A Reply To Dr. Paul Cockshott

This is a reply to Dr. Paul Cockshott who wrote to me commenting on my blog "A Reply To Bourgeois Academics" see his comment here , in which he references a work by Allin Cottrell and himself on the Falling Rate of Profit. The discussion itself was started as a result of my blog The Tendency of the Rate of Profit to Rise .

Paul and Allin's article can be found here


Paul,

Thank you for the link to your article on the Falling Rate of Profit as a response to my previous blogs. I suppose the first thing to say is that your article is about the Tendency of the Rate of Profit to Fall whereas my original blog which sparked this discussion was in fact a suggestion that current development within Capitalism were creating a Tendency for the Rate of profit to RISE. By the by, I seek below to look at the points you make in your article in so far as they relate to the ideas I presented on the Rising Rate of Profit.

You state early on.

“Point 3 is perhaps more questionable.”

(The enhancement of the productivity of labour involves workers working with an increased “mass” of machinery or means of labour, and working up a larger quantity of materials per unit time.)

“Certainly there are many examples of technological change that conform to this pattern: the switch from fluvial transport to railways, or from handlooms to machine ones, but there are also counterexamples. Sometimes, as for instance in the move from metal casting to plastic moulding for many uses, the more advanced process accomplishes its results more cheaply while deploying a lesser “mass” of means of production.”

In fact, I made precisely this point in arguing the RISING Rate of Profit. I wrote,

“Similarly, if we look at other items of consumption we find that in fact the materials used are negligible. A mobile phone, a PC, an LCD TV, the various services we use such as cinema, theatre etc. In fact a mobile phone probably uses far less materials than did the old type of land line, the LCD certainly less than a CRT screen. Again the largest component in the value of these products is not the Capital or material used in the production, but the intellectual labour that went into their development etc. Look at the huge amounts now spent on Computer games, yet a CD or DVD takes very few material resources to produce, very little in the way of Constant Capital. But it does take the labour of skilled games programmers. Or music. When I was first collecting records 40 years ago to amass 1,000 records consumed a fair amount of vinyl. Now 20 times that amount can be stored on a tiny stick, instead of the cost of transporting all the vinyl etc to record shops the music can be downloaded all over the world instantaneously over the Internet.”

Nor in fact, do I believe that Marx was unaware of such a potential. Certainly he was aware that rising productivity could reduce the cost of such material inputs considerably. He also set out the way in which technological change meant that investment was not only in additional machines of the same type, but of machines of a “better” type, and this point – the idea that a single advanced machine can replace several less advanced machines – is essentially no different from the argument of the replacement of one type of material input for another.

You also say,

“point 4:

(Although the value of the means of labour, materials, etc (in Marx’s terminology, constant capital) will not generally increase in full proportion to the “mass”, it will nonetheless increase, and faster than the variable capital. The organic composition of capital tends to rise.)

this may not always be true, but it is at least plausible and we will not question it here.”

But, in fact Marx does not say what you attribute to him in Point 4. He specifically says that the QUANTITY of the mass of means of production might RISE, whilst its VALUE actually FALLS. See p. 236 Capital Vol III Lawrence & Wishart Ed.

“If the pursuit of profit (via the pursuit of higher labour productivity) has the effect of raising both c/v and s/v, does that not leave the overall effect on the rate of profit indeterminate?”

Yes, it does, but that is why Marx talks of this Law as being a Tendency, and why he sets out all of these countervailing factors!

“Neither s/v nor c/v has any obvious theoretical upper bound.”

But, that is clearly not true. There is no upper bound to C/V as C can expand to infinity, but there must be a logical upper bound to s/v because it is not possible for workers to live on air. Marx gives the answer to your objection in Capital Vol III as I quoted in my original article.

“But as Marx, explains there are limits to this. The working day cannot be longer than 24 hours. Even if the productivity of Labour rises so that the amount of time out of this 24 that a worker requires to meet their own needs falls to just 1 hour, leaving 23 hours to be appropriated by the capitalist, the amount of surplus value appropriated will still be less than from 24 workers who provide just 1 hour of surplus value for the Capitalist.”

