13 Responses

  1. Sheldon
    Sheldon January 1, 2014 at 7:42 pm | | Reply

    I therefore do not retract my “true believer” comment. However, my correspondent went on to say that I had impugned his “many years of serious Marxian scholarship.”

    Andrew Klinman?

  2. Jim Farmelant
    Jim Farmelant January 2, 2014 at 8:16 am | | Reply

    Both neoclassical economists and more than a few Marxists are in the habit of formulating their theories so that they are not empirically falsifiable. In the case of the law of falling rates of profit this becomes evident when as Michael points out:

    “First, they point to certain countervailing tendencies that can delay the decline in profit rates, such as foreign investment. Or, second, they say that their opponents have used incorrect definitions of the relevant variables.”

    Once those two ad hoc hypotheses are embraced then it becomes clear that the law of falling rates of profit can never be refuted empirically. It’s enough to make one think well of Karl Popper.

  3. Andy Feeney
    Andy Feeney January 2, 2014 at 10:23 am | | Reply

    I can’t claim to be a “serious Marxist scholar,” but from the little I’ve read in Marx’s 3rd volume of Capital, I get the impression that Marx qualified his conclusions about falling profit rates more than either the “true believers” or you seem to be acknowledging. For one thing, I believe it was John Stuart Mill, Jr. who had earlier written about the “law” of falling profit rates, and Marx qualified this by writing about the “tendency” for the rate of profit to fall. This “tendency” could be counteracted, he noted, by several different contingencies in capitalism.

    For example, Marx noted that as capitalist industries become more productive in their use of labor and more efficient at producing commodities per unit of investment, their proportional use of raw materials generally increases. The cost of raw materials therefore comes to be an important factor in determining profit rates.

    Accordingly, if a capitalist industry can reduce its raw materials costs — say, by substituting a cheap and plentiful resource for an expensive and scarce one — the falling raw material costs may cancel out the effect of the [otherwise] falling profit rate. Or again, if a resource intensive industry like the Victorian chemical industry can find new and profitable uses for waste materials — if the industrial chemists can find ways to transform what was once harmful chemical waste into a recycled material that can be used to produce more chemicals — this increased efficiency in materials processing may counteract a falling profit rate. (As environmental historians note, the European & British chemical industries did, in fact, transform previously harmful wastes — like chlorine-based pollutants from alkali plants — into new raw materials in the late 1800s, which was probably part of what Marx was referring to in Vol. 3 of Capital. And chemical profits in the most innovative companies did in fact improve.)

    There are several other ways that Marx mentions in which the “tendency” of the rate of profit to fall can be counteracted, if I remember rightly. But I can’t recall just where they’re mentioned in Capital, Vol. 3. Those who are interested should be able to look them up without much trouble, though.

    I’m not writing this to support the “true believer” idea that Marx was always right about everything. I don’t think that a “materialistic” and “dialectical” understanding of capitalism or human history supports the notion that he could possibly have known enough in the late 1800s to predict exactly what capitalism would do in succeeding centuries. As Engels comments somewhere — I think in”Socialism: Utopian or Scientific,” or perhaps it’s in the “Anti-Duhring,” the idea of ANY system of thinking being perfect, complete and valid for all time is “a fundamental contradiction to the first law of dialectical reasoning.” I think Engels also had a point when he wrote that modern science, by the late 1800s, was only beginning to discover the laws governing many natural phenomena, and that Victorian technology and Victorian thought necessarily reflected this limitation. It stood to reason, Engels wrote, that many natural phenomena would have to await investigation and explanation by future generations. Obviously there’s no a priori reason why even extremely brilliant Victorians, like Marx, would necessarily have been able to predict all future economic developments, either.

    For these reasons, I more or less agree with your critique of the “true believers.” But on the matter of falling profit rates, I think Marx was more nuanced in his approach to countervailing tendencies that your piece suggests.

