[OPE-L] Falling Rate of Profit as Science Fiction?

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Mon Mar 06 2006 - 16:50:00 EST


Hi Jerry,

You wrote:

aren't you stating the obvious?  (this is not a criticism: in certain
contexts, it's important to state the obvious.) So profitability typically
declines at the beginning of a depression, what does that tell us?
Isn't it a claim which advocates of just about every economic
theory could agree with?

Well, as I said, most economic historians I am aware of acknowledge that
decline in profitability, as a matter of fact. But as to explaining the
concatenation of events which cause economic crises in capitalism, opinions
differ wildly, even within the Marxist camp. The main difference between
Marxian theories and non-Marxist theories is that Marxian theories regard
capitalist economic crises as system-immanent (basically due to endogenous
causes), and non-Marxist theories typically attribute them to exogenous (or
non-economic) factors. If you truly believe that markets, left to
themselves, will rapidly balance supply and demand, any crisis can only
occur because of external factors impeding the efficient operation of
markets. Maybe people have the wrong psychology or habits or culture, maybe
the state has done bad things, or maybe bad economic decisions were made by
big players, and so on. In the real world, of course, the economy cannot be
abstracted from a social totality, and so both "endogenous" (commercial) and
"exogenous" (non-commercial) causes are typically at work (well, within a
social totality, everything is endogenous of course). The Marxian argument
in this case would be that state policy can accelerate, moderate or postpone
a crisis, without actually being able to prevent it altogether.

You wrote:

When you go on to write:  "At best Marxian economics has convincingly argued
that profitability is the synthetic, overall indicator of the 'economic
health' of the capitalist system ...." you are stating a conclusion that
just about all of the *critics* of the TRPF would *agree* with: to claim
that profitability is an important indicator of 'economic health' of
capitalism is a profoundly uncontroversial claim.

Not sure about that. According to the doctrine of consumer sovereignity, the
economy is ruled by what consumers want, and if consumers are judged to be
getting what they want, then the system is "healthy". Or, according to the
doctrine of equilibrium, the economy is healthy, because it is in balance,
according to some criterion. For true market fanatics, the economy is
healthy, if there are free markets as such; any non-market economy cannot be
healthy.

You wrote:

What does it mean, though, to say that capitalism is "crisis-prone"?
One could examine the same historical data on cycles and just as
easily write that it is "growth-prone"!   Isn't saying that capitalism
historically is crisis-prone simply recognizing that capital accumulation
proceeds in a  *cyclical*  way and that in some time periods the rate
of profit grows and  in other periods it declines?  From that perspective,
isn't it a *tautology*?

To say that the capitalist economy is inherently crisis-prone means in the
first instance to reject  Say's Law, i.e. it means saying that it is
impossible for that form of economy to maintain balanced growth and economic
stability for an indefinite time. This is admittedly not specifically a
Marxian theory however - Hyman Minsky or Joseph Schumpeter among others also
argued that. But it is not a tautology. Also, it means rejecting the idea
that crises can be attributed simply to exogenous (extra-economic) factors.
The concept of economic "cycles" is more controversial, it is often more an
artifact of econometric measurements. You have recurrent peaks and troughs
in economic activity; a sort of spasmodic development, but the idea of a
"cycle" suggests a repeated (causal) sequence of events, which may not be
the case at all. A slippage frequently occurs, from observed correlations,
to imputing a recurrent causal sequence.

The specifically Marxian idea I mentioned, is that gains in productivity
eventually necessarily lead to a declining profit rate, due to a rising OCC
and a fall in new value per unit of new output, on average. Writers such as
Henryk Grossmann, Louis Fraina/Lewis Corey, Paul Mattick, Andrew Gamble? and
Anwar Shaikh interpreted this to mean, that eventually the total volume of
profit available for distribution stagnates, but there are obviously various
other interpretations. Mattick is often a bit vague here, sometimes he
suggests the problem is that there is not enough surplus value to valorise
all accumulated capital, sometimes he suggests that additional surplus-value
is produced allright, but that it is not productively accumulated, because
of the expectation of a low or zero return.

