Inflation Stays High, Rates of Profit and Interest Rise, Wages Rise

Across the globe, as I predicted at Christmas, inflation remains high. Again, as predicted, there is no sign of the recession that the speculators and catastrophists have clamoured for. Real wages have fallen, as pay increases have usually failed to match price rises, but not by as much as the speculators and catastrophists were predicting, as labour shortages made up for the weak-kneed response of union bureaucrats, and consequently the rate of surplus value, and rate of profit rose. But, that continued economic growth – not reflected in GDP – meant more labour employed, more new value and surplus value produced, so that total wages to households rose, facilitating continued and strengthening demand for wage goods, at the same time that, even without the rise in the rate of surplus value, total surplus value/profit also rose.

Last week, US headline inflation came in at 4%, down from 4.9%, the previous month, and down from 9.1% in June last year. That is significant progress but still leaves US headline inflation at double the Fed's target of 2%. Moreover, this figure is not really a good index of what is really going on. Inflation is a monetary phenomena, resulting from excess liquidity in the economy, as Marx describes in A Contribution To The Critique of Political Economy, and elsewhere. Money, and later the standard of prices, acts as an indirect measure of the value of commodities. However, when it comes to the price of any individual commodity, it may move up or down, not only because of changes in the value of the standard of prices, but also because of changes in its own value, or simply because of changes in the current level of demand and supply.

Inflation indices, produced by states, measure changes in the market prices of a range of goods and services, prices which change for these variety of reasons. Some goods and services may see a sharp rise in their market price, if demand for them rises, but supply is unable to respond quickly to that demand. That was seen as lockdowns were lifted. Similarly, market prices for some commodities may rise, because the supply of them is reduced, or the cost of supply, at the same level, rises. That is what happened when NATO and its allies introduced their boycott of Russian oil, gas and food supplies, reducing global supplies of all those commodities, and raising the costs of that supply. These are not measures of, or indications of inflation, but merely changes in the value/cost of production, or market price of individual goods and services.

Generally, because social productivity rises, overall, by around 2% a year, the unit value of goods and services falls, in aggregate by that amount. That unit prices of goods and services, in aggregate, do not fall by 2%, per annum, but rather, for a long period, rose by around 2% per annum, is indication of that actual inflation, i.e. that excess liquidity was produced, reducing the value of money tokens/standard of prices/currency, by around 4% per annum. In fact, as I have set out in numerous previous posts, the amount of inflation, excess liquidity, from the 1980's onwards, was much greater than that 4%, but, for 40 years, a large part of it was not only soaked up, but deliberately directed into the purchase of speculative assets, in order to massively inflate their prices, such as the 1300% rise in the Dow Jones between 1980 and 2000, whilst US GDP rose by only 250%, during the same period. Another factor is that the technological revolution of the 1970's/80's brought a much greater rise in social productivity/fall in unit values than the long-term average 2% per annum figure.

The headline rate of “inflation”, therefore, is not actually a measure of inflation, but of the changes in the market prices of these selected baskets of goods and services. Different baskets produce different figures, just as the manifestation of actual inflation, can result in huge rises in asset prices – shares, bonds, property – alongside, modest rises, or even falls in the prices of goods and services. That has significant consequences. Over the last 40 years, if you were thinking of buying a house, for example, and saw house prices rising by 20% a year, or more, that gave you a strong incentive to buy a house as soon as possible, even if mortgage rates were high. With mortgage rates, during much of that period, falling, and getting close to zero, that gave an even greater incentive to do so, which is why that spiral of demand for property, as well as other assets whose prices were rising, was set in place.

During that period, talking to someone about the headline rate of inflation of 2%, if they were thinking of buying a house, was pretty irrelevant. The “inflation” they were interested in was this inflation of property prices, and, if they were looking to the need to provide for a pension and so on, the similar rapid inflation of the prices of shares, bonds and so on. If you had $1,000, in 1980, to spend buying US shares, that $1,000 was worth 13 times more in 1980 than it was worth in 2000, i.e. in 2000, it would buy you only a thirteenth of the number of shares it bought in 1980.

Today, that situation is reversed, which is why those lured into that Ponzi Scheme of ever inflating property and asset prices are feeling betrayed, and screaming about it, as are the speculators, and the conservative social-democrats, who built their entire world view on the idea that, instead of growing the real economy, and producing new value and surplus value, it was simply possible to get rich by inflating asset prices, producing capital gains, which could, then, be turned into revenue. In other words, asset stripping, the equivalent of the farmer that consumes his seed corn, rather than planting it, to produce more corn.

Today, we have the prices of consumer goods and services rising rapidly, and nominal interest rates rising – though in most cases they remain below the level of inflation – whilst the one set of prices that are not rising, and in many cases falling, is asset prices. In the UK, house prices are forecast to fall by around 30%. So, again, the headline rate of inflation is pretty meaningless if what you are actually interested in, currently, is the price of houses. If you are thinking about buying a house, the fact that your wages have risen by an average of 7%, then, puts you in a much better position to buy those cheaper houses. If you have savings in the bank, then a 30% fall in house prices, makes that money 30% more valuable than it was, whatever, happens to consumer price inflation.

