[PEN-L:6893] Re: rising rate of profit?

[JDevine@xxxxxxxxxxxxxxx]

Doug presented some OECD data indicating that the profit rate is
rising for many countries. Others wondered about whether this
fits with Marx. Yet others noted that it depends on how one
measures the rate of profit.

On the latter question, I think it's useful to use Fred Moseley's
distinction between the Marxian rate of profit (MRP) and the
Conventional rate of profit (CRP). The most important distinction
between these two is that the MRP includes the wages of
unproductive labor in the numerator rather than the denominator.
The MRP may fall while the CRP is rising if the relative share of
unproductive labor's wages rises.

The term "Marxian rate of profit" may or may not be accurate from
Marx's point of view; we'll have to have a seance and find out.
My reading suggests that Marx never thought out any dynamic
implications of unproductive labor; it's a static concept (most
adapted to understanding the value theory of exploitation), while
Marxian crisis theory is (or should be) dynamic.

As far as the determination of the nature and degree of
accumulation, it seems that the wages of unproductive labor
should be treated as identical to those of productive labor: they
both represent costs, factors that lower the _investible_
surplus. Following this line of argument, the CRP is what's
relevant. Fred admits as much. He does argue, however, that
studying the MRP helps us understand the CRP. But that's a
different argument.

BTW, a falling MRP may never cause a crisis. If it doesn't cause
a crisis or some other phenomenon that's relevant to people's
struggles, why is it relevant at all?

If the CRP is relevant, then OECD numbers are relevant. They may
not be as good as we want them, but they are estimates by
generally pro-business economists of what's good for business,
i.e., what motivates business to invest (the rate of return on
investment). They also indicate something about the supply of
investible surplus relative to the existing capital stock.
Finally, they have an impact on capitalist expectations.

On the former issue, I would say from my reading of Marx's work
that his emphasis was on the fall in the rate of profit (no
matter the number of pages he spent on counter-tendencies).[*]
However, he simply _assumed_ (following the economists of his
time, including Ricardo) that there was indeed a secular tendency
for that rate to fall. He argued that this fall was due to
societal causes (the real barrier to accumulation being capital
itself) rather than due to diminishing returns in nature (as in
Ricardo). But he never presented a complete argument in favor of
the tendential fall. His whole crisis theory is incomplete (see
Simon Clarke's recent book).

IMHO, a rise in the profit rate is just as much a part of Marxian
theory of the laws of motion of capital as is a fall. If a fall
occurs (as it did after the 1960s), it causes a crisis and
retrenching that then causes the profit rate to rise (as it did
from the 1980s to the present, according to the OECD data). In
very simplistic terms, the fall of the rate of profit encouraged
Reagan/Thatchernomics, which eventually (i.e., now) paid off for
the capitalists.

Further, a falling profit rate is not the only source of crises.
A _rise_ in the rate of profit, if sustained for several years,
can cause increasingly unstable growth, since wages and thus
consumption are likely stagnant. To realize a rising rate of
profit, we need increasing spending on investment and luxury
consumption (or rising government deficits or rising trade
surpluses). This increasing instability eventually means a
downturn, both of the economy and of profits (as a realization
crisis occurs), since "shocks" are always occuring that can
disturb an unstable growth-path (while many of these shocks are
endogenous to capitalism's normal laws of motion).

In my 1994 RESEARCH IN POLITICAL ECONOMY article, I argued that
something like this scenario happened in the late 1920s, helping
to cause the Great Collapse of 1929-33. At the time, I downplayed
the parallels between the 1920s and the 1990s. But these days, it
sure looks more and more as if history is repeating itself. (Of
course, some communities entered a new Depression quite awhile
back.)

[*] Actually, Marx spent most pages on "the exposition of the
internal contradictions of the law," ch. 25, rather than on the
two sides of the contradiction (the fall, ch. 23, and the
counteracting tendencies, ch. 24). The pages are roughly 26, 21,
and 10 for these three chapters in the International Publishers'
edition. One reading is that Marx saw the actual trend of the
rate of profit as the result conflicting tendencies but that the
rate of profit could go "too far" in either direction. That
reading, of course, favors my views. But I see those chapters as
very incomplete. They can favor several other interpretations.

So I think we should only use Marx's discussion of the falling
profit rate as a source of ideas rather than as a source of
Truth.

in pen-l solidarity,

Jim Devine   jdevine@xxxxxxxxxxxxxxx
<74267,2057@xxxxxxxxxxxxxx>
Econ. Dept., Loyola Marymount Univ.
7900 Loyola Blvd., Los Angeles, CA 90045-8410 USA
310/338-2948 (daytime, during workweek); FAX: 310/338-1950
"Segui il tuo corso, e lascia dir le genti." (Go your own way
and let people talk.) -- K. Marx, paraphrasing Dante A.