modern political economy and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint. It is a law, which despite its simplicity, has never before been grasped and even less consciously articulated. Marx Grundrisse

The simple formula: s/c+v The capitalist starts with money to invest in: Means of production (fixed capital) and raw materials (circulating capital) = constant capital (c) Labour force to produce the commodities paid in wages. But the labour force produces more value than it is paid in wages so it is variable capital (v). The labour force produce commodities that contain surplus value over and above its own value in wages paid = surplus value (s)

Marxs law of profitability ROP = S/C+V Here s the trick! ROP falls if C/V rises faster than S/V s/v/ c/v+1 C/V rises faster (tendency) BUT there are times when S/V rises faster (countertendency)

Tendencies and countertendencies Tendency (the law as such): a rising organic composition of capital will outstrip any rise in the rate of exploitation or surplus value Counter-tendencies: Sometimes the rate of surplus value will outstrip the rise in the organic composition of capital but not forever Sometimes the cheapening in cost of new technology will lead to a fall in the organic composition of capital (the value composition will fall) but not most of the time

Critics of the law The law of the tendency of the rate of profit to fall is indeterminate . The countertendencies are just as powerful as the tendency and are not separate. Sweezy (1942); http://digamo.free.fr/sweezy42.pdf Heinrich (2013). https://monthlyreview.org/2013/04/01/crisis- theory-the-law-of-the-tendency-of-the-profit-rate-to-fall-and- marxs-studies-in-the-1870s/ But not if the law of value and the law of accumulation are valid https://monthlyreview.org/commentary/critique-heinrichs-crisis- theory-law-tendency-profit-rate-fall-marxs-studies-1870s/

The transformation problem

The transformation problem: correcting Marx Bortkiewicz (1902): Marx s transformation of values into prices is illogical and must corrected. Inputs in values are really prices of production. The value of the inputs before the equalization differ from the prices of the same commodities as output after equalization. But the same commodities must be bought and sold at the same price. But then total value does not equal total price and/or total surplus value does not equal total profit. So there is a logical inconsistency in Marx s solution.

Its temporal Marx s transformation is temporal. The critique removes the temporal aspect completely. Let us say that production starts at t1 and goes to t2. The output produced during of t1-t2 is then sold at t2, the end point of t1-t2. And then t2 becomes also the initial point of the next production period, t2-t3. The output of t1-t2 has become the input of t2-t3. It exits one period and it enters with the same value in the next period. The critique holds to the absurd notion that the output of one period is the input of the same period.

Technology raises profitability Okishio (1961): No capitalist ever voluntarily introduces a new method of production, no matter how much more productive it may be, and how much it may increase the rate of surplus-value, so long as it reduces the rate of profit. Marx Capital Volume 3, Chapter 15. See: http://digamo.free.fr/okishio87.pdf A profit-maximising individual capitalist will only adopt a new technique of production if it reduces the production cost per unit or increases profits per unit at going prices. So capitalist accumulation must lead to a rise in the rate of profit, not a tendency to fall otherwise why would any capitalist invest in new technology?

The fallacy of composition The capitalist sells them originally above their prices of production, or, perhaps, above their value. He pockets the difference between their costs of production and the market-prices of the same commodities produced at higher costs of production. He can do this, because the average labour- time required socially for the production of these latter commodities is higher than the labour-time required for the new methods of production. His method of production stands above the social average. But competition makes it general and subject to the general law. There follows a fall in the rate of profit perhaps first in this sphere of production, and eventually it achieves a balance with the rest which is, therefore, wholly independent of the will of the capitalist. Marx

A world rate of profit 45% RECOVERY GREAT DEPRESSION 40% NEO-LIBERAL RECOVERY GOLDEN AGE 35% PROFITABILITY CRISIS WAR 30% NEW CRISIS /DEPRESSION RECOVERY LONG DEPRESSION WAR 25% 20% 15% 1869 1875 1881 1887 1893 1899 1905 1911 1917 1923 1929 1935 1941 1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007

Secular and cyclical Is the law of the tendency of the rate of profit to fall just a long-term secular tendency Is the law of the tendency of the rate of profit to fall solely an explanation of crises and booms and slumps/ IT IS BOTH

Recurring crises The operation of these counter- tendencies transforms the breakdown into a temporary crisis, so that the accumulation process is not something continuous but takes the form of periodic cycles.

The double-edge law of profit So the mass of profit can and will rise as the rate of profit falls, keeping capitalist investment and production going. But as the rate of profit falls, the increase in the mass of profit will eventually fall to the point of absolute over- accumulation , the tipping point for crises. Volume 3 of Capital (chapter 13). The two movements not only go hand in hand, but mutually influence one another and are phenomena in which the same law expresses itself .. there would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over- production of capital; i.e., the increased capital C + C would produce no more, or even less, profit than capital C before its expansion by C.

The cycle of profit

Three laws of motion The law of value: only labour creates value The law of accumulation: the means of production will rise to drive up the productivity of labour and to dominate over labour. The law of profitability: the first two laws create a contradiction between rising productivity of labour and falling profitability for capital. This can only be reconciled by recurring crises of production and investment; and in the long term by the replacement of capitalism