Of course, if you have a house, and have benefited from that Ponzi Scheme, and artificial inflation of asset prices, over the last 40 years, things may not look so good. You may, now, see, your monthly mortgage payments doubling or trebling, or more – the long-term average mortgage rate is 7%, and we are still a long way from that – whilst, the market price of your house could be about to drop by 30% or more, as happened in 1990. If you are a buy to let landlord, that is multiplied by however many houses you own, and which, now, may present you with large amounts of negative equity, with at least some of your tenants looking at houses that are 30% cheaper, and deciding its a good time to buy, and so reducing your ability to raise rents to cover your higher costs. There seems to have been a rush of such landlords seeking to dispose of property, putting further immediate downward pressure on house prices.

If we look at US core inflation, then, this illustrates the point, because, in fact, it is now higher than the headline rate, after months of being below it, as these specific factors for individual goods and services, in the general basket moved their prices higher by larger amounts. One obvious factor, there, was the price of energy, which rose sharply even for the US, as a result of NATO's/EU's boycott of Russian oil and gas. In part, that was offset by Biden's use of the Strategic Petroleum Reserve, and those of other NATO allies. Again that gives a distorted picture, because those reserves were run down, and the other reserves built up by the EU ahead of Winter, meant that additional purchases were not required, putting downward pressure on global prices, as we now have entered the Spring and Summer. However, not only must stocks be rebuilt ready for next Winter, but also, those Strategic Reserves, must be rebuilt, having been run down to dangerously low levels. All of that at a time, when China, India and other economies are demanding more oil and gas, meaning that come the Autumn, those prices are likely to rise sharply, unless the current boycotts on Russian oil and gas are lifted.

US Core inflation, rose by 5.3% year on year, and the month on month figure rose by 0.4% the same as in the previous two months, indicating little change in core inflation in coming months. Core Inflation is little changed from the 5.9% it was at in June last year. At the same time, the US continues to produce more new jobs at a faster pace than the speculators have hoped for. Despite continual predictions by speculators and pundits that the economy was going to go into recession, and that unemployment was going to rise, as fewer newer jobs are created, the non-farm payrolls increased, last month by 339,000, significantly above the estimates, and the biggest rise since January. And, whilst the number of weekly initial jobless claims has ticked up to 256,000, on the four-week moving average, that is only half the kind of figure of around 400,000 traditionally seen during periods when the economy is going into recession. In fact, on a seasonally adjusted basis, the weekly figure actually fell.

It is labour that produces new value, and surplus value, and this increase in the amount of labour employed in the US and across the globe is the basis of the increased value and surplus value being produced, whatever the GDP figures suggest. As I have set out before, the GDP figures, measuring revenues are deceptive, because with inflation, a part of the surplus value produced is absorbed to replace the existing capital that has been consumed, i.e. a tie-up of capital. It is partially offset, because wages have not risen in line with prices. But, firms have been able to increase profit margins/rate of profit, even if, listening to some of the petty-bourgeois/small capitalists getting squeezed, that may not seem to be the case.

US profits are currently accounted for around 9% of US GDP, the highest percentage in a century. 

That figure is almost double what it has been, on average, in the period between 1965-1985. It began to rise in the mid 80's, before falling in 2000, following the Tech Wreck, and 9/11, before rising again, and then dropping in 2008/9 as a result of the GFC. But, in short, it has been on an upward trend since 1985. A look at profit margins also shows a similar upward trend, but with more short-term volatility.

Again, despite the predictions of recession, therefore, the US economy saw GDP rise by 1.3% in the first quarter, and that figure was pulled lower by the increase in private inventories, which deducted 2.1 percentage points. The Federal Reserve is forecasting only 1% GDP growth for the year, meaning that it would have to drop to only around 0.5% in the second half of the year. That looks unlikely, as employment and demand continues to rise. In fact, the figure for the second half is more likely to be around 2%.

In the UK the picture is the same, but worse. Headline CPI remained at 8.7%, as in the previous month, but core inflation rose to 7.1%, from 6.8%. It confirms a rapidly rising trend since January, when it stood at 5.8%. The 7.1% figure is the highest for 31 years. Britain is suffering not only from the inflation caused by the years of excess liquidity pumped into the system to push up asset prices, and the excess liquidity pumped into circulation during lockdowns, but also from the same rising costs of energy and so on that the US suffered, as a result of the boycott of Russian oil and gas, but also from the effects of its idiotic decision to go for Brexit, massively increasing its costs of trading with its main trading partner the EU, as well as introducing huge frictions into its labour market at a time of large and growing labour shortages.

As with the US, those labour shortages are a result of continued economic growth, despite all of these frictions and additional costs imposed on the economy. As with the US, wages have not risen in line with headline prices, but average wages are rising by 7.2%, slightly ahead of the 7.1% rise in core prices. More importantly, as I have set out previously, the increase in the number of people employed, the fact that people are moving to better, higher paid jobs, means that incomes going into households are increasing at a faster pace than the individual wage data suggests. Consumer spending has, then, continued to increase, and yet, savings have also increased. Household Debt to GDP has fallen from 92.5% in February 2021, to 83.5% last month. The household savings rate which spiked to 22% during lockdowns, as households could not spend, and which dropped to 6.5% in January 2022, rose to 9.4% in January 2023, on a steadily upward trend.

Inflation globally has fallen, because central banks have attempted to reduce some of the excess liquidity they have injected into the global economy. The means of doing so is not the widely publicised rises in central bank policy rates of interest, but the introduction of QT, to reverse all of the QE undertaken. The annual rise in productivity and output, itself absorbs excess liquidity, provided it is not added to. Moreover, some of the “inflation” is actually just a result of changes in the prices of some goods and services, not actually inflation. That is why the changes in core prices have not seen the same kinds of movement, or, as in the case of UK core prices, have actually risen. The US, has been undertaking QT for many months, and it takes around 2 years for changes in liquidity to impact prices. The collapse of several US banks meant that the Federal Reserve was led to provide additional liquidity, but that seems, for now, to have subsided, though as interest rates continue to rise, its likely that other banks and financial institutions whose balance sheets are a fiction based upon grossly inflated asset prices, will also be exposed.

