A Reply To Academics

NB.

See Also My More Recent Response To. Dr. Paul Cockshott

Further to my blog yesterday I haven't received a reply to my E-Mail to Jerry Levy concerning the debate over the Tendency for the Rate of Profit to Rise. In the meantime I have been reading soem of the arguments put forward by the academics involved See: here and put together some initial responses.

Paul Cockshott writes, “He fails to consider what happens if say 50% of profit on capital is reinvested each year,
can the working population grow fast enough?”

Its difficult to respond to this point as no argument is given as to what Paul believes the consequences are. There are several answers to this point as far as it stands.

Firstly, my argument in respect of the TFRPR is not an abstract theoretical construct, but an empirical observation based on current conditions arising from the nature of the productive forces, and the productive relations. I am not saying this is what COULD happen. I am saying that this is what IS happening, and happening for these reasons that can be theorised within the context of Marx’s Value theory. In short, Marx set out the Theoretical reasons why there should be a Tendency for the Rate of Profit to Fall over the longer term due to the rising Organic Composition of Capital – an argument I would not dispute over the longer term – whereas I am saying that due to the development of new technology, and due to the changing nature of Consumption i.e. an increasing proprtion of Consumption going to commodities with a high complex labour content, there is a strong argument that the Organic Composition of Capital in the most rapidly growing sector of the economy is falling, and for the obverse reasons given by Marx means a Tendency for the Rate of Profit to Rise.

Secondly, if we take the purely theoretical aspect of Paul’s argument I fail to see his point. Clearly, a requirement for Capital Accumulation within a capitalist economy is that there is a sufficiently large reserve of Labour for this new Capital to exploit. If there is not sufficient Labour to exploit then Paul’s assumption itself falls, because then the Capital Accumulation itself could not occur, and so its effect on the Rate of Profit one way or another would be moot. Marx set out a whole series of countervailing factors for the Falling Rate of Profit, and similarly I have no doubt that these factors and others can be adduced as to why a tendency of the Rate of Profit to Rise is attenuated. But, let’s look at the actual point Paul makes.

Firstly, is there any evidence that Capital has EVER had a problem with an ABSOLUTE as opposed to a relative shortage of Labour Power to exploit? No. Secondly, are there any reasons to believe that Capital is or could face such a problem, thereby, frustrating any tendency for the Rate of profit to Rise? No. The consequences of the very factors I have outlined relating to the more rapid development of technology is not only rapidly reducing the Cost of Fixed capital, but is also more rapidly creating a relative surplus population. The consequences of globalisation,and the spread of Capitalist production – replacing Peasant, artisanal and handicraft production particular in China and other parts of Asia – has created a vast reserve army of Labour on a global scale allowing traditional manufacturing processes to use that simple Labour, and thereby freeing Labour in the developed economies for employment as complex Labour in the very spheres I have mentioned, OR ELSE, in the context of simple Labour to be employed in those areas of the service industry where the organic composition of Capital is lower than the average.

In the next post on the thread Jurriaan Bendien writes on the issue of the Value of Labour Power whilst not actually taking issue with anything I had written. Therefore, I will only make some passing comments in respect of the Value of Labour Power, Wages and the Cost of Living, the issues raised in his comments. A number of the issues here are also discussed in another context in my debate with Mike McNair over the nature of Complex Labour. See; those discussions here .

First of all it is necessary to distinguish between what Marx says about the value of labour power, and the value of the commodities produced by that Labour Power. Jurriaan, is quite correct that Marx asserts that the former is objectively determinable a priori. But, Marx in his discussion on Complex Labour argues that the relation between this complex Labour and Simple Labour can only be determined post facto i.e. we can openly know how much consumers Value the complex Labour compared to simple Labour when we see how much they are prepared to pay for its product. There is the crucial difference here between the Value of Labour Power and the Value of Labour without which Adam Smith and Ricardo fell into error, and without which you indeed do end up in a circular argument about values.

Marx its true didn’t provide a theory of the Labour market. The plan of his completed work shows that he would have done along with him dealing with other market relations, and Demand and Supply. But, he does make a distinction between the Value of labour power and wages just as he makes a distinction between Exchange Values and prices. As Marx outlines it is quite possible for Wages to be either below or above the Value of labour power at any one time even if we do not take into consideration the question of the transformation of Values to prices. The reasons for that can be due to a number of factors – for example, as I have been writing in a number of blogs the Long Wave cycle causes changes in the relative demand for Labour Power with a consequent effect on Supply and Demand. Because Supply and Demand is a phenomena of Price,and because wages are a Price, those changes affect wages – whilst leaving underlying Values unaffected. In order to understand Marx’s theory in relation to the Value of Labour Power fully, it is necessary to read what he says in the Grundrisse about the “Civilising Mission of Capital”, about the way in which Capital has to continually expand the scale and scope of the Use Values it produces, and consequently, because workers form a majority – and growing proportion – of consumers, Capital is continually forced to expand the workers horizons in order that this growing mass of use values can be consumed. This forms one part of the historical component of the Value of Labour Power. But, it is possible to enumerate other objective determinants too. For example, a modern economy needs healthy and educated workers. The Labour-time required to ensure that the necessary level of health and education are embedded in a sufficent number of workers also forms part of that Value.

