The Law and Modern Catasrophism - continued
In Theories of Surplus Value, Marx says that the Law of the Tendency For the Rate of Profit To Fall, is important for capitalist production. Marx also says that the Law has been important for all preceding Political Economists, though they had not been able to explain its basis. These comments by Marx have also been misinterpreted to give his own explanation of the Law a greater significance than Marx himself gave to it.
The suggestion that it is this Law which is the basis of Marx’s theory of crisis, for example, is wholly spurious. Marx nowhere makes any such suggestion. In Theories of Surplus Value II, for instance, Marx explains his theory of crisis at length. In almost fifty pages he does not mention the Law even once to explain crises. As was seen in Part 1, in the one reference to the falling rate of profit, he says the exact opposite.
If a falling rate of profit were to be a cause of crises, what would it be? It could only be that at some level of return, productive-capital decides that the risk to capital is greater than the potential return, and so stops investing, and even stops reproducing existing capital. But, if that is the case then we should have a permanent state of crisis of the type Marx says do not exist. If the rate of profit falls more or less continuously, as a result of a rising organic composition of capital, then the rate of profit today – even in a period when it is relatively high – must be below its rate at the time of the first crisis of overproduction in 1825. But, if the rate of profit was already low enough in 1825 to cause capital to refrain from investing, it must always be below such a level today, even in periods when it is rising! Moreover, as capitalist production begins in the 15th century, and then gradually spreads, why is that in the following period of four hundred years, when the organic composition of capital is continuously rising, that no such crisis erupts? Why is it that according to Marx, the first crisis of overproduction does not occur until 1825?
Of course, some catastrophists believe such a permanent crisis does exist, so they are prepared to perform any number of statistical gymnastics to deny that capitalism is growing, in the same way that Stalinist economists claimed that workers living standards were falling in the West, during the 1950's and 60's, even though it was apparent they were rising sharply.
Marx's comments, in fact, have a different meaning to this. Firstly, the tendency for the rate of profit to fall is important for capitalist production for the very reasons Marx sets out, in Capital III, in discussing the formation of an average rate of profit, the transformation of exchange values into prices of production, the effect of wage and price rises, and the allocation of capital. That is the whole basis of the process whereby an average rate of profit is formed relies on the fact that the rate of profit is high where the organic composition of capital is low, and tends to fall in those spheres where the organic composition of capital gets progressively higher. This in itself makes the law important for capitalist production, because it means that it is this law, which is behind the movement of capital from low profit/high organic composition spheres into high profit/low organic composition spheres. In other words, the Law is important for capitalist production because it explains the allocation of capital.
The reason it was seen as important by previous economists has already been discussed, which is that they wrongly believed that it led to a falling mass of profit, and thereby the collapse of the system. As for Marx’s comment at the start of Chapter 15, that simply shows the problem of treating Marx's writings as though they were Holy Writ, and to treat every phrase, sentence or paragraph as though it stood on its own separate from the rest of the text. Throughout Capital, there are many occasions where Marx makes statements, which are merely an opening remark whose real meaning is only revealed in the unfolding of his argument. Taken on their own, some of these statements are, in fact, the opposite of what Marx goes on to describe. Some are simply badly formulated.
In fact, on the basis of what Marx has set out in previous chapters, its clear that he does not ascribe a central role to the law as a cause of crises, and in his further explication in Chapter 15, that becomes clearer still. Rather it is the means of resolving the contradictions previously alluded to – which relate as much to the rise in the rate of profit and in the mass of profit as much as to the falling rate – that provide one cause of crises.
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