The same thing affected Credit Suisse, and was exposed in Britain, during the short premiership of Truss, as bond yields spiked, and pension funds were in danger of going bust. That again led to both the ECB and Bank of England, injecting additional liquidity, in opposition to its own intended policy of QT. A big factor, in the falls in “inflation” that have occurred, as stated earlier, is the fall in energy prices, as a combination of a mild Autumn and Winter, the use of stocks and reserves, led to reduced demand and lower prices over recent months. But, as also set out earlier, those stocks now need to be rebuilt, as demand rises into the Autumn and Winter, and does so whilst a growing global economy, will see rising demand. Yet, NATO/EU's boycott of Russian oil and gas is still in place, meaning that energy prices are likely to rise, unless an ever milder Winter comes to their rescue.

Those lower energy prices have meant that firms were able to sustain higher profit margins, and central banks did not need to inject additional liquidity to enable firms to raise prices. The fact that wage rises have also not kept pace with price rises, meant that profit margins were able to rise, and so reduced pressure on central banks to increase liquidity to enable firms to recover the higher cost of wages, and a consequent squeeze on profits. But, as labour shortages continue to increase, wages will inevitably rise, as firms compete for that available labour. The union bureaucrats have been particularly useless, tailing a long way behind their members. Whilst the average pay rise is running at 7%, the average increase in pay from simply changing jobs is running at 14%! And, before long, union members are going to get fed up of the prospect of ineffective one day strikes dragging on into the indefinite future, and will begin taking wildcat action, throwing up more militant and adventurous leaders, and moving to effective all-out strikes for higher pay. At that point, central banks will return to increasing liquidity, to enable firms to raise prices, to protect profits, and inflation rates will move into a second wave of rises.

As set out in previous posts, the increase in central bank policy rates of interest is not intended to tighten liquidity, and so reduce inflation. It is intended to encourage households and businesses to save rather than spend, and to slow the economy, even into recession, so as to increase unemployment, and so, hold back this growth in wages, and squeeze on profits. But, it cannot work, at these levels of nominal interest rates, because they remain below current levels of inflation. If households and businesses think those levels of inflation are only transitory, as central banks claimed for more than a year, then that may not matter. If they think inflation is going to fall to 2%, or even 3%, a nominal interest rate of 5%, will appear to them as a real rate of 2%. But, US core prices are still rising at 5.3%, meaning a US rate of 5% is still negative in real terms. In the UK, with core inflation at 7.2%, even the current rise of UK interest rates to 5% means that, in real terms they are – 2.2%.

So, rather than being an incentive for households to save rather than spend, they continue to be an incentive to spend rather than save, at least in relation to durable consumer goods, holidays and so on. The only area of spending in which they are an incentive to save rather than spend is in relation to assets. If you are thinking of buying a house, or moving to a better house, there is a strong incentive to save, if, as expected, house prices fall by 30%. Similarly, if you were putting money into a pension fund, or some kind of mutual fund, there is an incentive to put the money into the bank or money fund, because a sharp fall in the prices of shares and bonds, will mean that your money will buy much more of them following that crash.

And that sums up the problem faced by central banks and conservative social-democratic governments, as described in previous posts. That is the R* rate is much higher than the R** rate. For central banks to raise interest rates to a level that causes households to stop spending on consumer goods, or even borrowing to finance consumer durables, holidays etc., requires those rates to rise much higher, so that they are above current, and expected levels of inflation. But, already, the current levels of interest rates are causing asset prices to come under pressure, particularly in the property market. In short, they are likely to cause asset prices to crash long before they could cause the economy to go into the kind of recession the speculators are demanding to push down wages.

Michael Roberts Gets Overexcited By The Rate of Profit - Part 10 of 10

But, if we look at Roberts' conclusions from his thesis in more recent events, it becomes even more ludicrous. He says,

“Since then (2008), the world rate of profit has stagnated and was near its all-time low in 2019, before the global pandemic slump of 2020. Each post-war global slump has revived profitability, but not for long.”

Firstly, if The Law of the Tendency for the Rate of Profit to Fall is the driver of capital accumulation and crises, then shouldn't we assume on the basis that the world rate of profit is 25% lower than it was 80 years ago that capital accumulation should be lower today than it was 80 years ago, indeed that we should be in a state of permanent crisis, as capital refuses to invest? Roberts, of course, comes pretty close to such catastrophist conclusions in that he has been predicting a recession every year for the last ten years at least, recessions which never came. He had reveled in the recession in 2020, as confirming his prediction that had been looking more and more like a stopped clock, but, of course, that recession had nothing to do with his analysis, and prediction of recession based upon the operation of The Law of the Tendency for the Rate of Profit to Fall, but was artificially induced as a result of the crazy policy of lockdowns and lockouts that governments across the globe implemented, lockdowns and lockouts that Roberts himself, of course, fully endorsed and encouraged!

