Some Clarifications on Roberts' Idea of the Falling Rate of Profit

Roberts (in tandem with the likes of Carchedi and Maito) frequently makes decent critiques of the existing trends in the capitalist crisis. However, despite criticising others on the capitalist left for their neo-Keynesianism, he offers little more than the suggestion that nationalisation would solve capital’s problems. The brief article here reveals a fairly fundamental error. (CWO)

In a recent post entitled A world rate of profit: a new approach, the Marxist economist blogger, Michael Roberts, tried to validate Marx's theory of the fall in the rate of profit, which he rightly considers to be the most important law within the capitalist mode of production. It is a law which has already demonstrated capitalism’s most serious contradictions in the past but whose consequences are particularly obvious in today’s capitalism. It not only massively impedes the process of capital valorisation, but also has a negative impact on all the economic mechanisms of capitalism, leaving the system in a sort of permanent crisis.

In the first part of his post he tries to demonstrate, with innovative statistical methods, the possibility of calculating the fall in the rate of profit on a global scale. In reality, his effort was initially confined to the G20, that is to the major capitalist countries such as the USA, Germany, Russia, China and Japan and some of the major developing countries. His promised aim is to extend the statistical investigation to less developed countries as well, to get an overall picture of the different speeds at which the rate of profit falls, thus arriving at an average of the various rates of profit on an international scale. A worthy effort, if he can pull it off. However, in the second half of his post he leaves himself open to criticism over what brings about the Marxist law of the fall in the rate of profit that has little to do with Marx. For example, Roberts, when explaining the relationship between the increase in the rate of surplus value (greater exploitation) and the change in the organic composition of capital – c/v, and not C/v as he mistakenly puts it, since we are talking about the ratio between constant capital (c), and the labour power employed (v) and not the total capital (C) – writes:

I shall look at decomposing the rate of profit into its key factors, namely the organic composition of capital and the rate of surplus value. This decomposition is important. It is one thing to show a falling rate of profit over time; it is another to show that this is caused by Marx’s law of the tendency for the rate of profit to fall. It could have other reasons.
If Marx’s law is correct, then it follows that when the rate of profit falls, the organic composition of capital (C/v) should be rising faster than the rate of exploitation (s/v). Under Marx’s law, a rising organic composition of capital is the tendential determining factor for the fall in the rate of profit and the rate of exploitation is the (main) counteracting factor to that. If the latter rises faster than the former, then the rate of profit rises – and there have been periods when that has happened. But over the secular long term, the rate of profit falls and that is because the organic composition of capital rises more than the rate of exploitation.

Let's start from the first point which he gets right:

I shall look at decomposing the rate of profit into its key factors, namely the organic composition of capital and the rate of surplus value.

He is right in seeing the need to break down all the factors that contribute to the manifestation of the law, but it is clearly insufficient when it indicates only the organic composition of capital and the rate of surplus value. Insufficient because it does not analyse the difference between the various types of surplus value, nor does it explain the link between these and the organic composition of capital. There is not just one surplus value. There is the absolute surplus value, the relative surplus value, and that relative surplus value consisting in the intensification of the production rhythms which substantially does not affect the organic composition. What surplus value is he talking about? And what consequences does he attribute to the various types of surplus value in relation to the increase in the organic composition of capital? In the first case, absolute surplus value (lengthening of working hours), has practically no impact on the rise in the organic composition of capital. In the second case, relative surplus value (the reduction of the labour necessary to replenish the worker 's wages) requires three conditions for it to be fully expressed:

  • an increase in the rate of relative surplus value;
  • the development of the productive forces;
  • major investments in constant capital and relative or absolute decrease in the workforce.

An inevitable consequence is the modification of the organic composition of capital and the triggering of the fall in the rate of profit. This is the surplus value that must be taken into consideration and this is the relationship that links the increase in the rate of relative surplus value, to the change in the organic composition of capital and the fall in the rate of profit.

Speaking indiscriminately of surplus value, understood as just the system of exploitation of labour power without making the necessary distinctions, is a serious error which, at its root, demonstrates a serious misunderstanding of Marxist method. For Roberts surplus value is synonymous with exploitation, so its rise can only be considered as a counter-tendency to the fall in the rate of profit. The fall in the rate of profit thus either occurs at the same time as a decrease in the rate of surplus value, or, as stated in his bogus quote from Marx,

Under Marx’s law, a rising organic composition of capital is the tendential determining factor for the fall in the rate of profit and the rate of exploitation is the (main) counteracting factor to that.