At the same time the converse is true. Marx in the Critique of the Gotha Programme is scathing of the Lassalleans and Statists who argued for “Equal” education, and so on. He points out that “Right” can never be higher than what the economy can provide at any moment, and what it can provide is not some subjective matter, but is determined by the Rate of Accumulation, which is itself a function of competition between Capitals.

However, in a further post Jurrian does take up the argument about the Rising Rate of profit. He says there is nothing new in my argument. To some extent agreed, I began by outlining Marx’s theory and the countervailing tendencies he outlined. As the main thrust of my argument is the current role of those countrevailing tendencies there is clearly nothing new in what I am saying. The whole point is that what I am saying is not intended to be some new theory, but an understanding of current conditions within the context of marx’s theory. To say, however, that the same thing was written in the 1960’s, is, therefore, wrong, precisely because this is not the 1960’s. The very technological developments etc. I am referring to as specific for the present conjuncture were not present in the 1960’s.

Jurrian says, “Marx however wasn't talking about the rate of profit of "everything", he was talking only about industrial profitability. If there is a sustained recovery of industrial profitability now, where is the evidence?”

This is not correct. Marx was concerned with the Circuit of capital as a whole not just with Productive Capital or Industrial Capital as Jurrian puts it. The same argument in respect of a rising Organic Composition of Capital applies to Money Capital, or Merchants Capital or Capital employed in Agriculture and so on as applies in Industry. Moreover, Marx’s theory on the Average Rate of Profit can only be taken in the context of ALL Capital.

“What Marxists ignore in their "reproduction schemes" is that they leave out some results of the accumulation process. They act as though the output of capitalist production simply disappears in consumption, whether productive consumption or final consumption.

But this is a fallacy, because fixed assets and durables are being produced, imported and maintained. You can easily show that the value of the total stock of fixed assets and durables increases year after year. The effect is that in many OECD countries nowadays, the value of the stock of non-productive fixed capital assets is larger than the stock of productive fixed capital.”

What utter nonsense. Jurrian talks as though Marx only set out a schema of simple reproduction, and forget that he went on to set out his schemas of Extended Reproduction, which in fact form the basis of modern day Harrod-Domar growth models. The whole point about Extended Reproduction is that a proprtion of Surplus Value goes not to meet the unproductive consumption needs of Capitalists, but is invested in new Capital both in Fixed Capital assets, and in Circulating Capital (Constant Capital in the form of materials, and variable Capital in the form of Labour power). The whole point of Marx’s economics is that because he can explain where Profit comes from – which orthodox economics even today cannot explain, indeed neo-classical economics tells us that Profit CANNOT exist for an economy as a whole(!) – he is able to explain how growth is possible, something which escaped both Smith and Ricardo.

“But just because the larger part of fixed capital assets is now non-productive, doesn't mean that it plays no role in accumulation. That would also be a fallacy.”

Jurrian doesn’t make clear what he means by “non-productive” here, but I take it from what he said earlier, and what he goes on to say, that he means “non-industrial” fixed assets. But, this is false because of what Is aid earlier. Marx is NOT talking only about Industrial Capital, but Capital as a whole. Marx does not have a version of a Physiocratic view of Value creation in which only Capital employed in inustry is productive. He talks for example about Actors. For Marx, the determinant of “Productive” is the interrelation with Capital i.e. is it productive of Surplus Value. Indeed, the thrust of my argument was that precisely because of the growing aspect of these types of activity within the economy, the degree to which they employ highly complex Labour is the source of the Rising Rate of profit.

“Marxists claim that capitalism started when British peasants were thrown off the land in the 18th century, but this is a mythical fiction which does no justice to Marx at all, never mind economic history.”

No they don’t. But, Industrial Capitalism can only take off from that point for the reasons Marx elaborates i.e. until the peasants were thrown off the land there was a shortage of Labour Power, wages were too high for Industrial Capitalists to make sufficent Profit to accumulate. True, all of the things that Marx outlines such as the role of piracy, of the slave trade etc. enable Primitive Accummulation to occur, but as marx outlines that Primitive Accummulation is small compared to the Secondary accummulation that resuults from Capitalist production proper.