Generally, I think, Marx intended to show, that the forces promoting
economic growth in capitalism necessarily turned into their opposite,
causing economic crises, and that the same concatenation of events repeated
itself at every level. However, he appeared to think economic crises could
only be understood at the level of the world market, and that they expressed
all the contradictions of this form of economy, in combination. You could
interpret so-called "globalisation" (expansion of foreign trade and trade
liberalisation) as a method to stem the tendency of the profit rate to fall
(indeed Marx mentions foreign trade as one of the "counteracting factors").

As I emphasized in my short wiki entry, inspired by something Dr Carchedi
wrote, the tendency of the rate of profit to decline as such wasn't a
specifically Marxian idea, and I might add in fact Marx himself was well
aware of this. Indeed, that is precisely why he could say it was "the most
important law of political economy", i.e. many political economists had
referred to it, or noticed it already. The scientific challenge, however,
was to explain why the decline necessarily happened, and certainly Marx
believed it wasn't a matter of accident, but a necessary consequence of the
specifically capitalist mode of development. Prof. John Weeks among others
has tried to explicate how the law of value asserts itself, precisely
through crises.

However, as I mentioned, the TRPF is a generalisation which is difficult to
prove definitively, in a scientific sense. The economic evidence can always
be read in different ways, using different theoretical frameworks.
Therefore, the debate really concerns which theoretical perspectives have
the most explanatory power, in the light of the observable evidence. But
obviously the debate isn't purely "scientific" either, but also ideological,
inasmuch defenders of capitalism are motivated to accentuate some factors,
while its opponents accentuate others, even regardless of logic or evidence.
Capitalism is a system based on competition between many different
interests, and that gets in the way of an objective view of things; the
scientific debate is typically distorted by moral notions and what Marx
called "the furies of private interest".

I personally think that the data available shows that average industrial
profitability 1973-2006 is lower than 1947-1973, and that real net output
growth since 1973 is roughly half or less of what it was in 1947-73. I
think, that this had the consequence of an exit of capital from the sphere
of industrial production, as well as a furious "rationalisation" and global
restructuring process, in which the working class suffered big defeats, in
terms of its organisational capacity and losing previous gains. The
corollary of that, is that a much larger portion of business income nowadays
takes the form of interest, rent, capital gains and royalties (property
income) rather than industrial profit from production. The macroeconomic
problem then is how, given stagnating real wages for the majority, you can
nevertheless expand markets, and ultimately, that is a question of globally
integrating more people into markets that were not so integrated before.
That is, however, a process which takes time, often cultural and political
obstacles have to be overcome, but the hope is, that with better global
credit facilities, you can "tide things over" meantime, and create demand
where it did not exist before, and thus, that eventually things will turn
around. The problem though is that, in this "meantime" or transitional
epoch, the inequalities of income and assets are becoming ever more extreme,
in consequence of marketisation, i.e. a critical mass of people are not able
to "trade up" as fast as is desirable in terms of their real income. That
creates social instability and discontent, which in turn reacts back on the
ability to extend more credit. The longer the lines of credit become, the
more the credit system depends on social trust (cf. Fukuyama, who
articulates this point ideologically; others refer to social capital), and
the more easily the financial system can be severely shaken up by a
breakdown of social trust. Terrorism in this context is an important issue,
not so much because of the relatively few direct casualties of it (far more
people die in e.g. traffic accidents), but because it causes a breakdown of
social trust and panics, which can seriously upset a dodgy financial
structure. Hence leading policy makers are nowadays agreed on the central
importance of promoting beliefs of public confidence and trust, for the
future of the economy, regardless of whatever current financial problems may
be. They can be solved, provided you have sufficient cooperation, and
getting/maintaining that cooperation is the trillion dollar question (a
trillion dollars is what the world's governments spend on arms each year).
Obviously, the snag is that if the masses of the people find that they
cannot make significant gains, they are more likely to be cynical and
distrustful, rather than confident. Somehow, people have to be maneouvered
into a position where they deserve credit, literally and figuratively... and
this becomes a dominant theme in popular culture as well.

Jurriaan

Lordy only believe, only believe
All things are possible
If you'll only believe
My Lordy, only believe, yes only believe
All things are possible
If you'll only believe
I met God one morning my soul feeling bad
Heart heavy laden I felt fire doubt ahead
Well He lifted all my burdens, yeh! right now I'm feeling glad
All things are possible
If you'll only believe
I believe, yeh! I believe,
All things are possible
If you'll only believe


This archive was generated by hypermail 2.1.5 : Wed Mar 08 2006 - 00:00:01 EST