Except that Marx never dreamed of attributing the role of counter-tendency to a general increase in exploitation. Apart from the fact that it is not clear why the organic composition increases without a factor determining it (relative surplus value or s) an increase in exploitation was not considered by Marx to be a counter-tendency. (Unless it is the absolute surplus value or the intensification of the production rhythms or of the relative s itself, in the short term and for the individual capitalist who temporarily acquires an advantage against competition on the basis of a technological innovation which is destined to disappear in the long run). When examining the differences between absolute s and relative s Marx argues exactly the opposite. The former leads to a counter-tendency to the law of the falling rate of profit because it increases exploitation but it does not change the organic composition. As for the second, he sees it as causing a modification in the organic composition and therefore of the fall in the rate of profit. Without excluding, of course, those situations where the increase in the rate of surplus value is greater than the modification of the organic composition that is put in place (as, for example, in the Eighties and Nineties with the microprocessor revolution). And finally, it should be remembered that Marx insists that the fall in the average rate of profit is determined not because the labour force is less exploited (by a decrease in the rate of surplus value), but because, in order to increase exploitation, capital has recourse to the relative s which, even as it increases the rate, triggers an increase in the organic composition which, in the long run, makes the triggering of the fall in the rate of profit inevitable. Conclusion of conclusions, the rate of profit falls not because the workforce is exploited less but because it is exploited more. Or as Marx put it,

Moreover, it has already been demonstrated — and this constitutes the real secret of the tendency of the rate of profit to fall — that the manipulations to produce relative surplus-value amount, on the whole, to transforming as much as possible of a certain quantity of labour into surplus-value, on the one hand, and employing as little labour as possible in proportion to the invested capital, on the other, so that the same reasons which permit raising the intensity of exploitation rule out exploiting the same quantity of labour as before by the same capital. These are the counteracting tendencies, which, while effecting a rise in the (relative – ed.) rate of surplus-value, also tend to decrease the mass of surplus-value, and hence the rate of profit produced by a certain capital.

Capital, Volume Three, Chapter XIV, marxists.org

Let's give to Caesar what belongs to Caesar and to Roberts what belongs to him, even if it does not belong to a Marxist analysis.

FD

1 August 2020

Thursday, August 13, 2020

Comments

I think there are many variants on the theme. Including those who wish to sell commodities or retain academic prestige or positions within institutional parties. They can make a decent case against capitalism but the solution is always at odds with that of say, the Internationalist Communist Tendency. They offer something relatively tame, which, even if in reality capitalism will not allow it, appeals to a certain sector of the population which simply accepts the dominant narrative "We tried revolution it did not work, all sorts of nastiness resulting in a top down dictatorship".

One such example I have been studying recently is that of Professor Richard Wolff who also makes some keen observations on capitalism and claims Marxism, yet is at pains to hold Workers Co-ops, including those exisiting at the moment such as Mondragon, as the way out.

I suppose the dialectical perspective allows us to see value in the work of such individuals, a source of information and learning, but not a revolutionary guide.

Speaking indiscriminately of surplus value, understood as just the system of exploitation of labour power without making the necessary distinctions, is a serious error which, at its root, demonstrates a serious misunderstanding of Marxist method. For Roberts surplus value is synonymous with exploitation, so its rise can only be considered as a counter-tendency to the fall in the rate of profit.

I'm sure Roberts understands the difference between relative and absolute surplus-value (as far as I've read of his works), though his remarks on "resetting the economy" in the piece linked to below were not all that inspriring imo, as the intro touches on.

thenextrecession.wordpress.com

Except that Marx never dreamed of attributing the role of counter-tendency to a general increase in exploitation. Apart from the fact that it is not clear why the organic composition increases without a factor determining it (relative surplus value or s) an increase in exploitation was not considered by Marx to be a counter-tendency.

I think I get what you're saying here, that the counter-tendencies of, for example, a rising rate of surplus-value/exploitation (s / v) or cheapening of constant capital (c) (among other counter-tendencies), won't stop the long-term or secular decline in the rate of profit (s / (c + v)), but it might be worth noting that Marx called these things just that, i.e. counter-tendencies. Roberts as you note argues in favor of the law of TFRP, and has talked about this before in posts with respect to Heinrich, who doesn't regard it as a law.

marxists.org

thenextrecession.wordpress.com

Regarding C/v (was wondering whether this was a typo myself, but then saw Heinrich's book intro to Capital where he discusses this stuff), I believe that's just the organic composition of capital plus 1, since C/v = (c + v) / v = (c / v) + (v / v) [just splitting the fraction up] = (c / v) + 1. Here's Heinrich on that from his intro:

"As discussed in chapter 5, as a consequence of increasing productivity via the implementation of machinery, the rate of surplus value s/v increases, as does the value-composition of capital c/v. The quantitative development of these two magnitudes is decisive for the movement of the rate of profit. If one divides the numerator and denominator in the above formula for the profit rate by v (we are merely abbreviating the fraction by v, thus not changing the numeric value of the fraction), then we obtain the following expression for the rate of profit:

s / (c + v) = (s/v) / [(c/v) + (v/v)] = (s/v) / [(c/v) + 1]

Here, the rate of surplus value and the value-composition of capital are visible as the determinants of the rate of profit.

