Profit debate; long post from "Ahab"

Steve.Keen at unsw.EDU.AU Steve.Keen at unsw.EDU.AU
Fri Oct 6 18:25:50 MDT 1995

Thanks to Jerry and Jim for their comments on my post.
While I think Jim's observation that Jerry's post
"misses Khalil's point, which only applies to labor
time, productivity and the means of production
considered from the technical standpoint" hits the
mark, I think it worth reiterating the simple algebra
that lies behind the TRPF, and Marx's countervailing
forces against it, in order to bring out its
relevance (assuming that it is a real tendency) to

The key elements of the TRPF are:

(1) The labor theory of value presumption that
direct labor is the sole source of surplus. Hence
surplus (s) is proportional to direct labor employed (v)
and unrelated to capital (indirect labor) employed (c).
Thus the rate of surplus value (rsv) can be written

rsv = s/v

whereas the rate of profit (rpf) is the ratio of surplus
to both direct labor and indirect (or using Marx's more
loaded terminology, variable and constant capital), and
is written

rpf = s/(c+v)

(2) The awareness (from a 19th century viewpoint) that
technical progress seems to involve more indirect labor
per unit of direct labor, so that the ratio of c to
v (and therefore of c to c+v) rises over time. This
leads to the definition of the organic composition of
capital (occ) which can be written as either

occ = c/(c+v) or occ = c/v or c/(c+v+s)

without losing the insight that, as this ratio rises,
and if the rate of surplus value remains constant, then
the rate of profit must fall.

(3) A similar awareness--with which Marx's own
discussion of the TRPF is prefaced--that the increase
in capital intensity has been so great, and the apparent
fall in the rate of profit so little, that some explanation
of why the "law" has not manifested itself more impressively
is called for. Hence Marx's naming of this as a "tendency"
rather than a "law", and his enumeration of countervailing
tendencies, which were:

1* Increasing intensity of exploitation
2* Depression of wages below the value of labour-power
3* Cheapening of elements of constant capital
4* Relative over-population
5* Foreign trade
6* The increase of stock capital

As Jim pointed out, all the elements of (1) and (2)
above continue to apply to a socialist economy, though
the rate of return is now (working at an idealised
level and ignoring what actually happened to the
surplus in Soviet Russia etc.) the property of the
entire population, rather than just the workers.
Thus if technical progress is to occur more rapidly
under socialism (again, ignoring what happened, partly
for the very good reasons Louis gave recently), then
the rate of profit should fall over time under

What this means technically is that, unless the
countervailing tendencies are stronger under socialism
than under capitalism, a stationary state is
approached asymptotically as the amount of surplus labor
produced falls relative to the mass of constant capital
needed to produce current output. Marx's discussion
above (and most Marxist work that I've seen on the
subject) ignored the issue of depreciation, but here it
is crucial: if the rate of depreciation is constant,
the mass of fixed capital is rising, and the rate of
profit is falling, then ultimately the capital stock
will reach a maximum, where the surplus generated
just equals the depreciation of existing stock. Only
a rising population can then allow increased output, but
by definition per capita output is stationary.

This can only be avoided, as I said, if the countervailing
forces are stronger. Check the six above: surely we
can rule out 1,2 and 4 for (idealised) socialism. 5
should be irrelevant (unless we wish to argue that
increasing prosperity for socialism is dependent on
having capitalists or feudalists to trade with!) I
can't locate my copy of Vol. 3 (my office was flooded
recently and is still in disarray), but from memory 6
referred to stock as in stocks of raw materials on hand,
etc. That leaves 3, on which the gist of Marx's
argument is:

"the same development which increases the mass of the
constant capital in relation to the variable reduces the value of
its elements as a result of the increased productivity of labour,
and therefore prevents the value of constant capital, although it
continually increases, from increasing at the same rate as its
material volume.<193> In isolated cases the mass of the elements
of constant capital may even increase, while its value remains
the same, or falls. " (p. 236. Progress Press edition)

We have seen this phenomenon with computers in capitalist
society. It may also be happening with biotechnology, etc. Is
there any reason to expect that this would be more common
under socialism than under capitalism? Maybe, maybe not; but
even if so, isn't this a very thin hat on which to exempt
socialism from the "problem"?

