Marx and The Falling Rate Of Profit

There has been a lot of discussion recently about Marx's theory of the Law of the Tendency For The Rate of Profit to Fall.  Most of the discussion is based on dogmatic nonsense that treats Marx's writings as though they were some kind of Bible, statements from which are to be repeated as mantras, rather than as a toolbox, to provide socialists with tools to actually analyse the world around them as it is in their time, not as it was in his.  The claims of some of these dogmatists that the falling rate of profit is the main, cause of capitalist crises is baloney, and the claim that it is the ONLY cause of capitalist crises is ridiculous, as even a cursory reading of Capital would indicate.

Many of these dogmatists are the same kind of catastrophist who believe that capitalism is either continually in some form of crisis, or else that it is always imminently about to suffer some such devastating crisis.  They snatch at individual pieces of data, and pretend that they are in some way generalisable into such a global crisis of capitalism.  So, despite the fact that the global capitalist economy has for the last 13 years being going through an unprecedented boom, they have to pretend that in some way that boom has not happened, has not been real, or at the least that the financial crisis that has affected Europe and North America since 2008, is the same thing as a global capitalist crisis.  It is an almost racist view in terms of its Euro-centric, and even just Anglo centric interpretion of what constitutes the modern global economy.

"Is it 'cos we's not white that you dis our economic
performance and still see us as colonials?"

It ignores the fact that China is about to become the world's largest economy, and already is the largest market for many goods, and that its huge economy is growing faster in absolute terms than at any time in its history.  It ignores the fact that many other Asian countries now way beyond, the original Asian Tigers, economies like Vietnam, Indonesia etc. are growing at an extremely rapid pace. It ignores the fact, that there are now an increasing number of African Lion economies economies that are growing even faster than China, and not just on the back of sales of primary products.  The extent to which the economic development in these economies is more or less dismissed and ignored by many on the Left might prompt an Ali G type response of "Is it cos we's not white?"  Indeed, for many of these dogmatists, they cannot yet come to terms with the failure of the other element of their dogma, that these former colonies are no longer such!  Colonies can't liberate themselves without Socialism and Permanent Revolution, that's the law, so the facts must be wrong!

If its any consolation for them, there is a good reason why the global capitalist economy hasn't been in a catastrophic crisis for the last period that is consistent with their view on the falling rate of profit.  It is that the rate of profit has been rising for the last 30 years, and more recently in fairly dramatic style.  But, they can't believe that either.  Its rather like the Stalinists after WWII.  They continually insisted that living standards in the West were really falling when it was as clear as the nose on your face that living standards were rising rapidly.  Some Marxist economists only came to terms with the fact that Capitalism wasn't about to collapse, and had been going through a boom, just at the point in the late 60's, when that Long Wave Boom was coming to an end!

The fact is that the rate of profit rises during periods of Long Wave Boom and of Downturn, and it also falls during those periods too.  It rises during the Winter (downturn) Phase as capital is devalued (there is also a nonsensical view that capital has to be physically destroyed, for example during WWII, for the rate of profit to rise.  It doesn't.  Such destruction makes profit making more difficult.  It is the destruction of the value of the capital, not its physical destruction that has to occur).  Also during the Winter Phase, the value of Variable Capital falls, the rate of surplus value rises, and new forms of production are introduced that raise productivity.  The rate of profit also rises during the Spring (boom) Phase, as new forms of production are implemented on a wider scale, new industries based on high value, high profit production is introduced, and capital expands so that it enjoys not just a rising rate, but also volume of profit.

For the reasons I have set out in recent posts the rate of profit falls during the Summer and Autumn Phases of the Long Wave.  It is not the rate of profit that makes crises more or less likely, or makes the severity of those crises more or less, but the phase of the Long Wave.  For example, in the period of the post war boom, when the rate and volume of profit was rising fast, there were still 5 recessions.  But, the phase of the Long Wave meant that Keynesian intervention was able to cut those recessions short.

There is no reason why a very long term tendency such as the falling rate of profit should have any real effect on causing capitalist crises.  Just how remote it is from such events, is indicated by Marx's description of it.

"In spite of the great changes occurring continually, as we shall see, in the actual rates of profit within the individual spheres of production, any real change in the general rate of profit, unless brought about by way of an exception by extraordinary economic events, is the belated effect of a series of fluctuations extending over very long periods, fluctuations which require much time before consolidating and equalising one another to bring about a change in the general rate of profit. In all shorter periods (quite aside from fluctuations of market-prices), a change in the prices of production is, therefore, always traceable prima facie to actual changes in the value of commodities, i. e., to changes in the total amount of labour-time required for their production...

In view of the many different causes which make the rate of profit rise or fall one would think, after everything that has been said and done, that the general rate of profit must change every day. But a trend in one sphere of production compensates for that in another, their effects cross and paralyse one another. We shall later examine to which side these fluctuations ultimately gravitate. But they are slow. The suddenness, multiplicity, and different duration of the fluctuations in the individual spheres of production make them compensate for one another in the order of their succession in time, a fall in prices following a rise, and vice versa, so that they remain limited to local, i. e., individual, spheres. Finally, the various local fluctuations neutralise one another. Within each individual sphere of production, there take place changes, i. e., deviations from the general rate of profit, which counterbalance one another in a definite time on the one hand, and thus have no influence upon the general rate of profit, and which, on the other, do not react upon it, because they are balanced by other simultaneous local fluctuations. Since the general rate of profit is not only determined by the average rate of profit in each sphere, but also by the distribution of the total social capital among the different individual spheres, and since this distribution is continually changing, it becomes another constant cause of change in the general rate of profit. But it is a cause of change which mostly paralyses itself, owing to the uninterrupted and many-sided nature of this movement.

2) Within each sphere, there is some room for play for a longer or shorter space of time, in which the rate of profit of this sphere may fluctuate, before this fluctuation consolidates sufficiently after rising or falling to gain time for influencing the general rate of profit and therefore assuming more than local importance. The laws of the rate of profit, as developed in Part I of this book, likewise remain applicable within these limits of space and time." 

Vol III, Chapter 9

So, with Marx here talking about changes in the rate of profit normally having only localised effects, with it moving up, down sideways, and only manifesting itself indirectly, and after very long periods, its hardly any rational basis to claim it as the main let alone the ONLY cause of capitalist crises!