[Marxism] Lenin's Tomb on the Stockmarket

Maxwell Clark maxwellclark at yahoo.com
Sun Aug 19 10:10:36 MDT 2007

Found the following comment linked to the post of Lenin's in question. Appears learned, if somewhat nebulous or indirect. Gets the methodological issue right though: a posterior-ism. Admitting certain critical reservations (e.g. the 'World Socialist Movement'??), I was impressed. At very least a nice refresher in the Marxist categories we need to be applying. --Max
  Falling rate of profit - just to offer the SPGB analysis of crises that has been so far proved right and explain where Chris Harman goes wrong nowadays , BTW-just as Kidron earlier did with his economic theories on the so-called permanent arms economy ( http://www.worldsocialism.org/sp...03/ kidron2.html )

The rate of profit is the rate of return on invested capital. It is expressed by the formula: S/(C + V), or surplus value (the unpaid labour of the working class), divided by constant capital (investment in machines, buildings, raw materials etc) plus variable capital (wages and salaries). 

Surplus value arises solely from the variable part of the total capital, but as capitalism progresses technically so the amount of capital invested in machines and materials and the like will tend to rise. This means that the source of surplus value, variable capital, declines relative to constant capital and, other things being equal, so will the rate of surplus value to total capital.

Marx’s wrote about the tendency of the average rate of profit to fall in response to the views of classical economists such as Ricardo and John Stuart Mill, who had contemplated the eventual stagnation of the capitalist mode of production because the rate of profit would fall so low. Marx showed why this would be a very distant prospect since the tendency of the average rate of profit to fall in capitalism would be a very slow process indeed. 

For Marx, the falling rate of profit was not an inexorable law of capitalism, but simply a tendency that could be slowed, and even reversed, by countervailing factors. These counter-tendencies generally involve cheapening the elements of constant capital or increasing the amount of surplus value extracted from the workers either by increasing productivity and the intensity of work or by lengthening of the working day through the introduction of shift work and so on (see Capital Vol III, chapter 14).

Despite this, a number of organisations insist that the long-term tendency for the average rate of profit to fall is central to Marx’s explanation of economic crises. This is, by and large, the view taken by the SWP (see, for instance, Explaining the Crisis by Chris Harman, Bookmarks, 1986), by the RCG (see The Revolutionary Road to Communism in Britain, Larkin Publications, 1984) and others, and it comes as no surprise that, whenever capitalism is in crisis, they argue that the final state of stagnation has been reached, or is just around the corner. 

In reality, of course, capitalism has not had a final crisis or breakdown. Nor is it true that a long-term fall in the average rate of profit is the causal explanation of crises and depressions. For this to be so, technical progress in capitalism, and the increase in constant capital relative to variable capital, would have to be extraordinarily rapid, and in practice it rarely, if ever, is. The tendency of the rate of profit to fall due to technical progress has therefore to be dismissed as a cause of crises.

http://www.worldsocialism.org/sp...s% 20Crises.html

It is true that Marx does (Chapter XV) discuss crises in connection with the falling rate of profit, but with a view to explaining their significance as a counteracting tendency. For, during a depression, the value of the constant capital depreciates considerably while some of its elements (machinery, stocks) are often physically destroyed. To say that crises help offset the long-term tendency of the rate of profit to fall is quite different from saying (as John Strachey does in his The Nature of Capitalist Crisis) that crises are caused by it.

http://www.worldsocialism.org/ ar..._economics2.php

Much ink has been spent on the falling rate of profits (sometimes called, in view of so many predictions which failed to materialise, the falling rate of prophets). Many consider it to be a key element of Marxian economics, an economic law of capitalism uncovered by Marx . Marx's point is simple enough. Capital is divided into “constant” capital (buildings, machinery, materials, etc) whose value is simply transferred unchanged to the product in the course of its production and “variable” capital (the capital laid out in employing productive labour) so-called because this is the only element of total capital whose value “varies” through productive wage-labour producing a “surplus value” over and above its original value. Marx calls these C, V and S respectively and so expresses the rate of profit as: S/(C + V). It is clear that, from a purely mathematical point of view, that as long as S/V (the rate of exploitation) remains unchanged if C increases faster than V the rate of
 profit will fall. Marx set out one good reason why C would tend to increase faster than V: technological advance. With this more of the accumulated capital takes the form of means of production (C) than of additions to the wages bill (V).

However, Marx deliberately chose not to call this the “law of the falling rate of profit” but merely the “law of the falling tendency in the rate of profit” (an odd formulation since something must either be a law or tendency but not both, but this was taken from one of Marx's unedited papers). This was because he knew that other factors than technological advance could affect the outcome and that it could not be assumed that these would always be constant (as “the law of the tendency” as stated above assumed). Marx went on to list various “counter-tendencies”. Two in particular stand out.

The first is what he called the “cheapening of the elements of constant capital”, by which he meant factories, machinery, etc, and the ways of using and organising their use, becoming cheaper than previously. For instance, technical advance need not necessarily translate itself into C rising faster than V and would not if the inventions and innovations were more “capital saving” than “labour saving”. C could also rise less than V for non-technological reasons such as falls in raw material and energy prices due to market conditions.

The second was an increase in the rate of exploitation (S/V), i. e., the amount of surplus value produced per unit of productive wage labour. This in fact is another consequence of technical advance and indeed, under capitalism, is precisely why technical inventions and innovations are introduced, the capitalist class waging a non-stop class war against the working class to increase the amount of surplus value extracted from their labour—what might be called the “law of the rising tendency of the rate of exploitation” or indeed even the “law of the rising rate of exploitation”.

It should be clear that if C does not increase faster than V and/or if S (the amount of surplus value) increases, then (other factors remaining the same) the rate of profit (S/C + V) will not fall. Which means that, in the world of real capitalism, the outcome of these tendencies and counter-tendencies cannot be predicted in advance. As the authors put it:

“. . . the Marxist 'law of the falling tendency' in the rate of profit, although logically sound, is not a theoretical reflexion of the actual trend of the rate of profit . . . it applies under certain conditions . . . that may well not exist in a given capitalist society. Furthermore, it influences the rate of profit along with a variety of other factors not directly associated with technological innovation, factors which Marx considered to remain constant when presenting his 'law'. This means that a falling profit rate in a given capitalist economy over a time period, which may be established on the basis of concrete empirical analysis, can be due to factors other than those related with technical innovation and the 'law of the falling tendency', which means that a further investigation will be necessary, if one wants to locate the exact causes of the profit rate's course”
The authors take the same approach to the reason for economic crises under capitalism to reject the same views held by some in the Marxist tradition as we do:

“Crises are conjunctural suspensions of the conditions for unimpeded reproduction of total social capital. They constitute transitory manifestations of the internal contradictions of capitalism and not permanently operative causal relationships inherently governing capitalist relations (a permanent deficiency in consuming power as against production, or the ever acting 'law of the falling tendency in the profit rate')” (pp. 182-3).

http://www.worldsocialism.org/sp...2/ booksjun.html
ajohnstone | Homepage | 18 Aug, 22:24 | # 

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