The real objection to the Law here is I believe that which I set out in my article. That is that the conditions of modern Capitalism have created a situation in which the new types of Consumption – consumption which forms an increasing part of consumers expenditure – are for commodities that are more of the type which Marx would have described as “luxuries”, they are goods where the important component of their value is not Constant Capital, but is Complex Labour. The consequence is that in reality for these types of commodities C/V is not rising, and therefore, the very condition which Marx required for a Falling Rate of Profit is reversed.

Hence,

“Although the recent rise in house prices – itself a function of the fact that an increasing number of single people who in previous generations would have lived with their parents now demand a home of their own, along with the increasing number of people with two or more homes – means that a large portion of workers income is spent on shelter, the proportion spent on food has continued to decline, and even here at least some is spent not on food itself, but on eating out i.e. entertainment really. Similarly with clothing an increasing amount is spent not just for the necessity of clothing but on paying for a designer label, or the latest fashion etc. On top of that is an increasing amount spent on things such as mobile phones and other electronic gizmos, on entertainment, and other services.

The nature of this consumption is completely different from the type of consumption theorised by Marx, and the nature of the production of these items of consumption is different too. Marx looked at the consumption of luxury goods by the rich. In general he concluded the organic composition of Capital in these industries was lower than in the production of wage goods. The reason was that the nature of the production required a higher degree of skilled labour power. One of the reasons a luxury good is a luxury good is because it is more unique than something mass produced. An expensive piece of jewellery cannot simply be reproduced over and over again by a machine, cannot be churned out by unskilled labourers. It requires the labour power of a skilled artisan. Such workers do not abound, their labour power is not simple labour but complex labour valued at several multiples that of an unskilled worker. An 8 hour day of such a worker might then be equal to 72 or 144 hours of an unskilled worker. The Surplus Value appropriated in a single day might amount to 36 or 72 hours, even allowing for the higher wages of the artisan.”

“Marx clearly had an ideological investment in the idea that the falling rate of profit was primary. This proposition licensed the conclusion that “the real barrier of capitalist production is capital itself” (Capital, III, p. 248). The very process that constituted capitalism’s historical “justification” – namely, its development of the productivity of social labour to an unprecedented level – was at the same time the source of a falling rate of profit, which places a roadblock in the way of further development.”

But, we can see why Marx could come to this conclusion for reasons completely separate from ideological considerations. To a large degree competition drives Capital Accumulation. Capitalists have to accumulate in order to remain competitive. But, there are limits. Clearly, if the Average Rate of Profit is falling for all Capitalists then the same psychological factors will work equally on all of them. In search of a higher return on their Capital they may seek not to invest at home, but to invest abroad. They may seek to speculate, or they may all reduce accumulation in order to divert a greater proportion of Surplus Value to unproductive consumption. All of these decisions are ones which are specific to Capital as Capital. Workers would not reduce accumulation for any of these alternatives simply because the rate of profit had fallen, becaue they would look at production from the standpoint of the production of Use Values not Exchange Values.

“It then seems plausible that as s/(s+v) gets closer to 1.0 it will become increasingly difficult to find an offset on this account for an ongoing rise in c/(s+v), or in other words a rising rate of exploitation can’t keep capitalism out of trouble for ever.”

You say this as though Marx did not spell this out himself. He did, as the example I gave above paraphrasing his explanation demonstrates.

“The falling rate of profit is a macro-economic phenomenon, but it derives, he (Roemer)argues from the decisions of individual capitalists unaware of the macroeconomic consequences of decisions that they make.”

It is impossible to understand Marx’s economics within the constraints of the bourgeois economic concepts of macro and micro economics precisely because Marx understood the Capitalist economy for what it is a dialectically interrelated whole. The Falling Rate of Profit is not a macro or a micro economic phenomenon, but a Capitalist phenomenon. You cannot theorise it as a macro-economic phenomenon arising from individual decisions of Capitalists precisely because Capitalism IS such a system of decentralised decision-making. Now would the problem be removed even were we to envision some State capitalist economy with centralised decision making. Ultimately, Capitalists are interested not in the Rate of Profit, but with the absolute volume of Profit available to them. Competition forces them to seek to maximise this absolute volume of Profit by maximising the Rate of Profit on their Capital. Removing competition would remove that constraint, it would not remove the drive to maximise the volume of profit, and the way of maximising the volume of profit remains maximising the exploitation of labour. It is that need to maximise s/v that drives the increase in c/v.

