Falling rate of profit

[(A)(_|]

Ok. So the way I understand it is the equation is: Rate of profit = S/(c+v)
"S" being surplus value and "C" is constant capital, while "V" is variable capital. So the idea is if s and v are constant, and c increases, the rate of profit will decrease. If this isn't right, please correct me. My question is: has the rate of profit actually fallen as predicted by Marx? If not, then why? And if the equation is valid. Does this mean Capitalism is self destructive? Or is the rate by which it falls negligible?

I understand I might get different answers from marxists and anarchists; so please explain your answers if you will.

Thanks!

[Lyev]

I think that we can deduce that there is natural tendency with a competitve, uncoordinated capitalist market towards a lower and lower organic composition of capital. That, is the ratio between constant ("dead labour") and variable ("living labour") capital; the "living" part of the composition is the organic part, as such.

Basically, unless your boss wants to increase the working day (which has happened massively in the past 30 to 40 years anyway), or if he wants to reduce your real wages (which, again, I think has happened recently across the world, too), it makes most sense for her to constantly revolutionise and reinvent her means of production, constantly innovate to squeeze as much surplus value out of her workforce.

In this sense, the accumulation of capital is constantly driven by innovation; when a rival capitalist across the street to you buys a new machine that can produce 20 widgets in an hour, when it could only produce 10 before, it is pretty easy for you and all your other competing enterprises to catch-up on this new technology. Soon enough, everyone is no longer producing 10 widgets per hour, everyone is up to 20, and this becomes the social average. The socially necessary labour time for producing 10 widgets has halved.

But now it is no longer an advantage for the person who first found the innovation since the playing field is leveled out again -- everyone now completes their circuit of capital at the same rate of profit. However, relative to the proportion of variable capital, the only capital that has changed is constant capital -- dead labour, machines. Your workforce (living labour) are still working at the same intensity and speed (let's assume the capitalist has not increased the working day or decreased real wages etc.) The value appropriated from the worker has been spread out over more widgets. Therefore the rate of profit has fallen.

The FRoP can be proved this way pretty nicely (maybe my explanation wasn't the best), but the empirical backing of the theory is a bit more contentious, as regards its place in Marxist crisis theory on a whole.

Andrew Kliman has done some good work on the subject: I have been recommended his work "Debt, Economic Crisis, and the Tendential Fall in the Profit Rate" a couple of times, which you can find here http://akliman.squarespace.com/crisis-intervention/. However, I have really struggled with the heavy economic jargon and formulas etc. -- it is quite a stodgy read. Here is another good one: http://kapitalism101.wordpress.com/the-falling-rate-of-profit/

[(A)(_|]

Thanks Lyev!

I read the second article and it was very informative.

So just to summarize and see if I have a hold on this. The only way to avoid this tendency of the rate of profit falling is to:

a) Lower the wages of the workers so that the "organic composition of capital (C/V) stabilizes

b) For the capitalist not to invest in increasing the productivity of constant capital. But this is impossible; since capitalist are always looking to out compete each other and achieve greater efficiency.

c) Exploiting cheaper labour markets; which has happened.

d) And this:


A second way of stemming the falling rate of profit has to do with decreasing the value of constant capital. If the race to improve efficiency is cheapening all commodities we can expect the costs of inputs like machines and raw materials to fall as well. This allows capitalists to increase the physical amount of technology they use without increasing the value of constant capital. Unlike the previous “fix” which displaced crisis in space, this “fix” is part of the internal logic of capital and, some argue, could very well be a permanent fix.

My only problem is with (d). I mean, doesn't this nullify the whole concept. He goes on to say that this fix is neutralized by effect of "fixed capital" which has a tendency to become more automated; therefore obliging the capitalist to invest in constant capital. However, I don't really buy it for some reason.

A more thought-provoking question for me is: Is capitalism, by virtue of this tendency, self destructive? Can we count on it to fall on its own. Or has it found a "fix" to this anarchic tendency?

I don't know. I'm just not completely buying into the idea.

[ar734]

It's easier for me to think of the rate of profit as profit/costs: thus a business has a $10 profit divided by costs of, say, $100, for a rate of profit of 10%. These costs include both labor and non-labor costs.

I have also wondered why the falling rate of profit has never been proved or disproved by actual economic evidence. For instance why can't economists use the date from the
Bureau of Economic Analysis (the people who produce the GDP figures?) One economist I sent an email about it to (Andrew Kliman,) said he didn't think the falling rate of profit could be proved empirically and that even if it could it would be a waste of time (or something like that.)

I personally think the falling rate should be capable of being proved, but I'm no economist. Also, it makes sense. Capital is always forced into using more machinery relative to human labor. Almost everything today is made by robots. Thus, if the $10 profit is originally based on costs of 50 labor and 50 machinery, then the rate is 10%. However, if the costs change over time to 40 labor and 65 machinery (and competition and technology force this change) then the rate would change to 9.5% and so on. This only means the rate of profit falls, not the total, aggregate profit.

I'm still trying to figure (sic) out how to use the BEA figures to prove the fall in the rate of profit. For instance, Table 1.15 (of the BEA) shows the per unit profit, costs and prices of the non-financial economy since 1929. (The numbers in all the tables are truly mind-bending.)

I think the rate of profit has dropped from 21% in 1929 to 16% in 2006 and 14% in 2010. At this rate, profit will fall to 5% or so in 2020. This has nothing to do with to total amount of profit, only the rate.

But, maybe it's like Kliman says, you can't do it (prove the decline in the rate)

[SocialismOrBarbarism]

Here's another work by Kliman and one by Gugliemo Carchedi with empirical data:

http://www.marxisthumanistinitiative.org/economic-crisis/401.html

http://sites.google.com/site/radicalperspectivesonthecrisis/finance-crisis/on-the-origins-of-the-crisis-beyond-finance/carchedireturnfromthegrave

The second one shows that decreasing costs of constant capital is only a counter-tendency, but the overarching tendency is toward a rise in the costs of constant capital.

[Die Rote Fahne]

Luxemburg get's into this in "Reform or Revolution".

The mass contradictions of capitalism, etc. etc. by her critique of Bernstein and reformism.