marxist economics

Walter Daum WGDCC at
Fri Oct 6 20:02:07 MDT 1995

On the tendency of the "rate of profit" under socialism to fall,
as discussed here by Jim Miller, Steve Keen and Jerry Levy.

The paper by Elias Khalil cited by Steve (which I have not seen)
apparently argues that:
1. Labor time calculation remains valid in the socialist economy.
2. Technological innovations continue to take place, at even a
faster rate than before.
3. Therefore the socialist economy would also be afflicted by the
"falling-rate-of-return law."

Let me try this counter-argument:

One of Marx's countertendencies to the TRPF under capitalism is
the cheapening of elements of constant capital. While the
technical composition may tend to rise because of the increase of
machinery and other fixed capital, the value of this constant
capital also tends to decline because its costs of production
decrease with growing productivity. Marx in Capital III says that
on balance the value of the constant capital rises, so that the
organic composition of capital still tends to rise, although not
as fast as the technical composition.

As I see it, Marx gives no real argument for this last claim (at
least not in Capital III, Chapter 14, Section 3 where I'm
looking). Moreover, he adds that "in isolated cases, the mass of
the elements of constant capital may even increase, while its
value remains the same, or falls." That is, in these cases the
organic composition will not rise. Again, Marx does not say why
these cases are only isolated ones.

>From the standpoint of the capitalist whose fixed capital has
been cheapened by productivity improvements elsewhere, the
countertendency to the TRPF offers no comfort. Even if the "true
value" of his capital ("true" meaning at current production
costs) has gone down, meaning that his "true" rate of profit goes
up, he still paid for his capital in the past, at its former
value -- so the real rate of profit he can now get is less than
before. That is, *his* rate of profit has fallen; the TRPF
operates in his case, to his disadvantage.

And to take his story a step further, if he is forced to
liquidate and sell his factory at its current value, then he
loses out. But the purchaser-capitalist now can earn the "true,"
higher, rate of profit because of the lower costs of the fixed
capital he just bought cheaply. That would be the countertendency
in operation.

That is under capitalism. Under socialism, there are no
individual capitalists concerned with individual rates of return.
There is a society of producers who are pleased to see
productivity improvements occur anywhere, because all benefit
from them. So the countertendency of the cheapening of the
elements of constant "capital" flourishes, as in the case of the
purchaser-capitalist I just described. And the TRPF is defeated.

So even if we accept Khalil's first two points, the third, the
falling rate of return, does not necessarily follow.

Walter Daum

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