Marx bases his arguments for the tendency of the rate of profit to fall upon a rise in c/v. If s/v were to remain constant, then a rise in c/v would automatically lead to a decline in the rate of profit (the numerator of our fraction remains constant, the denominator increases, and thus the value of the fraction decreases). [...]"

As Heinrich notes, re-writing the rate of profit in this way puts these two factors (rate of surplus-value and organic composition of capital) into perspective: if s/v (numerator) increases faster than c/v (denominator; we ignore the contsant 1) then the rate of profit will be increasing. On the other hand, if c/v (denominator) increases faster than s/v (numerator), then we have a falling rate of profit.

I wouldn't even consider Wolff a marxist (if that word means one who's influenced by Marx's works) because all he ever does is bang on about worker co-ops, which is quite unlike Marx in his works. His "Understanding Marxism" pamphlet is basically just an attempt at reducing Marx's critique of capitalism to extraction of surplus-value/workers' exploitation, and that Marx's solution to this is workers running capitalist enterprises themselves; he even uses the phrase "communist organization" to describe these worker co-ops.

counterpunch.org

Zugzwang Have read your post at least four times and I am still trying to work out where you fall in the discussion about the law of the tendency of the rate of profit to fall and Heinrich's denial of its significance. In this bit though you have got the point of the article

think I get what you're saying here, that the counter-tendencies of, for example, a rising rate of surplus-value/exploitation (s / v) or cheapening of constant capital (c) (among other counter-tendencies), won't stop the long-term or secular decline in the rate of profit (s / (c + v)), but it might be worth noting that Marx called these things just that, i.e. counter-tendencies.

But perhaps I am missing something?

I think the research of Roberts and others seems to support the law of the tendential fall in the rate of profit. I also think demonstrating the validity of Marxian theories with actual evidence is important, otherwise such theories aren't very useful. With the rate of profit, as Roberts mentions in the article cited, you have to show in the real world that it's falling and that its fall is caused by the tendency of the rate of profit to fall and not something else.

The author is correct C/v is not equal to c/v, but C/v is the same as the OCC and a constant of 1. It's connected with the idea of re-writing the rate of profit in terms of the rate of surplus-value and OCC (by just dividing numerator and denominator of rate of profit by v). Re-writing the rate of profit in this way results in the same answer as when you calculate the rate of profit with s / (c + v), and more importantly it shows how changes in the rate of surplus-value and OCC affect the rate of profit. Here's Roberts explaining all of this in a lecture he did (also noting that OCC is the ratio of constant to variable capital):

As capitalists spend more of their profits on means of production to boost the productivity of labour and reduce costs, the ratio of the value of means of production compared to the value of the labour power employed tends to rise. Marx called this ratio the organic composition of capital. It is a law in capitalist economic expansion that the organic composition of capital will rise. (Slide 9)The rate of profit is thus S/(C+V). If we divide this formula by the value of labour power (V), we get s/v//c/v+1 [he of course means (s/v) / ((c/v) + 1)]. In other words, the rate of profit falls if C/V rises faster than S/V and vice versa. (Slide 17)

thenextrecession.wordpress.com/2020/02/27/marxs-law-of-profitability-at-soas/

I don't believe the article cited ('A world rate of profit: a new approach') is really an exposition of every aspect of LTFRP or of Marxian theory (hence why he didn't clarify C/v). The article is dealing more with Roberts' and others' research on constructing a world rate of profit. If you want to see Roberts discuss the limitations of an increasing rate of surplus-value (through the production of absolute and relative surplus-value) as a counteracting influence to the fall of the rate of profit, he and Carchedi do so here for example in response to Heinrich:

What are these factors that must operate to prove Marx’s law? The first factor is the tendential increase in the organic composition as explained above. The second factor is the impossibility for the rise in the rate of surplus value to outstrip indefinitely the rise in the organic composition of capital.

The reason for the latter is that, as Marx indicates, there is a biological, but above all, a socially class-determined insuperable limit to the extension of the working day. [...]

And Roberts more explicitly mentions relative surplus-value here for example in response to David Harvey:

There are several points here. First, Chapter 25 entitled, The general law of capitalist accumulation, does not just refer to the pauperization of the working class. DH leaves out a very important aspect of that general law: the tendency for the organic composition of capital to rise[v]. This is what drives up relative surplus value but is also a key factor in the tendency of the rate of profit to fall (developed in Volume 3), ‘the most important law of political economy’[vi], which lays the basis for Marx’s theory of crises. DH ignores this aspect.

monthlyreview.org/commentary/critique-heinrichs-crisis-theory-law-tendency-profit-rate-fall-marxs-studies-1870s/

thenextrecession.wordpress.com/2018/04/02/marxs-law-of-value-a-debate-between-david-harvey-and-michael-roberts/

As far as I've read and understand, Roberts has a pretty solid understanding of Marx. An article dealing with the flaws of nationalising stuff (as suggested in the 'Resetting the economy' piece), as the intro alludes to, but which Roberts doesn't mention in the piece cited, I think would still be interesting.

