Michael Roberts, The Rate of Interest and Booms and Slumps - Part 12 of 12 - At Sea Without A Rudder, Going In Circles

At Sea Without A Rudder, Going In Circles

And Roberts and his supporters then end up in circular arguments. For example, they have to explain the economic cycle. They explain the crisis phase of that cycle, which they conflate with slumps, by reference to falling profits, which they also conflate with The Law of the Tendency for the Rate of Profit to Fall, even where the falls in profits have nothing to do with that Law. So, Brian Green (Ucanbpolitical) writes in a comment on Roberts' Blog, to this same article, that this cycle is explained by,

“The rate of profit based on the interaction between the rate of surplus value and the composition of capital”

But, this just explains the economic cycle by the economic cycle! If the movement through the cycle is determined by the rate of profit, rate of surplus value, and composition of capital – itself again, here, typically not defined as being the technical composition, value composition or organic composition, determined by the technical composition - then its necessary to explain what causes the changes in these variables, but that can only be explained by reference back to the economic cycle! The rate of profit is a function of the rate of surplus value, and organic composition of capital. It changes, because of changes in either or both of these two determinants. The rate of surplus-value might rise, because absolute surplus value rises as a consequence of a longer working-day. It might rise, because rising productivity reduces the value of wage goods and so labour-power, reducing necessary labour and increasing surplus labour, i.e. a rise in relative surplus value. Wages might fall, because there is a relative surplus population. Alternatively, the value of constant capital might fall, because rising social productivity reduces its value, and technological development brings about a moral depreciation of existing fixed capital. All of these would bring an increased rate of profit, and vice versa.

But, now, it is necessary to explain what brings about these particular changes. Absolute surplus value is itself a function of the economic cycle. In other words, at those points in the cycle when existing supplies of labour have been used up, absolute surplus value cannot be expanded by increasing the individual working-day, or social working-day. That is the situation that Marx describes in Capital III, Chapter 15, in describing the crisis of overproduction of capital relative to the social working-day. As he, further elaborates on that, in Theories of Surplus Value, Chapter 21, in such conditions, workers first demand payment for overtime hours, then premium payments for such hours, then they resist working such hours, bringing about a fall in the individual working-day, and absolute surplus value. The shortage of labour, at this point of the cycle, then enables them to demand higher hourly wages, improvements in the social wage, and so on, so that not only absolute, but also relative surplus value falls.

So, this central factor of the rate of surplus value, rather than being a determinant of the economic cycle, turns out to be rather determined by that cycle! Indeed, that point is further illustrated, by looking at what capital does in relation to such a situation, in which capital has been accumulated to such an extent, relative to labour supply that such a crisis of overproduction of capital exists. The response is to introduce labour saving equipment, which thereby removes the constraint imposed by the given labour supply. And, it is this which then a) reduces the wages that had risen due to the shortage of labour, b) reduces the value of wage goods, and so necessary labour, and so, as a result of a and b increases the rate of surplus value, c) in the process, this technological revolution, brought about by the crisis of overproduction of capital, brings about a rise in the technical and, thereby, organic composition of capital, on the basis previously described. That is, it creates a relative surplus population because the same quantity of labour now processes a larger mass of raw materials. The increase in the quantity of circulating constant capital, raw materials, is greater than the fall in the unit value of materials, or put another way the rise in the technical composition is greater than the fall in the value composition of capital, resulting in a rise in the organic composition.

So, contrary to Green's assertion, it is the economic cycle which determines these changes in the rate of surplus value, and organic composition of capital, and which thereby determines the rate of profit, not vice versa. These changes resulting from technological developments, introduced in response to the crisis of overproduction of capital, are what creates the conditions for the Law of the Tendency for the Rate of Profit to Fall, as described by Marx. In other words, they are the response to crises, not the cause of them, as Roberts argues. Yet, as Marx stated, any such tendency is very small, and perceptible only over very long time periods, if at all, and so could not be the cause either of crises, or of the economic cycle itself. What these changes do bring about is a change in short-term profitability, by the means described, i.e. they reduce wages, increase the rate of surplus value, reduce the value of constant capital, and so bring about not a fall in the rate of profit, but an increase, the increase required to resolve the crisis of overproduction, and to create the conditions in which the basis of the new upswing is formed.

To understand the movement of the economic cycle, and the changes in profitability that arise at different points in that cycle, it is necessary to understand the underlying physical determinants of the long wave cycle, which bring about changes in productivity, the role of extensive as against intensive accumulation in bringing about the using up of labour supplies, and its effect on wage and profit shares. It is necessary to understand the consequence of this in inducing periods of more rapid technological development, which itself cannot take place overnight, so that both the lifespan of fixed capital, and the development of much larger elements of fixed capital stock, and infrastructure play a pivotal role. All of this analysis is far more complex and nuanced than is implied either by simplistic, monotheistic theories based upon a natural rate of interest or long-term tendency for the rate of profit to fall.

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