On the back of the fall in profits that these lockdowns and lockouts caused, Roberts, again concluded, in line with his thesis,  that this would inevitably result in a post pandemic slump  and repeated it again the following year, but, he was again proved completely wrong. Far from there being any such slump, as soon as restrictions were even slightly lifted, consumer demand soared, and firms responded accordingly, by scrambling to get their share of the increased market, similarly scrambling to accumulate additional capital, and employ additional workers to do so, leading not only to a surge in capital accumulation, output and employment, but also, given the oceans of liquidity sloshing around global economies, a surge in inflation too – indeed that was also a consequence that Roberts failed to predict, as he put forward a basically Keynesian theory of inflation, as against Marx's analysis of inflation as a monetary phenomena.

The only reason that this surge in economic growth was reined back in 2021, was not the effects of The Law of the Tendency for the Rate of Profit to Fall, but was again the actions of governments that reintroduced lock-downs and lockouts, supposedly in response to new variants of COVID, but almost certainly, really, because, as they saw economies and inflation surging, it also saw interest rates rising, with a consequent threat to the asset prices that today form the sole form of wealth of the ruling class. Roberts seems unaware that, in Theories of Surplus Value, Part 1 and 2, Marx devotes more than a dozen chapters to analysing changes in the rate of profit caused by changes in the value composition, rather than the technical/organic composition of capital. By lumping together falls in the rate of profit caused by changes in the value composition, as against the technical/organic composition, Roberts effectively abandons Marx's Law of the Tendency for the Rate of Profit to Fall and returns to the catastrophist theories of falling profits put forward by Smith, Malthus and Ricardo.

Because, he fails to make this distinction, leading to the same erroneous catastrophist conclusions as Marx's predecessors, Roberts also fails to understand what has actually been happening in the real world, and its implications in relation to interest rates, asset prices, inflation and so on, all of which he has again failed to analyse correctly. In the 1980's, and 90's, it was not just the rise in the annual rate of surplus value, created by sharply rising productivity, that led to the rise in the average annual rate of profit. As Marx describes, the technological revolutions that capital is induced to carry out, to resolve crises of overproduction of capital, also brings about a huge moral depreciation of fixed capital, which also raises the average annual rate of profit. It also creates a large release of capital, which is now available for accumulation or consumption, or, as happened in the 1980's, is thrown into money markets, causing interest rates to fall, and subsequently into speculation and gambling in asset markets, as the soaring prices of those assets create huge capital gains.

It was this latter fact that leads the ruling class, which now owns its wealth in the form of these assets, to seek its revenues from realising these capital gains, rather than from actual revenues in the form of interest/dividends and rent. Indeed, as asset prices rose faster than the actual revenues from those assets, the yield on those assets continually fell, so that, today, we have the ludicrous condition in which, across the globe, there are negative nominal yields on literally trillions of dollars of bonds. Any increase in interest rates causes asset prices to crash, a condition, which the ruling class cannot allow given that any such fall not only massively reduces its paper wealth, but also hugely diminishes its potential to obtain revenues from realising capital gains. And, that is the reason that every time economic activity has picked up, over the last 30 years, to a level whereby interest rates started to rise, the state has had to intervene both to print additional money tokens with which to buy up paper assets, but also to try to restrict economic growth, both to restrict the growth in employment that would lead to rising wages and a squeeze on profits, but also to limit the demand for money-capital for investment, which would cause the capitalised value of revenues on assets to crash.

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Michael Roberts Gets Overexcited By The Rate of Profit - Part 9 of 10

If Roberts thesis were correct then the fall in the rate of profit, resulting from The Law of the Tendency for the Rate of Profit to Fall should have been smaller in the period 1960-1980, when new technological developments played a small role, than it was in the period 1980-2019, which was a period of rapid technological development, including not just the introduction of the microchip, personal computers, the Internet and so on, but associated developments in a range of areas from bio-sciences to space technology. Yet, Roberts on the basis of his own data, arrives at the opposite conclusion, thereby, falsifying his own thesis! That is even before we consider whether the rate of profit actually did fall during the 1980's and 90's or not, or whether its valid to take a 20 year period from 1960-1980, and compare it with a 40 year period from 1980 to 2019!

But, what is also significant is whether the conclusions that Roberts draws from his thesis are useful also, because, there is little point in identifying that “there has been a secular decline in the world rate of profit over the last 80 years of -25%”, unless this has some practical relevance for analysis. Roberts states,

“So Marx’s law is emphatically vindicated empirically at a world level... starting with the huge profitability crisis from 1966, leading to the major global slump of 1980-82. That was followed by the so-called ‘neoliberal’ revival in profitability up to 1996 (+11%).”

But, as stated above, he fails to analyse whether the fall in the rate of profit during these different periods was a consequence of The Law of the Tendency for the Rate of Profit to Fall, or a change in the value composition of capital, which is a fundamental requirement for a Marxist analysis, such as that undertaken by Marx in Theories of Surplus Value. Indeed, if we use Roberts argument, then what are we to conclude from the fact that, on this data, the rate of profit rose between 1982-96? We would have to conclude that during this 14 year period the technical/organic composition of capital actually fell, i.e. that it fell during one of the most dynamic periods of technological innovation seen in modern times, when we saw the microchip used as the basis of technologies that brought massive changes in production and productivity, from the car industry to the printing industry and beyond!!! Roberts' thesis does not stand up to even the most basic comparison against observable reality.

His conclusions, however, are fully consistent with Marx's observation of Ricardo's calculations of the rate of profit, which were, like Roberts', based upon an acceptance of Say's Law, and Smith's absurd dogma that the value of total output resolves completely into revenues. That is it is a measurement of the rate of surplus value, not the rate of profit. In the 1960's and 70's wage share rose, and the profit share was squeezed, as the rate of surplus value fell. In the 1980's and 90's, as new technologies were introduced, a relative surplus population was created, and the value of labour-power fell, causing wage share to fall, and profit share to rise. The rate of surplus value rose, and as productivity rose, causing the rate of turnover to rise, the annual rate of surplus value rose even more.

