Falling Rate of Profit Tendency

[DaComm]

This idea, outlined by Marx, has become one of my favorite critical analysis's of Capitalistic flaw. I wonder however, if it has any relation to the 2009 Economic Decline?

[BAM]

Yes, indeed it does. Andrew Kliman has written several pieces on this. A good introduction is here http://marxisthumanistinitiative.org/2009/04/17/on-the-roots-of-the-current-economic-crisis-and-some-proposed-solutions/.

His argument is that since the 1970s capitalism has not fully recovered from the crisis of that time. To avoid a wholesale devaluation of capital policymakers instead allowed debt and fictitious capital to expand as a way to compensate for the lack of profitability. It is this that led to the current crisis.

[turquino]

In my view, no. At least not as the primum movens. The falling rate of profit certainly exists in the exhaustion of natural resources such as crude oil and valuable minerals, but it's not a convincing explanation of cyclic crises. A falling rate of profit caused by increased efficiency of production can only move in one direction. How can the falling rate of profit explain why capitalism returns to prosperity after a depression, only then to eventually encounter another crisis? The recent 2007/2008 crisis didn't see the gradual erosion of profits, but the sudden contraction of credit and the inability of capitalists to sell what they produced, resulting in mass unemployment and depression.

[BAM]

How can the falling rate of profit explain why capitalism returns to prosperity after a depression, only then to eventually encounter another crisis?

Simple. During a recession asset prices are devalued. Huge amounts of value are wiped out ("destroyed") which means that for purchasers of these assets, they can suddenly become profitable. If a factory worth £50m makes a £5m profit (10%) but is sold to pay off debts for £15m it suddenly has a rate of profit of 33%.

The fall in the rate of profit is not permanent but cyclical - that is indeed how Marx saw it, as opposed to Smith and Ricardo who thought it would be a long-run phenomenon.

[S.Artesian]

This idea, outlined by Marx, has become one of my favorite critical analysis's of Capitalistic flaw. I wonder however, if it has any relation to the 2009 Economic Decline?

This might help:

http://thewolfatthedoor.blogspot.com/2009/03/was-not-was-is-is-not-2-political.html


http://thewolfatthedoor.blogspot.com/2009/01/not-just-all-about-oil-1.html


http://thewolfatthedoor.blogspot.com/2009/01/not-just-just-not-2.html



http://thewolfatthedoor.blogspot.com/2008/10/of-hats-and-rabbits-3.html



And I've got plenty more where that came from...

[S.Artesian]

In my view, no. At least not as the primum movens. The falling rate of profit certainly exists in the exhaustion of natural resources such as crude oil and valuable minerals, but it's not a convincing explanation of cyclic crises. A falling rate of profit caused by increased efficiency of production can only move in one direction. How can the falling rate of profit explain why capitalism returns to prosperity after a depression, only then to eventually encounter another crisis? The recent 2007/2008 crisis didn't see the gradual erosion of profits, but the sudden contraction of credit and the inability of capitalists to sell what they produced, resulting in mass unemployment and depression.


Except there is no exhaustion of crude oil. Known proven reserves, an economic category defined as the amount of oil that can be produced at an expected profit over the expected cost using current technologies, have not declined; costs of production have not exhibited an uniform rise, and in fact in 1998 when the price of oil broke through $10/barrel, costs of production in the US were at their lowest level in 50 years.

A falling rate of profit can be offset through the price mechanism-- through the variation between the producer's cost of production and the buyer's price of production-- in that gap is everything the bourgeoisie thinks is value, when in fact the gap itself is the way of generating the average rate of profit, and redistributing profit to the most technically advanced operations. The "opening" of the points of this scissor, between cost and price of production, is expanded reproduction.

The 2007-8-9-10 contraction is pre-figured by the 2006 peak in the rate of profit, the rate of return on net property, plant and equipment, and that rate turns down in 2007 as a result of continued capital investment and overproduction. The speculative blow off in oil is a clear manifestation of the downturn in the rate of return in that industry.