  4. Robin Chang
    Robin Chang January 3, 2014 at 8:42 am | | Reply

    Hi Mike. Thanks for uploading this post. The debate over the ‘law of the tendency for the rate of profit to fall’ is indeed incredibly complex, and highly charged politically within debates in radical political economy. Without raising the ‘bar’ or stakes in this issue, I am wondering if it is possible to hold an ‘agnostic’ position on these debates. On the one hand, there does seem to be a level of credible evidence that falling profits (or a failure in the production of surplus value) has played a role in the major crises in the history of advanced capitalism since the late 19th century. The 1970s crisis is, of course, the one most hotly debated even today, giving rise famously to several interpretations of the causes of that crisis that include the popular ‘profit-squeeze’ theory. What an agnostic position in its barest outlines might be as follows. Capitalism does depend on profits for its continued reproduction. When a major crisis does occur, one must do research into the historical specificities of what circumstances — political, economic, and social — were likely responsible to creating those conditions that set-up the unintended consequences economically. One cannot then assume or depend upon the action of this ‘law’ for every crisis. As far as the current crisis, there is, as you say, intense debate over what are the causes. What is unique is that unlike the debates around the interpretation of the crises of the 1870s, 1930s, and the 1970s, there is a lack of consensus about whether or not profitability, as a sort of independent variable, played an essential role. But let’s say that the current crisis was triggered by a financial crisis, but long lasting and deep due to the weakness in profits by 2007/8. In the situation that we are in now, there does seem to be a ‘disconnect’ between profits and investment because profitability has, in this view, recovered to pre-crisis levels. I am open to suggestions as to why this is the case. Some perspectives center on how the financialization and the political power it enables for finance capital shapes the distribution of income in this phase of neoliberalism so that the surplus flows away from investment, and to shareholders. There are likely to be other examples of this kind of explanation. These institutional factors are unique, and as a result make the current crisis unique. Profits still matter, but are overlaid by these specificities. I’d like to end these comments by declaring that in saying all this, I would like to see this debated opened up more, rather than reinforce the differences between the existing positions. And, I’d like to think that I am open minded about the promise of a kind of interpretation of Marxist political economy, but at the same time appreciating that the idea of historical materialism is to always be historical, and not depend on automatic tendencies. I believe that any radical transformation of society requires a conscious effort. This latter problem has been, I think, shown to be frustrating for a lot of the Left because whatever the causes of the current crisis, there is not the kind of radicalization or turning to the ‘left’ broadly in social movements, and obviously not amongst ‘professional’ economists. Best wishes, Robin

  5. Martin
    Martin January 4, 2014 at 12:26 pm | | Reply

    Great blast of welcome nihilism, from my point of view – sad to see all the dumb hubris of the peacock male flourishing on the micro-left.
    Why does it matter so much if the rate of profit might fall, while profit is still accruing to the already super-rich, and fees and costs and financial obligations increase for the stagnated worker, as well as for the long-term unemployed? Who gives a damn how much the rate of “profit” fluctuates for the corporate elite? Kliman et al should read Gabriel Thompson’s “A Year in the Shadows” – that should get their focus back on where it should be – the lives of the global working poor.

  6. Jurriaan Bendien
    Jurriaan Bendien January 10, 2014 at 3:51 am | | Reply

    As Costas Lapavitsas now admits in a newspaper rant, “Finance is not particular about how and where it makes its profits, and certainly does not limit itself to the sphere of production. It ranges far and wide, transforming every aspect of social life into a profit-making opportunity.”
    http://www.theguardian.com/commentisfree/2014/jan/01/finance-hold-everyday-life-broken-capitalism

    According to fundamentalist Marxists, all profits arise in production, but this contradicts facts and logic. As soon as you admit the reality, i.e. that there is also a profitable trade in already existing assets, and that new assets can be created without production through transactions, then profitability in the economy as a whole is not exclusively determined by what happens in production, but by the totality of capital assets which attract profit (both physical assets and financial assets). This is not just a “small nuancing” of the fundamentalist argument, since the value of physical means of production owned by the private sector ranges between only 1/4 and 1/8 of the total stock of capital assets, in advanced capitalist economies. So in reality, for decades Marxists have been taught, and have been teaching, a false model of the economy. They have tacitly assumed that the economy consists only of production and consumption (the real economy) and that all the rest is only “fictitious”, consisting only of pseudo-commodities and fictitious capital. This is a very bad mistake to make.

  7. Theo Rhett Isham
    Theo Rhett Isham January 15, 2014 at 11:18 am | | Reply

    Maybe the best way to analyze the question is not whether Marx is correct, but rather, whether the question’s assumptions are correct regardless of any reference to any particular theorist, whinger, pundit, economist.

    Done in terms of whether Marx is or was this or that, or whether Marx actually believed this or that, or later disowned that belief of this or that?

    Well that’s just more discussion glorifying Marx, even when you might occasionally show Marx was “wrong.” Your discussion’s choice of focus says all we need to know.

    Of course, this is the problem throughout economics. Everything is extrapolated and it always reduces to Theorist A vs Theorist B. For some reason, economists only know religious worship of their chosen economic theorist.

    It always looks like Judeo-Christian vs Muslim to me.

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