“Non-productive assets do play a role in capital accumulation, and profits are made from it, in the form of capital gains and property income, interest and rent.”

This is thoroughly confused. You should know that Profit and Capital Gain are two different things. Property Income, interest and rent are yet differeent again. I had this argument with an adherent of the “Austrian School” some time ago who wanted to get away with this shell game. In order that any non-inflationary Capital Gain can arise – that is not equally cancelled by some other Capital Loss – an economy must first generate the fund from which that Capital Gain can arise. If say, there are two houses in an economy – to take your example of non-productive assets – each with a market price of £100,000 then the market price of either or both of these houses can rise in real terms – thereby creating a Capital gain – only if some new value arises which enables that higher price to be paid. Without that the owners of these houses can place whatever price tag on them they care to mention, but if they are exchanged no Capital Gain can arise. Only if in the productive sector of the economy some new Value arises so that either or both of the owners of these assets has an extra fund to expend can their price rise and a Capital Gain arise. Consequently, it is not these non-productive assets that create any new Value, but the productive activity, and without it no accummulation could arise. Similarly, such assets can only earn property income, interest or rent if some fund out of which those payments are made is created, and that can only be created by production. Of course, as with primitive Accummulation its possible that some new Accummulation could arise through the same means, for example some form of piracy, theft, or unequal Exchange.

“In addition, if we consider the total stock of capital assets of all kinds, an increasing proportion of that stock consists not of physical assets, but purely of financial assets. This is capital not invested in production or physical assets, which just earns interest or rent or some other form of property income.”

But, as I said above that Financial Capital can only receive those payments if some fund from which they can be paid is generated. What is happening here is not the creation of new Value or Surplus Value, but its transferrence from where it arises in production to where it is realised in the sphere of Fianncial Capital as marx outlined in the way in which ALL Capital shares in the total Surplus Value created in production. The idea you seem to be adducing here that this fictitious Capital can somehow create new Value and Surplus Value out of thina air, simply through Exchange has I think been amply demolished in practice by the Credit Crunch and financial meltdown of recent months.

“The effect of all that is, that the total generic profit volume realised can increase, although industrial profit (newly created surplus value) stagnates or falls.”

If you restrict “Productive” Capital merely to “Industrial” Capital that might theoretically be true. But Marxist theory does NOT restrict “Productive” capital to only “Industrial” Capital. Capital employed in a Theatre, which consists of fixed Capital in the form of a building of circulating Capital in the form of costumes, and of variable Capital in the form of the Labour Power of the actors, stage hands etc., which produces a new commodity in the form of a play or other entertainment consumed by an audience is just as much productive capital as that employed on a production line. The surplus Value created by the Labour Power employed just as real as that produced by a car worker, and the resultant accummulation as new Capital just as valid. But, without, that production of new values, and surplus value the Money Capitalist who lends to the producer can be paid no interest on his loan. So, again as the current fianncial crisis has demonstrated, it is impossible for the “total generic profit” to increase without that increase in Surplus Value arising in production.

“So the famous Law of the tendency of the rate of profit to fall may be quite correct, while at the same time the generic profit volume increases. This reality is missed by the Marxists.”

This confuses two things which neither I nor Marx, nor as far as I am aware other marxist economists confuse in the way Jurrian suggests. Of course it is possible – even likely – that the absolute volumne of profit rises whilst the rate of profit falls. The only requirement is, as Marx set out, that the volume of surplus value rises slower than the volume of Capital employed. No Marxist has missed that reality as far as I am aware.

“Many Marxists say, "ah profitability is increasing, so therefore the law must be false, or, there are countertendencies operating" but this mistakes the real situation, which they haven't researched. Their analysis is based on 19th century capitalism instead of 21st century capitalism, they just try to find superficial analogies with 19th century capitalism.”

But, the whole point of my argument in relation to the RISING Rate of profit is that it IS based on curent conditions now in the 21st century!

“Marx cited foreign trade as one countertendency to the TRPF. What is "globalisation" if not an enormous expansion of the international trade in money, commodities and capital? Essentially what sustains generic profitability these days is extensive, structural unequal exchange globally. The inevitable effect of that, is a gigantic increase in socio-economic inequality.”

REALLY? I thought that one of the clearest expressions of current relations was a massive shift of economic power towards the East manifested by stagnant and even falling real wage levels in the US and other developed Western Economies alongside rapidly rising real wage levels in China, India and other Asian economies. I thought, that what was clear was the extent to which even those living standrads particularly in the US were based on a money fiction arising from huge borrowing at a Public and Private level, a borrrowing financed only by those very same Chinese and other Asians. Isn’t that clear from the events of the last few months??? And simply quoting to us the data for the incomes of the top 1% of housheolds in the US simply will not do in that context.