Back  To Part 8

Forward To Part 10

Michael Roberts Gets Overexcited By The Rate of Profit - Part 8 of 10

In his WW article, Roberts compares his opponents to climate deniers, but its clear, on this basis, that Roberts would have to put Marx in that same camp! He and his associates have gone to a lot of trouble to prove that the rate of profit has been falling over time, and he has got overexcited about convincing himself about it, because, for him, it is this tendency that explains crises. But, for those of us who, like Marx, do not see that tendency as being the cause of crises there is no reason for excitement at all. If we look at Roberts' conclusion, taken from Basu's data,

“The country-aggregated world profit rate series displays a strong negative linear trend for the period 1960-1980 and a weaker negative linear trend from 1980 to 2019”,

there are a number of things that clearly stand out. Firstly, it suggests that even after 1980, when most economists, and most of the information we have indicates that the rate of profit was rising, Roberts wants to still claim that it was falling, just not at the same rate as earlier. He doesn't seem to consider the possibility that given that his and his associates' estimate of the rate of profit is so at variance with that of everyone else, and with observed reality – for example the secular decline in interest rates over that period, which was the concomitant of a sharply rising rate of profit – it might be due to his methodology in calculating that rate being wrong!

Secondly, he fails to distinguish whether the cause of the rate of profit falling, during these different periods, is a result of a change in the value composition of capital, or a change in the technical/organic composition, and the reason this is important has been stated, that whilst the former can be identified with crises of overproduction of capital, the latter results from the actions taken by capital to resolve such crises. But, it is only the rise in the technical/organic composition that is the basis of Marx's Law of the Tendency for the Rate of Profit to Fall. The data on the fall in the rate of profit in the period between 1960 – 1980 is fairly extensive, and conclusive. As Glyn and Sutcliffe and others demonstrated, it fell as a result of a change in the value composition of capital, and particularly, a rise in wage share that squeezed profits, not as a result of a change in the technical/organic composition of capital. I have set out that in my previous posts, for example -

Its Not Inflation Driving Interest Rates Higher (9/10) - Rising Wage Share and Rising Profits.

If we look at what we know about that period, it is fairly obvious. Following the period of crises of overproduction of capital in the 1910's, and 20's, capital engaged in a new round of technological development. It developed the assembly line as a basis of continuous production, and other elements of Fordism and Taylorism; it replaced steam-power with electric power in the workplace, and the internal combustion engine on the land and on the highways; it developed petrochemicals and other synthetic products that replaced natural fertilisers and raw materials and so on.

The peak of this innovation came around 1935, and in the period after that, these new technologies began to replace the existing fixed capital. But, in the period after the war, basically these same technologies, with only minor improvements, to them were simply rolled out on a more extensive scale. Even with the introduction of married women into the workforce, the bringing in of large numbers of migrant workers, and the effects of the baby boom in raising population, by the 1960's, the labour force was not growing as fast as the demand for labour was rising. In Britain, the unemployment rate fell to just 1%. It was this that led to rising wages and a squeeze on profits, not The Law of the Tendency for the Rate of Profit to Fall.

The period between 1960-1980 was not a period of a vast increase in new technologies being introduced to production – though the new technologies did form the basis of a new range of consumer products that became available in the 1950's and after – yet that is a basic requirement for The Law of the Tendency for the Rate of Profit to Fall to operate. The period when new technologies were developed, and introduced, was precisely in the late 1970's, and into the 1980's, when capital again responded to the rise in wages and squeeze on profits, by developing new labour saving equipment, so as to create a relative surplus population, and, thereby, reduce wages, and the value of labour-power. The peak of that Innovation Cycle came in 1985. It is in the 1980's that we see the development of the microchip, and its introduction into a wide range of applications in production, as well as the development of everything else that went with it, in terms of development of telecommunications and so on, that became increasingly important, as service industry rose in importance as against the old manufacturing industries.

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Forward To Part 9

Michael Roberts Gets Overexcited By The Rate of Profit - Part 7 of 10

Marx sets out this process again in Capital III, Chapter 6, explaining that the proportion of value accounted for by fixed capital continually falls.

“Further, the quantity and value of the employed machinery grows with the development of labour productivity but not in the same proportion as this productivity, i. e., not in the proportion in which this machinery increases its output. In those branches of industry, therefore, which do consume raw materials, i. e., in which the subject of labour is itself a product of previous labour, the growing productivity of labour is expressed precisely in the proportion in which a larger quantity of raw material absorbs a definite quantity of labour, hence in the increasing amount of raw material converted in, say, one hour into products, or processed into commodities. The value of raw material, therefore, forms an ever-growing component of the value of the commodity-product in proportion to the development of the productivity of labour, not only because it passes wholly into this latter value, but also because in every aliquot part of the aggregate product the portion representing depreciation of machinery and the portion formed by the newly added labour — both continually decrease. Owing to this falling tendency, the other portion of the value representing raw material increases proportionally, unless this increase is counterbalanced by a proportionate decrease in the value of the raw material arising from the growing productivity of the labour employed in its own production.”

