The Law of the Tendency for the Rate of Profit to Fall, which states that the annual rate of profit falls as the technical/organic composition of capital rises, is, indeed, important for capital and political economy, because it is this fact which leads to the formation of an average annual rate of profit, and prices of production. As a consequence, it is the determinant of the allocation of capital to different spheres of the economy. But, it is in this context of an allocation of capital to different spheres, not to the accumulation of capital in general, where its importance resides.
Capital moves to where the technical/organic composition of capital is low (though as Marx describes, this is not the only factor, because the rate of turnover of capital also determines the annual rate of profit), and so, where the annual rate of profit is highest. The faster accumulation of capital in these spheres increases supply of those commodities, relative to demand, and so causes their market prices to fall, until they reach the price of production, at which point only average profits are being made.
But, nowhere does Marx attribute the role to The Law of the Tendency for the Rate of Profit to Fall that Roberts claims. Quite the opposite. In Theories of Surplus Value, Chapter 17, where Marx sets out his theory of crises, he explains the basis of crises of overproduction of commodities as residing in the fallacy of Say's Law, and the separation of production and consumption. As described recently, Roberts, makes the same mistake as Say, which has its basis in Adam Smith's absurd dogma that the value of commodities resolves entirely into revenues. Roberts stated,
“The demand for goods and services in a capitalist economy depends on the new value created by labour and appropriated by capital. Capital appropriates surplus value by exploiting labour-power and buys capital goods with that surplus value. Labour gets wages and buys necessities with those wages. Thus it is wages plus profits that determine demand (investment and consumption)”,
which is simply Say's Law as amended by Keynes to account for savings and net investment. In doing so, it also accepts Smith's absurd dogma, and because, as Marx describes, that means that the element of constant capital in total output is omitted in national accounts, because GDP is equal only to revenues, i.e. new value created by labour during the year. GDP is equal only to the value of output of Department II, as set out in Marx's schemas of reproduction in Capital II, Chapter 20, which means that Roberts misses out of his calculations entirely the value of Department I output, which as Marx describes, if The Law of The Tendency For The Rate of Profit to Fall is correct, must continually increase relative to Department II! That in itself calls into question the rate of profit calculated by Roberts and his associates, which starts from that very GDP data!!
For example, Roberts states,
“A medium run decomposition analysis reveals that the decline in the world profit rate is driven by a decline in the output-capital ratio.”
But, as I have set out in my series on Adam Smith's absurd dogma, that the value of total output/GDP resolves entirely into revenues, a proposition, as seen in Roberts statement above, he subscribes to, i.e. the value of all output is equal only to the value of all revenues, that is clearly false, because such calculations of output, as Marx describes, miss out all of the value of existing constant capital that is simply transferred to the value of current production, and is replaced out of it on a “like for like basis”. The demand for it does not at all come from revenues, either from wages or profits (or its derivatives, rent, interest and taxes), but from capital itself!
The GDP data, as Marx describes, contains no element of the value of constant capital. The element of “intermediate production” that is frequently cited as representing the consumed constant capital, is nothing of the kind, as Marx sets out, as it is equal only to the revenues of Department I. Yet, if The Law of the Tendency for the Rate of Profit to Fall is valid, the proportion of existing constant capital simply transferred to final output, must itself continually grow relative to the new value created during the year, and represented as GDP/National Income! So, if Roberts and his associates get wrong that basic Marxist analysis of reproduction, and the value of total output, they cannot possibly get right the rate of profit or changes in it!
In essence, their methodology, by focusing on only GDP/ revenues, calculates the rate of surplus value, rather than rate of profit, and modifies it in a bastardised manner, by including the fixed capital stock, but measured at historic prices, rather than current reproduction costs, which, by definition, omits the massive moral depreciation of that fixed capital stock resulting from the technological revolution that brings about the change in the technical/organic composition of capital that is the basis of The Law of the Tendency for the Rate of Profit to Fall! It also fails to deal with the fall in the value of the circulating capital resulting from increases in productivity, not to mention the rise in the rate of turnover of capital brought about by such changes, which, in itself, leads to a rise in the annual rate of profit.
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