This brings me to (part of) the hub of the issue of the TRPF.
It has been presumed by probably the majority of Marxists
that the TRPF is the driving crisis that will, one day, ensure
the collapse of capitalism and usher in socialism. But if it
is such a vital crisis, then surely we can expect capitalists
to fight it with all their might, using those of the
countervailing tendencies listed above which are at their
command. These are 1 and 2 above (assuming that foreign
trade is a zero sum game):

1* Increasing intensity of exploitation
2* Depression of wages below the value of labour-power

Thus if the revolution was inspired by the TRPF, it would
occur when (a) working hours were long and (b) wages were
below subsistence while (c) fixed capital had been
developed to the upmost, and the rate of profit earned
by capitalists was, quite possibly, barely enough to service
its depreciation.

Now if a revolution did occur in those circumstances,
surely two of its most immediate resolutions would be to
(a) decrease working hours and (b) increase wages.

If those two things were done, and if the algebraic
sense of the TRPF still applied, the impact would be to
reduce the surplus being generated below that needed to
service the existing capital stock, and output would

The sole source, therefore, of increased wages, etc.,
would be the now eliminated consumption of the capitalist
class. But at what levels does the TRPF imply this would
be in a crisis brought about by a falling rate of

Now Jim's comment comes in:

|   The growth in productivity implies more output
|per hour of labor time, and this implies growing
|enjoyment of the material benefits of production
|by the mass of the people, if you assume that
|production is oriented to serve the needs of the
|   The fact that new labor added to the means of
|production continues to decline in relation to the
|mass of means of production already accumulated by
|society does not at all imply a declining capacity
|to improve the living standards of the world's
|population. And this is because the new labor added
|is ever more effective in producing more and more
|goods and services in less and less time, no matter
|how massive the accumulated productive apparatus
|becomes in relation to the living labor currently
|functioning in production.

This comment effectively "de-couples" value productivity
from physical productivity: something Sweezy was
prone to push. But this was something easily demolished
(as by the Sraffians). If "value productivity" and "physical
productivity" are two different things, then we can
calculate a "physical rate of profit" and a "value
rate of profit". If physical productivity rises with
technical change-- so that the same quantity of physical
inputs can produce a larger quantity of output--then
the "physical rate of profit" should also rise. So
why should capitalists worry if the "value rate of
profit" was falling?

In other words, if physical and value productivity aren't
related, then value productivity is irrelevant and so is
the TRPF. But if they are related, then "increasing
physical productivity" can't be used as a way out to
escape the material consequences of the TRPF.

The other "way out" that I have seen nominated is the
one Joan Robinson used: that technical progress increases
the rate of surplus value. But this then implies a link
between c and s (even if it is indirectly so that more
advanced c somehow extracts more surplus from direct
labor without itself being productive of surplus), and
effectively makes the opening gambit of the labor
theory of value--that direct labor is the only source
of surplus--a non-statement.

So, to summarise a very long post:

* IF the TRPF is true, then it should afflict socialism
at least as much as capitalism, with that affliction
amounting to the inevitability of a stationary state.

* IF the TRPF was the catalyst for an anti-capitalist
revolution, then the first actions of the post-
revolutionary government--distributing the consumption
of capitalists to all people, decreasing the (excessive)
length of the working day and increasing the wage (from
below subsistence levels) should lead to an immediate
crisis as the rate of reinvestment of surplus falls
below the rate of depreciation.

* The problem with the TRPF as an explanation of crisis
is that it is based upon elements of an analysis of
production which applies to any system which produces
use-values using a combination of labor and other
use-values. Any system of production must produce a
surplus if it is to expand; if it is true that labor
is the only source of surplus, then any tendency which
increases the capital to labor ratio will decrease the
rate of surplus, which must inevitably result in a
diminishing ability to expand.

* There are much better critiques of capitalism per se
in Marx--revolving around the issues of the realisation of
and re-investment of surplus, rather than its simple

Steve "Ahab" Keen

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