And, its this that is the basis of Marx's Law of the Tendency for the Rate of Profit to Fall, i.e. the increase in the proportion of raw material in the total value of output, whilst the proportion accounted for by fixed capital and labour (variable-capital + surplus value) falls. In Theories of Surplus Value, Chapter 23, Marx then looks at what actually causes the technical/organic composition of capital to rise, which is this increased mass of raw material processed, as a result of rising productivity induced by the new technology, now embedded in the fixed capital.

The unit value of the raw material also falls, as a result of the rise in social productivity, but Marx believes, because it is largely the product of agriculture and natural processes, rather than manufacture, that it does not fall in the same proportion as the value of manufactured products, and does not fall proportionate to the rise in the quantity of it consumed. So, cotton might fall from £1 per kilo to £0.80 per kilo, but if the quantity of cotton processed rises from 1,000 kilos to 1500 kilos, the value will rise from £1,000 to £1200. As a result the technical/organic composition of capital would rise, and this would cause a fall in the rate of profit. The question is by what amount, and would this be enough to offset the rise in the rate of profit resulting from the fall in the value of fixed capital, and rise in the rate of surplus value.

Marx concludes that the net result is that the rise in the technical/organic composition, caused by the rise in the proportion of raw material costs is not enough to cause any significant fall in the rate of profit overall.

“The cheapening of raw materials, and of auxiliary materials; etc., checks but does not cancel the growth in the value of this part of capital. It checks it to the degree that it brings about a fall in profit.”

(ibid)

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Michael Roberts Gets Overexcited By The Rate of Profit - Part 6 of 10

In dealing with the crises of overproduction of capital, (which is also an overproduction of commodities, because capital is composed of commodities) Marx describes how this is a result of changes in the value composition, not the technical/organic composition of capital. As far as the Law itself is concerned, Marx notes, in Theories of Surplus Value, Chapter 23, that the falling rate of profit is much smaller than it is said to be.

“It is an incontrovertible fact that, as capitalist production develops, the portion of capital invested in machinery and raw materials grows, and the portion laid out in wages declines. This is the only question with which both Ramsay and Cherbuliez are concerned. For us, however, the main thing is: does this fact explain the decline in the rate of profit? (A decline, incidentally, which is far smaller than it is said to be.) Here it is not simply a question of the quantitative ratio but of the value ratio.”

As in Capital, Marx emphasises that it is so small, and countered by other factors that any change in it can only be detected over long periods of time. Hardly a basis, therefore, for it to be the foundation of crises that Roberts and his associates would have us believe. He then goes on to explain, some of these countervailing factors, and why it is that the tendency to fall is so slight, and only detectable over these long periods.

For fixed capital, not only does its physical mass grow by a much smaller proportion than the increase in output it creates, but also the unit value of this fixed capital falls proportionately too, because of technological innovation. A spinning machine with ten spindles, replaces ten spinning wheels with just one. The spinning machine may, or may not, cost more than a spinning wheel, but it is certainly cheaper than ten spinning wheels. Moreover, Marx points out that these new technologies tend to be more durable, so that, they also last longer, and so their value is amortised over a longer period of time, and consequently a much greater quantity of output, meaning a smaller portion of the value of the output is accounted for as wear and tear of this fixed capital, with a consequent effect on increasing the rate of profit.

The effect of this is also to bring about a moral depreciation of the existing fixed capital stock. When spinning machines are introduced, the value of spinning wheels is immediately slashed, and it is on the basis of this reduced value, not the historic price of the spinning wheel that Marx calculates the annual rate of profit. The very process that stands behind The Law of the Tendency for the Rate of Profit to Fall, over the longer term, therefore, of technological innovation that raises productivity, causes a devaluation of existing capital, and consequent immediate rise in the rate of profit. The method of using historic prices, rather than current reproduction cost necessarily understates the rise in the rate of profit, or even converts it to a fall in the rate of profit, and such a divergence becomes all the greater in periods of rapid technological change.

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Michael Roberts Gets Overexcited By The Rate of Profit - Part 5 of 10

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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Michael Roberts Gets Overexcited By The Rate of Profit - Part 4 of 10

Because Roberts fails to analyse these different types of accumulation, at different periods of the cycle, he fails to understand the difference between cyclical falls in the rate of profit, followed by rises in the rate of profit, resulting from changes in the value composition, as against a long-term fall in the rate of profit resulting from a structural shift in the technical/organic composition.

If we take the approximately 50 year period of the long wave cycle, then assume in Cycle 1, we start from a period of boom, in which labour supplies are still adequate, but are starting to become depleted, followed by a period of crisis, in which wages rise, squeezing profits so that capital is overproduced. Taken as a whole, over the 25 years of this period, the average rate of profit is, say, 30%. Capital responds to this condition of labour shortages, by engaging in a technical revolution. Labour is shaken out, a relative surplus population is created, and the value of labour-power falls, causing wages to fall, and the rate of surplus value to rise. That causes the rate of profit to rise. At the same time, these technological changes bring about a moral depreciation of the fixed capital stock, and rising productivity also reduces the unit value of raw materials, so that the value composition of capital falls, again causing the rate of profit to rise. The average rate of profit over this 25 year period, therefore, rises to, say, 50%.

This, results in lower interest rates (because the supply of loanable money capital from realised profits rises relative to the demand for it for capital accumulation, and lower rents – because the industrial rate of profit rises relative to the agricultural rate of profit – and this was what was seen in the 1980's, and 90's. The average rate of profit over the whole cycle is then 40%. As Marx also demonstrates in the first period, gross output rises faster than net output, and in the second period net output rises faster than gross output, and its this fact, which is the real basis of the falling interest rates, in the second period, and rising interest rates in he first period.