“The thrust of his analysis is that if capitalists take the current set of prices and profit rates as givens, then, any decisions that they make on technical changes which are more profitable to them personally, will also be more profitable to the capitalist class as a whole and, in consequence, will tend to raise the aggregate rate of profit for the whole economy. This theoretical project amounts to the search for an adequate microfoundation for the theory of accumulation.”

Roemer is, of course, mistaken here. Or, at least, he is correct that individual Capitalists see investment decisions in terms of this or that innovation leading to higher profitability, and there is a tendency to see what applies to one as applying to all, but this is clearly not so. The introduction of a new machine does not ADD to Value as bourgeois marginal productivity theory suggests. Rather the increased profit for the Capitalist arises from the fact that this innovation reduces his costs to below the average, reduces his individual value to below the average. If all capitalists follow suit then the average necessary labour-time falls, Exchange-Value falls, and the excess Surplus Value disappears.

“When discusssing the rate of profit in value terms we are dividing a quantity of profit by a stock of capital. Profit can be thought of as a flow of value and as such its dimension its units are person hours/annum, which in dimensional terms is just persons since the hours/annum just give us a scalar. Thus the annual flow of profit when measured in value terms corresponds to a certain number of people - the number of people whose direct and indirect output is materialised in the goods purchased out of profits.”

Let me stop you there. This has nothing to do with Marx’s theory of Value. Marx certainly says that certain types of USE Value are the product of different types of CONCRETE Labour – the Labour of a Tailor produces trousers not chairs, but he is at pains to demonstrate that concrete labour does not enter his theory of Exchange Value. On the contrary, his measure – Labour-time – is in units of abstract, generalized Labour completely separated from human beings. Whilst Marx’s theory posits Labour as one source of Value alongside Nature(See "The Critique of the Gotha Programme"), Labour TIME is nothing more than a Numeraire, a numeraire measuring not the Labour of specific human beings, or even the average of the total Labour-time of all human beings, but a measure of that abstract Labour. How else then could Marx theorise COMPLEX Labour contributing in Labour-time a quantity of hours in multiples of Simple Labour.

In fact, from this simple mistake flows the flaw in the rest of your argument.

“Instead one should focus on what the rate of profit tells us. It tells us something about the potential rate of expansion of capital stocks. It sets an upper limit on the rate of expansion that can be achieved out of internal funding - the rate of capital growth that will be achieved if all profit is reinvested.”

If I were being pedantic I could challenge this. It does not for instance, take into consideration existing hoardes of capital, not does it take into consideration workers, landlords or other savings, which could be mobilized, nor the potential for the use of Credit. But, that is a side issue.

“Let us further assume that all profits are reinvested. Thus a 5% rate of profit will imply a 5% growth per annum of the capital stock. Let us also assume at first that the division of value added between wages and profit remains unchanged over time.

This means that total profit per year will be a constant multiple of total wages per year. Under these circumstances it is clear that the rate of profit will fall over time if rate of growth of wage income is less than the rate of profit, and the rate of profit will rise if the rate of growth of wage income is higher than the rate of profit.”

But, given the constraints you have set V could never grow by more or less than the Rate of Profit. For example,

C100 V 100 S100 R = 50%

We then fully allocate S in line with your constraint.

C(1)150 V(1) 150 S(1) 150 R=50% = (V(1) – V)/V x 100.

If, in accordance with your constraint, there is no change in the Organic Composition of Capital then V must increase in the same proportion as C. The only way given this constraint that V could increase faster than R would be if it did so at the expense of S, but that would break your other constraint that all new value is shared equally between S & V i.e. the rate of Exploitation remains constant.

“We then focus on the determinants of the rate of growth of wage income - measured in labour hours per annum. The dimensions give it away, since wage income in these terms corresponds to a number of people - the number of people whose direct and indirect labour supports the employed population.”

Absolutely not for the reasons set out above. Labour-time has nothing to do with concrete Labour with actual human beings, but is a measure of abstract Labour.

“The rate of growth of wage income comes down to the rate of growth of the working population (given the assumption of a constant rate of surplus value). The appropriate focus for analysis of the falling rate of profit is not technological choice but historical demography.”