Zuzwang - Thanks for all that. I think it finds us in broad agreement and thanks for all those references (which I encourage all comrades to read). Ironically I was reading Heinrich's article criticised in the Roberts/Carchedi piece you cite yesterday but had not yet got on to the reply. I think the method of argument in the article against Heinrich is spot on (indeed I had noted his "adverbial" sleights of hand in my own notes). I also noted that Heinrich thinks that Marx's realisation that each of the crises he lived through was different from the previous one is evidence that he doubted that they had the same underlying causes (stemming from the cyclical rise in the OCC). I don't think it should surprise us that each crisis manifests itself in a different way as the very process of the concentration and centralisation of capital brought about the fall in the rate of profit/rise of the OCC creates different orders of magnitude and also leads to an increase in the role of financial capital tending the whole system towards monopoly and later state capitalism. This is the course of the "real movement" which only value analysis can explain. It seems though that whilst Roberts has a good grasp of Marx's economic theory he still clings to the idea that if the state owns something then that is different from a private company. You get the impression that his work is aimed at "policy makers" and not in arming the working class itself in its fightback against capital.

I'm not sure about the Roberts thing. Marx also addresses capitalist crises in a section of his Theories of Surplus Value manuscripts ("Volume 4 of Capital"), though the tendency for the rate of profit to fall isn't mentioned there sadly (though overproduction's relation to LTFRP is discussed in Volume 3). The section is mostly critiquing political economists' (such as Ricardo's) views on overproduction and general gluts (due mainly to the "impetuous development of the productive forces", which is the same as the rising OCC that leads to the tendency for the rate of profit to fall). I personally like his observation there that an overproduction of goods or a lack of demand does not mean there is a lack of need, because capitalist production doesn't care about need, and which you can find plenty of illustrations of when food is destroyed or discarded because it can't be sold while people starve. Here's that part if it's of any interest:The word over-production in itself leads to error. So long as the most urgent needs of a large part of society are not satisfied, or only the most immediate needs are satisfied, there can of course be absolutely no talk of an over-production of products-in the sense that the amount of products is excessive in relation to the need for them. On the contrary, it must be said that on the basis of capital­ist production, there is constant under-production in this sense. The limits to production are set by the profit of the capitalist and in no way by the needs of the producers.It is the unconditional development of the productive forces and therefore mass production on the basis of a mass of producers who are confined within the bounds of the necessary means of subsistence on the one hand and on the other, the barrier set up by the capitalists' profits, which [forms] the basis of modern over-production.

Crisis section of Theories of Surplus Value

I'm sure I had that post separated into paragraphs, with blockquotes, hyperlink and all in the preview...

I'm not sure about the Roberts thing. Marx also addresses capitalist crises in a section of his Theories of Surplus Value manuscripts ("Volume 4 of Capital"), though the tendency for the rate of profit to fall isn't mentioned there sadly (though overproduction's relation to LTFRP is discussed in Volume 3). The section is mostly critiquing political economists' (such as Ricardo's) views on overproduction and general gluts (due mainly to the "impetuous development of the productive forces", which is the same as the rising OCC that leads to the tendency for the rate of profit to fall). I personally like his observation there that an overproduction of goods or a lack of demand does not mean there is a lack of need, because capitalist production doesn't care about need, and which you can find plenty of illustrations of when food is destroyed or discarded because it can't be sold while people starve. Here's that part if it's of any interest:

The word over-production in itself leads to error. So long as the most urgent needs of a large part of society are not satisfied, or only the most immediate needs are satisfied, there can of course be absolutely no talk of an over-production of products-in the sense that the amount of products is excessive in relation to the need for them. On the contrary, it must be said that on the basis of capital­ist production, there is constant under-production in this sense. The limits to production are set by the profit of the capitalist and in no way by the needs of the producers.

It is the unconditional development of the productive forces and therefore mass production on the basis of a mass of producers who are confined within the bounds of the necessary means of subsistence on the one hand and on the other, the barrier set up by the capitalists' profits, which [forms] the basis of modern over-production.

libcom.org/files/marx_crisis.pdf

Agreed re the definition of overproduction in Marx - indeed I have always taken the passage in Volume 3 about the crisis being at the end a result of the "poverty and restricted consumption of the masses" as not about over production or underconsumption but about capitalist relations and in reality an expression of the constant need to reduce variable capital in order to maintain the rate of profit.