In the following cycle, precisely because the technological development from the previous cycle has brought about a rise in social productivity, and a rise in the technical/organic composition of capital, the conditions exist for the operation of The Law of the Tendency for the Rate of Profit to Fall as a secular long-term trend. As the economy moves again into the period of boom followed by crisis, the same pattern emerges, but, now, the average rate of profit during this period may be, say, 28%, rather than 30%, (and compared to the 50% in the latter period of the first cycle), and in the second period is, say, 48% rather than 50%, but is still higher than during the period of boom and crisis. Overall, the average for this second cycle falls to 38%, compared to the 40% over the whole of the first cycle, reflecting the effect of The Law of the Tendency for the Rate of Profit to Fall as a long-term trend. But, again, its clear from this that The Law of the Tendency for the Rate of Profit to Fall is not a cause of crises, but is itself a consequence of them.

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Michael Roberts Gets Overexcited By The Rate of Profit - Part 3 of 10

There is a big difference between a period in which new technologies are introduced, which replace older technologies, and a period in which simply more of the same technology is rolled out. A spinning machine that does the work of 10 spinning wheels, each requiring a spinner, brings about a sharp rise in productivity, but when all spinning wheels have been replaced, and so only additional spinning machines are added to the existing stock, no such increase in productivity arises. The same could be said about the introduction of personal computers in offices, in place of numerous clerks each keeping paper records and accounts, and calculating on adding machines. This is the point Marx makes above, because, in the latter such periods, the increase in gross output, requires a greater proportion of additional labour than during periods where new technologies replace older technologies, and so where productivity continues to rise rapidly.

Indeed, in Theories of Surplus Value, Marx also distinguishes between periods in which gross output rises faster than net output, and periods where the opposite occurs. The former applies in conditions of boom and crisis, such as the 1960's, 70's and early 80's, whereas the latter applies in periods of stagnation and prosperity, such as the the late 1980's, 90's and 2000's, up to 2008.

In periods where productivity stops growing at such a rapid pace, labour starts to get used up, and that means that, first, the potential to expand the social working-day comes to an end, absolute surplus value cannot be expanded, and, as wages rise, relative surplus value also falls, squeezing profits. For Roberts, who follows Ricardo in the belief that capital accumulation is a function of the rate of profit, such conditions of squeezed profits would lead to a fall in accumulation, and Roberts equates such a fall with a period of crisis, though logically, if that were the case, the pressure on wages would ease, there would be unemployment, and profits would rise again, creating a self-regulating model of capitalism, in which crises of overproduction of capital became impossible.

But, Marx in numerous places, shows that this is not the case. For example, in Chapter 15, Marx describes how, precisely this condition of squeezed profits, due to rising wages, and a slower growth of productivity, results in the exact opposite. In the absence of new technologies to increase productivity, each individual capital is led to seek a solution via production on a larger scale so as to enjoy the benefits of a greater division of labour, as well as other economies of scale.

“The contradiction, to put it in a very general way, consists in that the capitalist mode of production involves a tendency towards absolute development of the productive forces, regardless of the value and surplus-value it contains, and regardless of the social conditions under which capitalist production takes place; while, on the other hand, its aim is to preserve the value of the existing capital and promote its self-expansion to the highest limit (i.e., to promote an ever more rapid growth of this value)...

A drop in the rate of profit is attended by a rise in the minimum capital required by an individual capitalist for the productive employment of labour; required both for its exploitation generally, and for making the consumed labour-time suffice as the labour-time necessary for the production of the commodities, so that it does not exceed the average social labour-time required for the production of the commodities. Concentration increases simultaneously, because beyond certain limits a large capital with a small rate of profit accumulates faster than a small capital with a large rate of profit. At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. The mass of small dispersed capitals is thereby driven along the adventurous road of speculation, credit frauds, stock swindles, and crises.”

(Capital III, Chapter 15)

So, as Marx says, here, capital is driven by competition to accumulate, in order to obtain competitive advantage, whether the rate of profit is rising or falling. But, Marx also set out why Ricardo was wrong, because what primarily drives capital to accumulate is this above requirement to be more competitive so as to hold on to, or seize additional market share. Each capital assumes that the market is expanding, and so is driven to accumulate in order to get its share of the larger market.

Marx, made that clear as against Ricardo, whose argument Roberts echoes.

“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)

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Michael Roberts Gets Overexcited By The Rate of Profit - Part 2 of 10

Marx also sets out the mechanism, by which this squeeze on profits caused by a rise in wages, then leads to a response by capital to reverse it. He says, again in Chapter 15,

“Given the necessary means of production, i.e. , a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e. , the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given.”

So, when the rate of surplus value falls, because wages rise, capital responds accordingly by introducing new technologies to increase productivity. That increases the rate of surplus value and rate of profit, but also, these new technologies, bring about a huge moral depreciation of existing fixed capital, which, in itself, brings about a rise in the rate of profit, as well as causing a release of capital now available for additional accumulation.

A perfect example of this process is the 1980's and 90's, when the crises of overproduction of capital of the 1970's caused capital to engage in the technological revolution that produced the microchip, and everything that has flowed from it. It created a large relative surplus population, causing unemployment and falls in wages, as well as falls in the value of labour-power, which increased the rate of surplus value and rate of profit. But, it also massively depreciated the fixed capital stock – a huge fact that Roberts and those who calculate the rate of profit based upon historic prices rather current reproduction costs ignore – which itself raised the rate of profit, and caused a huge release of capital. That increased the supply of loanable-capital, relative to the demand for it, which caused interest rates to fall, which then led to the start of the huge rise in asset prices, and of speculation in asset markets, which created the serial bubbles that ultimately resulted in the global financial crash of 2008.

