Michael Roberts' Fundamental Errors, V - The Tendency For The Rate of Profit To Fall Is Not The Cause of Crises - Part 8 of 8

The logic of Roberts position, is indeed, catastrophist and implies that we should see a permanent state of crisis. Anyone who has read his blog – with the telling URL “thenextrecession” - will indeed, be familiar with his perennial claims that this “next recession” is at hand, always, when it fails to materialise, as with the predictions of the Endtimers, with their sandwich boards around Hyde Park Corner, to be simply rolled forward to the next year. It was seen in his prediction a few years ago, about the inevitability of a “post-Covid Slump”, resulting from the fall in the rate of profit, just as the ending of lockdowns led to a massive boom.

The reality is that, Marx, nowhere attributes the crisis of overproduction of capital to the tendential law. In Theories of Surplus Value, he sets out that the overproduction of commodities is most clearly associated with periods not of falling rates of profit, but of rising rates and masses of profit, which stimulates investment to meet the needs of a rapidly expanding market, but, which, then, expands that production even faster than the market demand. Again, I've set out, Marx's explanation shows why this has a number of different aspects, such as disproportions arising in the expansion of supply in one sphere, relative to that in another. Marx also, notes, that, similarly, higher profits mean at least a relatively smaller proportion of the total social product consumed by workers, leaving a larger proportion of surplus product. The Ricardian author of the “Inquiry” says,

“... and if it be said that this, by diminishing consumption, increases glut, I can only answer, that glut […] is synonymous with high profits…” (op. cit., p. 59).”

Marx responds,

“This is indeed the secret basis of glut.”

(Theories of Surplus Value, Chapter 20)

That is the condition in periods of stagnation such as the 1870's/80's, and 1920's/30's, and 1980's/90's, but it also continues into the subsequent periods of prosperity and boom, as real wages expand, whilst relative wages fall, as in the period of the 1950's, for example. This cannot be described as a crisis of overproduction of capital during such periods, as the rate and mass of profit rises, often significantly. This rapidly increased mass of profit, such as in the 1930's, and 1980's, cannot be applied to accumulate capital, for various reasons that I have described in my book, and elsewhere. For example, these periods are associated with new technological revolutions whose aim is to resolve the problems of a previous, actual overproduction of capital, and squeeze on profits arising from labour shortages, and rising wages. So, not only are workers laid off, as a result of these machines replacing them, in a period of intensive accumulation, but even as the economy expands, any given increase in output can be accomplished with relatively fewer workers.

The amount of labour employed, thereby falls relative to output, i.e. the conditions described by Marx as leading to the long run tendency for the rate of profit to fall, which comes about not as the cause of the crisis, but as part of the means of its resolution! What does this long-run tendency mean, then, given that such a period is characterised not by a fall in the rate of profit, but a significant rise? It means only, if anything at all, that taking one long wave cycle as against another, the average rate of profit, over the cycle, will tend to fall. It most certainly does not mean that the rate of profit falls, and, thereby, causes the crisis. The crisis is caused by a shortage of labour, rising wages and, thereby squeezed profits – a fall in the rate of surplus value. It is resolved by a technological revolution that replaces labour, raises productivity, lowers wages, and the value of constant capital, increasing the rate of surplus value, and rate of profit.

As the workforce grows more slowly, during such a period, therefore, the demand for wage goods grows more slowly, with a consequent effect on aggregate demand. There is no point in accumulating additional capital, if there is no demand for any great increase in the supply of consumer goods. This was the condition recognised by Sismondi, as Marx notes, in Theories of Surplus Value, Chapter 9, and was subsequently plagiarised by Malthus, and forms the basis of the under-consumptionist theory of Keynes a century later. The excess supply of realised profits, brings about a fall in the rate of interest, as described by Marx in Capital III, Chapter 30. This fall in the rate of interest creates a rise in asset prices that also encourages financial speculation, and bubbles, as seen in the 1980's.

That is, the, the basis of subsequent financial, as against economic crises, such as the global financial crisis of 2008. But, that, as they, say, is another story.

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