Again, absolutely not for the reasons given above. It is entirely possible for wages to rise with a constant Rate of Surplus Value with a FALLING population, provided that an increasing proportion of COMPLEX compared to SIMPLE Labour is used. The reason is that a falling number of persons has no direct bearing on the quantity of Labour-time expended. Were your theory correct then we would have expected to see wages rising fastest at those times when population growth was rising fastest, and vice versa. I would contend we have seen the opposite in many cases.

“If we assume that the rate of growth of the employed population is fixed then the effect is that the actual rate of profit tends towards the rate of growth of the employed population:”

I can see no foundation for this assumption either in logic or in empirical data. For the reasons I have given above a falling or slowly growing population is entirely consistent with a labour force that is becoming more educated, more highly skilled, and in which the proportion, therefore, of Complex to Simple labour rises. The consequence is that the quantity of Labour-time grows as a result of this increasing proportion of Complex Labour, and with this growing volume of labour-time comes a growing volume of surplus value. This can be seen in a number of small economies where a small population is employed in highly skilled, high-value added production, and where rates of profit tend to be high.

This can be demonstrated fairly easily. Imagine an economy with two Departments - one Department produces all of the material consumption goods the other produces entertainment. I am leaving aside the production of Producer Goods for the sake of simplicity, and because it is irrelevant for the purpose of demonstration. 10 million people work in Department I, working a total of 10 billion hours of simple Labour-time. 90% of the utput of the Department is exchanged internally amongst its workers and capitalists, leaving 10% to be traded with Department II - that is 1 billion hours of output. In Department II 1 million people work a total of 1 billion hours of simple Labour which they trade with Department I for consumption goods. These 1 million people are employed in 10,000 Music Halls around the country, 100 people working in each.

We know that the output of Department II is equal to the traded output of Department I because both outputs exchange for each other and is equal to i billion hours. Whenever, then the output of Department II Exchanges entirely for the traded output of Department I we know that to be the case, and we can calculate the Value of Department II's output from it, provided that we assume that the Labour employed in Department I is entirely simple labour.

Now the population falls by 900,000 people. All of them were employed in Department II. However, rather than being employed in 10,000 Music Halls around the country they are now by the magic of technological development all employed in a single TV Company that is able to replicate the output of those 10,000 Music Halls. The output of these remaining 100,000 people in Department II exchanges entirely for the entire traded output of Department I, whose Value we know to be equal to 1 billion hours. We know then that the value of the output of these 100,000 people in Department II is also equal to 1 billion hours or else this trade could not occur.

What then do we have. We have a fall in population of 900,000 people. Yet we have the total output of the economy remaining constant 10 billion hours from Department I, 1 billion from Department II. We also have the output of department II remaining constant despite employment in Department II falling to a tenth its previous level. The basis of this is that the Labour employed in Department II is no longer simple labour, it is complex labour each unit of it being the equivalent of ten units of simple labour.

By the same token, wages paid to this complex labour - if we maintain your constraint that all new Value is divided equally between V and S, will be ten times more than that paid to simple labour. This means that not only has output remained constant with a falling population, but average wages will have risen - because wages paid per person in Department I remain constant whilst, wages paid in Department II will have risen tenfold.

This, of course, assumes that the Organic Composition of Capital in Department II has remained constant in accordance with your constraint i.e. all of the Constant Capital used in TV production amounts to exactly that previously used by 10,000 Music Halls. I would suggest, however, that this constraint is unrealistic. It is an unrealistic constraint to place on Marx in respect of a rising Organic Composition of capital leading to a tendency for a falling Rate of profit, because empirical evidence showed that industrial production DID and does necessitate such a rising organic composition. I would suggest it is an unrealistic constraint for the scenario I am depicting of modern technological production, and the expansion of high value service production leading to a falling organic composition of Capital and tendency for the Rate of profit to rise, because empirical observation DOES show on an extended scale the same kind of transformation given in the example above.

I am not dealing here with the further points you make in respect of other factors such as the depreciation of Capital etc on the rate of profit as these are essentially separate from the point you were making about population growth, and the examples you give are framed within your argument about the limitations of population growth on the Rate of profit as modified by these other considerations. Whilst I find these other issues interesting, and I will possibly return to them for discussion later I think discussion of them is best kept separate.

My main argument would be that in trying to conceptualise Exchange Value from the standpoint of concrete labour as opposed to abstract labour-time you have stepped outside Marx’s theory of value, and this provides the basic flaw in your argument. If you wish to come back on those points I would be happy to respond.