Summary
In an article in Weekly Worker, Michael Roberts has got overexcited in relation to data on The Law of the Tendency for the Rate of Profit to Fall, collated by him and his co-thinkers.
Roberts objects to the fact that many Marxists disagree with his catastrophist views, and his insistence that crises are caused by Marx's Law of the Tendency for the Rate of Profit to Fall.
Whatever, his excitement about data he claims shows such a fall in the global average annual rate of profit over a long period, doesn't change anything in respect of this disagreement in relation to its significance.
Roberts repeatedly fails to recognise that Marx's definition of The Law of the Tendency for the Rate of Profit to Fall, is significantly different to that of his predecessors, Smith, Ricardo and Malthus, whose explanations did, indeed, result in crises. For them, it was important, precisely because it led to these catastrophic conclusions, which Marx himself rejected.
For Marx, the law is important, because it is the basis of the average annual rate of profit, and prices of production, and consequently explains the allocation of capital to different spheres of the economy.
Marx's law is founded upon changes in the technical/organic composition of capital, whereas the theories set out by Smith, Ricardo and Malthus rest upon changes in the value composition of capital, and primarily a rise in wages that squeezes profits. The two are in fact, the opposite of each other. Marx's theory depends upon rising productivity caused by technological change, which causes wages to fall, and profits to rise. Yet, Roberts lumps the two together willy-nilly.
Marx's explanation of a crisis of overproduction of capital, does rest upon conditions such as those described by Smith, in particular, in which as a result of an expansion of capital, at a faster pace than the social working-day, it is not possible to expand absolute surplus value, and as the demand for labour pushes up wages, so relative surplus value is also reduced. Its in response to such crises that capital responds by introducing technological improvements that replace labour, so causing wages to fall and profits to rise. Those conditions, required for the Law of the Tendency for the Rate of Profit to Fall, are a consequence of crises, not a cause of them, as Roberts contends.
This also explains the cyclical nature of crises. Having introduced new labour-saving technologies, capital goes through a whole period in which it simply rolls out more of this same technology, having eventually replaced all of the previous technology (intensive accumulation gives way to extensive accumulation). The rise in productivity inevitably slows, and as output now expands, more and more labour must be employed, until eventually, the conditions exist, once more, in which labour is in relative short supply, wages rise, profits are squeezed, and so capital is overproduced, relative to labour supply. A new technological revolution is required, which itself takes time to undertake, and for the new technology to be introduced, to replace the existing technology.
New technology also creates a moral depreciation of existing technology, which again leads to a rising rate of profit. It reduces the value of raw materials, with the same effect, but, as economies enter new periods of prosperity, the higher productivity causes the demand for materials to expand faster than existing supply can match, leading to sharply rising material prices, until such time that investment in new sources of supply reduces those prices once more. Sharply rising material prices, and physical shortages cause disruptions to the circuit of capital, which can lead to crises.
In periods of intensive accumulation, where new technologies are still replacing existing technologies, gross output grows more slowly than net output, which is manifest in rising profits relative to output, which is the real basis of falling interest rates during such periods. Falling interest rates lead to rising asset prices, which leads to speculation in these assets. It is the basis of bubbles, and subsequent financial crises such as that of 2008.
Roberts accepts the Ricardian argument that investment is a function of the rate of profit, so that, if the rate of profit falls, then investment will also subsequently fall. Marx makes clear that is not true. In times of expanding markets, each capital seeks to obtain its share of this expanding market, and invests accordingly. In times of squeezed profits, and tighter markets, each capital is driven even more by competition to produce at its maximum possible limit to obtain benefits of division of labour and economies of scale to undercut its competitors. The minimum efficient size of capital is then driven up, and, also capitals are driven into taking over their competitors to achieve greater size.
In failing to distinguish between a fall in the rate of profit resulting from a change in the value composition, as against the long-term tendency for the rate of profit to fall as a result of increases in the technical/organic composition of capital, Roberts fails to distinguish how the former can cause the rate of profit to fall in some periods, with consequent crises, whilst it rises in others, as a change in the value composition in the opposite direction occurs, due to the effects of rising social productivity, and a change in the technical/organic composition of capital.
Roberts accepts the basis of Say's Law that supply creates its own demand, which is based on Smith's absurd dogma that the value of total output resolves entirely into revenues. That means that he omits the value of constant capital from the calculation of total output, as does the GDP and national income data, which means his calculation of the rate of profit is necessarily wrong.
Roberts' calculation of the rate of profit is essentially a measurement of changes in the rate of surplus value, not the rate of profit, but modified by the inclusion of the fixed capital stock, but valued on the basis of historic prices, not current reproduction costs. Because the technological revolution required as the basis of the Law of the Tendency for the Rate of Profit to Fall itself brings about a huge moral depreciation of the fixed capital stock, calculating the rate of profit on the basis of historic prices, systematically and massively understates the actual rise in the rate of profit it induces.
Marx noted that the fall in the rate of profit described in his Law is very small and only detectable over long periods of time, and is not, therefore, a credible cause of crises. It depends on the quantity of materials processed increasing at a faster pace than the corresponding fall in the unit value of materials, as a result of rising productivity. But changes in the nature of production means this is no longer the case, and the shift from manufacturing, to service industry, which does not process materials, makes it redundant.
The facts, even as presented in Roberts' data, contradict his thesis. For example, the rate of profit is shown as falling at a faster pace in the period 1960-1980, than in the period 1980-2019, and is shown as an actual rise in the rate of profit between 1985-96. Yet, the period 1960-1980 was not a period of rapid technological change in production, whilst 1985-1996 was! If Roberts' thesis were correct, then the rapid technological change would have led to a faster rate of fall in the rate of profit, resulting from the Law of the Tendency for the Rate of Profit to Fall!
The actual cause of a falling rate of profit between 1960-1980 was rising wage share, not The Law of the Tendency for the Rate of Profit to Fall, just as the reason the rate of profit rose between 1985-96, was rising productivity, and a fall in wage share/rise in profit share, as well as falls in the value of constant capital.
By failing to analyse correctly the changes in profits resulting from these different causes, Roberts essentially abandons Marx's theory and reverts to the catastrophist theories of Smith, Ricardo and Malthus. That has led him to repeatedly forecast that a recession is at hand, which year after year failed to materialise. Latterly, on the basis of the collapse in profits attendant upon the implementation of lockdowns and lockouts he predicted a “post-pandemic slump”, when, in fact, what was seen, as soon as restrictions were even lifted temporarily, was a massive surge in economic activity.
Similarly, his analysis has led him to fail to understand the basis upon which interest rates fell during the 1980's and 90's, as profits rose sharply, and net output grew at a faster pace than gross output. So, he also failed to understand the consequence of that in relation to the serial bubbles in asset prices – even though he has noted the existence of those bubbles – given the dependence of the ruling class on those high asset prices.
So he cannot understand why the state is led to hold back economic growth, so as to protect the interests of the ruling class by keeping asset prices high, by holding back employment and wage growth, and holding back the demand for money-capital, which would cause interest rates to rise, and asset prices to crash.
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