Marxist economics

James Miller jamiller at igc.apc.org
Thu Oct 5 21:42:55 MDT 1995


THE TENDENCY OF THE RATE OF PROFIT TO FALL

   This is a continuation of comments on Murray E.G.
Smith's book, _Invisible Leviathan_, a 1994 book that
reviews the major twentieth-century debates in Marxist
economic theory.
   Earlier I faulted Smith for not clarifying Marx's
purpose in Chap. 9 of _Capital_, Vol. III, which deals
with the transformation of values into prices of
production. Had Smith explained Marx's intent here, it
would have been a simple matter to understand why
Sweezy's resuscitation of the Bortkiewicz article of
1907 was so inappropriate to the transformation problem.
   Part of the problem in this case is that Smith gives
relatively short shrift to Marx's own argument. And I
believe that this failing is all too common among many
writers today in the field of Marxist economic theory.
The same shortcoming can be seen in the way Smith treats
the discussion on the tendency of the rate of profit
to fall, even though Smith is closer to Marx than most
others.
   As is well known, this debate is of central importance
to Marxism as a whole. Marx pointed out that, "this is 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." (_Grundrisse_,
p. 748)
   Marx explained the tendency as an inner law of
capitalist development, one that is inseparable from
the nature of capital as a historical movement. His
arguments on this are laid out in _Capital_, Vol. III,
Chap. 13, 14 and 15.
   Many writers have challenged Marx's analysis here,
including Paul Sweezy (in _The Theory of Capitalist
Development_). Sweezy expressed the view that the falling
profit rate might be permanently countered by a rising
rate of surplus value, so that the long-term direction
of change of the profit rate would be indeterminate.
The implication of this argument, and others like it,
is that capitalism has no immanent historical barriers,
and can exist as a permanent mode of production.
   It is the central axiom of bourgeois political economy
that private property is an essential attribute of human
nature, and that capitalism has no known historical limit.
This was the assumption of Adam Smith, an assumption that
could not seriously be challenged until Marx explained
the inner law of capitalist development: the tendency of
the rate of profit to fall. This law exposes the
historical limitedness of capital's reign as a function
of the logic of its own development.
   Sweezy's argument that the direction of change in the
profit rate is indeterminate is but one way of expressing
the bourgeois belief in the permanence of capitalism. And
Sweezy is able to do so only because, in his book, he
completely ignores Marx's explanation of why it is that
the increase in the rate of surplus value cannot for long
stem the fall in the rate of profit. Marx's scientific
judgment, rejected by Sweezy, nevertheless stands as
unchallenged by him.
   Marx argued this way: "outside of a few cases (for
instance, if the productiveness of labor uniformly cheapens
all elements of the constant, and the variable, capital),
the rate of profit will fall, in spite of the higher rate
of surplus value, 1) because even a larger unpaid portion
of the smaller total amount of newly added labor is smaller
than a smaller aliquot unpaid portion of the former larger
amount, and 2) because the higher composition of capital
is expressed in the individual commodity by the fact that
the portion of its value in which newly added labor is
materialized decreases in relation to the portion of its
value which represents raw and auxiliary material, and the
wear and tear of fixed capital." (_Capital_, Vol. III,
5th page from the end of Chap. 13)
   Murray E.G. Smith, for his part, takes issue with Sweezy
along the lines of Marx's position. On the whole, he has
the right idea, but he gets sidetracked into an irrelevant
discussion about the algebraic representation of the
organic composition of capital. Sweezy used the formula:
c/v, while Smith recommends: C/(s + v). Sweezy looks at
the ratio of constant to variable capital, while Smith
looks at the ratio of advanced capital to newly-added
value. Smith argues that if you show OCC as C/(s + v),
then it soon becomes obvious why a rising rate of surplus
value has a smaller and smaller effect in counteracting
the falling profit rate, as C grows ever larger in relation
to (s + v). And here he is right.
   But the implication here is that Sweezy was fooled by
his own inadequate algebraic expression for the OCC. This
I think goes in the wrong direction. Once one reads the
relevant chapters in Vol. III, and understands the
relationship between the law and the counteracting factors,
one can represent the OCC as either c/v or C/(s + v), and
not go wrong. They both reflect the same process.
   But beyond this, as I indicated above, Smith spends
very little effort to clarifying Marx's position as
expounded in Vol. III. I think Smith should have taken
the time to explain Marx's statement that, "...since the
same influences which raise the rate of surplus value
(even a lengthening of the working time is a result of
large-scale industry) tend to decrease the labor power
employed by a certain capital, it follows that they also
tend to reduce the rate of profit and to retard this
reduction." (Vol. III, 3rd page of Chap. 14)
   For a lengthier discussion of this topic, see my paper
posted in the Progressive Sociologists Network at
csf.colorado.edu, entitled, "Must the Profit Rate Really
Fall?".
   Enough for now. I'll come back shortly with some
comments on Smith's treatment of the debate over the
effect of the cheapening of the elements of constant
capital on the tendency of the rate of profit to fall.

Jim Miller
Seattle


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