Falling Average Profits & Accumulation
And, this is only considering the situation where a new investment might result in a lower than average rate of profit. Roberts' theory is based upon capital accumulation slowing as a result of falls in the average rate of profit itself. But, Marx in his response to that argument by Ricardo, in Capital, has already been cited. Falls in the average rate of profit cannot cause accumulation to slow down as a result of conscious decisions by capitalists, because those falls are associated with periods of increased economic activity, as extensive accumulation means that both more workers are employed, and wages rise, which both squeezes profits, and causes the demand for wage goods to rise – which, in turn causes the demand for producer goods to rise. Competition for a share of this increased market, thereby, forces capitals to accumulate whether the rate of profit is rising or falling. Indeed, as Marx points out, what is, in any case, more important to the larger capitals is not the rate of profit, but the mass of profit, and that still tends to rise, as the growth of the advanced capital is greater than the fall in the rate of profit on it.
“... for instance, the cultivation of larger tracts of B and C does not by any means presuppose a previous rise in grain prices any more than the preceding annual expansion of cotton spinning, for instance, requires a constant rise in yarn prices. Although considerable rise or fall in market-prices affects the volume of production, regardless of it there is in agriculture (just as in all other capitalistically operated lines of production) nevertheless a continuous relative over-production, in itself identical with accumulation, even at those average prices whose level has neither a retarding nor exceptionally stimulating effect on production. Under other modes of production this relative overproduction is effected directly by the population increase, and in colonies by steady immigration. The demand increases constantly, and, in anticipation of this new capital is continually invested in new land, although this varies with the circumstances for different agricultural products. It is the formation of new capitals which in itself brings this about. But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors. The individual capitalist may expand his production by appropriating a larger aliquot share of the existing market or by expanding the market itself.”
(Capital III, Chapter 39)
In other words, it is this anticipation of demand that is determinant, not the anticipated rate of profit, as Roberts claims. A fall in the rate of profit, and more specifically the mass of profit affects the ability to finance accumulation internally, but this then impacts the extent to which firms must then resort to borrowing to finance such expansion. As previously described, Marx shows, that, in reference to working-capital, firms are able to obtain that, in periods of expansion, simply from the increased provision of commercial credit, so that it is basically only in relation to the accumulation of fixed capital where resort to bank credit, or capital markets is required. In economies where service industry accounts for 80% of value production, and where, therefore, it is employment of additional labour that is characteristic of output expansion, and where large-scale fixed capital investment is lumpy, that fact is highly significant. The effect, here, then, is from the rise in economic activity, the squeeze of profits, and the increased resort to capital markets that, in turn leads to higher interest rates, not vice versa.
If Roberts' argument is accepted, it implies a self-regulating model of capitalism. If, as Roberts says, a falling rate of profit causes capital accumulation to slow, let alone cease, the consequence is that, with a constantly rising population, and even just a minimal level of productivity growth, unemployment would rise, which would then cause wages to fall, thereby causing the rise in wages that led to the squeeze on profits to fall. The rise in profits would then restore the accumulation of capital, and so on. Of course, Roberts response to this is that he sees the fall in the rate of profit not as arising from such a squeeze on profits, due to rising wages – though he uses such falls to justify his argument without distinguishing this cause – but from The Law of the Tendency for the Rate of Profit to Fall, arising from changes in the organic composition of capital. Again, he does not distinguish, as Marx most certainly does, between changes in the organic composition arising from changes in the technical composition as against those arising from changes in the value composition. Marx make clear that his argument in relation to the Law of the Tendency for the Rate of Profit to Fall depends upon the former, as against the latter, which is associated rather with the squeeze on profits, and crises arising from it.
But, again, this argument will not stand. In describing the process of the change in the technical composition of capital that results in the tendency for the rate of profit to fall over the longer-term, Marx notes,
“Growth of capital, hence accumulation of capital, does not imply a fall in the rate of profit, unless it is accompanied by the aforementioned changes in the proportion of the organic constituents of capital. Now it so happens that in spite of the constant daily revolutions in the mode of production, now this and now that larger or smaller portion of the total capital continues to accumulate for certain periods on the basis of a given average proportion of those constituents, so that there is no organic change with its growth, and consequently no cause for a fall in the rate of profit. This constant expansion of capital, hence also an expansion of production, on the basis of the old method of production which goes quietly on while new methods are already being introduced at its side, is another reason, why the rate of profit does not decline as much as the total capital of society grows.”
(Capital III, Chapter 15)
In other words, in the large majority of the economy, for long periods, there is no significant technological development, and what occurs is purely extensive accumulation. The kind of significant technological development that results in a sharp rise in the technical composition of capital, required for the Law of the Tendency for the Rate of Profit to Fall to operate, occurs only at specific points, and so we are led to ask what causes this? Marx provided the answer back in Capital I, in which he sets out that Ricardo had shown that capital only engages in such technological innovation and investment when wages have risen to a level that makes it worthwhile. It is precisely the rise in wages, due to the demand for labour, resulting from extensive accumulation, which acts to squeeze profits, resulting in a crisis of overproduction of capital, that creates the incentive for capital to engage in such innovation and investment!
Marx repeats the point in Value, Price and Profit.
"Take, for example, the rise in England of agricultural wages from 1849 to 1859. What was its consequence? The farmers could not, as our friend Weston would have advised them, raise the value of wheat, nor even its market prices. They had, on the contrary, to submit to their fall. But during these eleven years they introduced machinery of all sorts, adopted more scientific methods, converted part of arable land into pasture, increased the size of farms, and with this the scale of production, and by these and other processes diminishing the demand for labour by increasing its productive power, made the agricultural population again relatively redundant. This is the general method in which a reaction, quicker or slower, of capital against a rise of wages takes place in old, settled countries. Ricardo has justly remarked that machinery is in constant competition with labour, and can often be only introduced when the price of labour has reached a certain height, but the appliance of machinery is but one of the many methods for increasing the productive powers of labour. The very same development which makes common labour relatively redundant simplifies, on the other hand, skilled labour, and thus depreciates it."
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