In contrast to these falls in profit and rate of profit caused by changes in the value composition of capital, Marx says the basis of The Law of the Tendency for the Rate of Profit to Fall is not a fall in the rate of surplus value, but a rise, resulting precisely from rises in social productivity brought about by this new technology. In other words, the relation between crises of overproduction of capital, and The Law of the Tendency for the Rate of Profit to Fall is in the opposite direction to that proposed by Roberts. 

Roberts not only fails to distinguish between a fall in the rate of profit caused by changes in the value composition of capital, as against changes in the technical/organic composition, but he also, fails to distinguish between different types of capital accumulation, at different time periods within the long wave cycle. He fails to distinguish between extensive accumulation, and intensive accumulation. Yet, Marx also sets out in Chapter 15, the role these different types of accumulation have in bringing about changes in the value composition, as against changes in the technical/organic composition.

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.”

But, in the 1980's, for example, there was such rapid technological change, bringing about the required rise in the technical/organic composition of capital. Yet, rather than the rate of profit declining during this period, as The Law of the Tendency for the Rate of Profit to Fall would predict, it rose, as even Roberts accepts. The reason quite clearly is because the fall in the value composition was greater than the rise in the technical composition, in addition to the fact that wages fell, causing the rate of surplus value to rise. And, this is seen in all periods of intensive technological change and accumulation.

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Michael Roberts Gets Overexcited By The Rate of Profit - Part 1 of 10

In an article in Weekly Worker, Michael Roberts seems to have 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. I've, dealt, in the past, with the problems of the methodology he uses in determining the rate of profit, and consequently changes in it, as well as the conclusions he draws from it. However, dealing with that erroneous methodology, and his latest claims on the rate of profit is an issue for another day. I will start, therefore, by assuming that his latest claims about it are correct. Having done so, let me make a number of opening remarks.

Roberts says that Marx describes The Law of the Tendency for the Rate of Profit to Fall as of greatest importance. Well, as Marx says, it was certainly seen as such by bourgeois political economists such as Smith, Ricardo and Malthus, who believed that it led to crises for capitalism, ultimately threatening its existence. But, Marx shows that their explanation of it, and their catastrophic conclusions, were both wrong. For Smith, it was the fact that capital grows at a faster pace than labour supply causing wages to rise, and profits to fall, whereas for Ricardo and Malthus labour supply rises, but the cost of producing it rises, due to rising agricultural prices, causing wages to rise and profits to fall. Their explanation of it, as Marx sets out in Theories of Surplus Value, Part II, came down to changes in the value composition of capital, resulting from diminishing returns.

Such changes did occur, as Marx describes in Capital III, Chapter 6 and 15, and in Theories of Surplus Value, Chapter 9 et sub, and these did lead to crises of overproduction. But, likewise, capital responds to such crises, so that, at other times, rising productivity brings increasing not diminishing returns, the value composition of capital moves in the opposite direction, and profits rise, as well as the rate of profit rising. It is this cyclicity that is behind the cyclical nature of crises, not The Law of the Tendency for the Rate of Profit to Fall, which, as Marx describes, is a long-term secular movement, brought about by quite different causes. Indeed, its precisely because of that fact that those of us who disagree with Roberts' catastrophist views on The Law of the Tendency for the Rate of Profit to Fall, and crises, which resemble those of Malthus and Ricardo, rather than Marx, can be perfectly sanguine about any data he and his associates might produce relating to this long-term secular decline, because it changes nothing in relation to the fundamental issue of dispute, which is the relevance or otherwise of any such long-term fall to capital accumulation, and crises.

As I have set out in the past, in his desperation to claim any fall in the rate of profit as being proof of The Law of the Tendency for the Rate of Profit to Fall, Roberts frequently bases his arguments on falls in the rate of profit that have nothing to do with it, but are caused by the same kinds of changes in the value composition of capital that formed the basis of the arguments of Smith, Malthus and Ricardo. Yet, Marx, in Theories of Surplus Value, is at great pains to demonstrate the different, indeed contradictory, nature of these two causes of a falling rate of profit - changes in the value composition, as against his explanation based upon a rising technical, and consequently organic composition of capital. The former is the basis of crises of overproduction of capital, which, in turn, creates the need for a new technological revolution, which creates the rise in social productivity, which is the basis of the latter.

A clear statement of that is in Capital III, Chapter 15, where he defines an overproduction of capital as follows,

“As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”

In other words, this is a clear statement of an overproduction of capital being caused by a change in its value composition, as the demand for labour reaches a point at which its not possible to extend the social working-day, so that no additional absolute surplus value can be produced, and, indeed, where wages are pushed up, reducing relative surplus value, and so squeezing profits. In other words, it is the old Smithian, Malthusian/Ricardian view of a falling rate of profit, caused by an actual fall, in profits, or at least only a small rise compared to the amount of additional capital advanced. But, that is the opposite of The Law of the Tendency for the Rate of Profit to Fall described by Marx, in which the mass of profit rises, and, indeed rises more rapidly, as a result of additional capital being advanced, and does so because wages fall, as a relative surplus population is created, and the value of labour-power falls.

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Michael Roberts Gets Overexcited By The Rate of Profit - Summary

 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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