Marxist critiques of Sweezy/Foster's Theory of Monopoly Capital?

[TheOneWhoKnocks]

So I've done some reading over the last few days on the theory of monopoly capital developed by Paul Sweezy and expanded over the last few years by John Bellamy Foster.

To (very) briefly summarize the theory as developed by Sweezy, since WWII the advanced capitalist countries have shifted from the high levels of competition associated with 19th century capital to an economy dominated by monopolistic and oligopolistic institutions -- and in the contemporary era of extensive globalization, oligopolistic/monopolistic multinational institutions. Because competing by price-cutting is rare in
oligopolistic/monopolistic markets and the rate of exploitation has increased significantly, the amount of surplus expropriated by oligopolistic/monopolistic firms has the tendency to rise, rather than fall. This increase in surplus has exceeded the number of profitable investment options available to capital, so the rate of growth has stagnated. Recently, Foster has examined how this stagnation of growth has encouraged the financialization of capital as a means of absorbing the excess surplus.

I think it's a compelling argument, but I'd like to read some Marxist critiques of it if any are available. Sweezy argued that the tendency of surplus to rise under monopoly capitalism refuted Marx's theory of the tendency of profit to fall, but Marx himself explained (I believe in the Grundrisse) that monopolization and increases in the rate of exploitation could counteract that tendency..

[Jimmie Higgins]

Hi, I've moved this to the Economics sub-forum so that hopefully some well-read econ-junkies can find it and give a good explaination or suggest some places to look for critiques.

I am not an expert on economics, but to take a shot at this argument, I'd say first of all that the economic crisis may have refuted this argument by itself. It seems to me that the tendency for monopolization is one way in which capital attempts to mitigate declining rates of profits: labor can be more concentrated and rationalized (in the service of increasing exploitation of course), and in having the big fish eat the little fish, capital can reorganize production to eliminate competition which results in declining rates of profit as it takes more investment capital to keep up with technological advances and so on.

The financilization angle is pretty interesting and I'd like to hear more discussion on this. Definately un-tieing currency and allowing for speculation on top of speculation has created more flexibility for capitalism - more places to put wealth when industry can not be invested in. But it's also still ultimately tied to the real production in society and so maybe like Luxembourg worte about credit, it seems to allow capitalists to put crisis further down the road, but when the imaginary money is actually needed, then the house of cards comes tumbling back to earth.

[Zulu]

I think it's a compelling argument, but I'd like to read some Marxist critiques of it if any are available. Sweezy argued that the tendency of surplus to rise under monopoly capitalism refuted Marx's theory of the tendency of profit to fall, but Marx himself explained (I believe in the Grundrisse) that monopolization and increases in the rate of exploitation could counteract that tendency..

Sweezy's theory is quite sound except for this tendency of the rate of profit to rise thing.

First, it does not account for those companies that went bankrupt, and lost not only all of their profits, but also all their constant capital to the surviving monopolies and to the public sector, which is where the diminishing returns manifest themselves by piling up the dept.

And secondly, there is such thing as the carrying capacity of planet Earth, which precludes the labor force from growing indefinitely, so it's only a matter of time till the rate of profit flatlines due to unavailability of additional proletarians.

[GoddessCleoLover]

Sweezy's theory is quite sound except for this tendency of the rate of profit to rise thing.

First, it does not account for those companies that went bankrupt, and lost not only all of their profits, but also all their constant capital to the surviving monopolies and to the public sector, which is where the diminishing returns manifest themselves by piling up the dept.

And secondly, there is such thing as the carrying capacity of planet Earth, which precludes the labor force from growing indefinitely, so it's only a matter of time till the rate of profit flatlines due to unavailability of additional proletarians.

IMO this is very true. Isn't it also true that we will exhaust natural resources, perhaps prior to the supply of proletarians running out?

[TheOneWhoKnocks]

First, it does not account for those companies that went bankrupt, and lost not only all of their profits, but also all their constant capital to the surviving monopolies and to the public sector, which is where the diminishing returns manifest themselves by piling up the dept.

I'm not sure I follow. Wouldn't the collapse of firms fit in with the larger trend toward monopoly?



And secondly, there is such thing as the carrying capacity of planet Earth, which precludes the labor force from growing indefinitely, so it's only a matter of time till the rate of profit flatlines due to unavailability of additional proletarians.

For sure, but I think we'll all be dead by that point from climate change.


Isn't it also true that we will exhaust natural resources, perhaps prior to the supply of proletarians running out?

Not necessarily. The discovery of shale oil in the US and Canada has ensured at least a century of reliable oil supplies, and there is enough coal to last much longer than that. If capitalism survives for the next several decades, I think it's likely that significant portions of humanity will die before those resources are totally depleted..


And secondly, there is such thing as the carrying capacity of planet Earth, which precludes the labor force from growing indefinitely, so it's only a matter of time till the rate of profit flatlines due to unavailability of additional proletarians.

[Sir Comradical]

Baran & Sweezy argued in Monopoly Capital that because of the rise of monopolies, the tendency of the rate of profit to fall no longer applied because such an explanation only applied to the more competitive 19th capitalism of Marx’s era. Instead they argued that monopoly capitalism had created the conditions for the "tendency of the rate of surplus to rise" as opposed to the tendency of the rate of profit to fall.

They based this argument on the claim that capitalists now had greater power to set prices instead of being forced to sell at the prices offered by the market. Therefore under these conditions a firm would be compelled to reduce costs primarily to be able to widen their profit margins rather than to compete on price and they could get away with this precisely because of the increasingly monopolised character of modern capitalism. Crisis would then emerge because consumer spending would lack the purchasing power to absorb the surpluses.

The problem with this argument is that it’s built on the fallacy of composition because it assumes that what’s true of individual firms will be true of the entire capitalist class. If one firm with immense market power can get away with charging a price well above the average rate of profit, then the firms that make purchases from that monopoly firm will have higher costs of input which in turn will cause them to have a below average rate of profit. In other words, increased monopolisation does not in itself create any extra value, it merely redistributes surplus value even more unevenly among the capitalist class.

[TheOneWhoKnocks]

That's a really interesting point. So would you say that, instead of there being a tendency of surplus to rise, it is instead a tendency for monopolistic firms to appropriate a larger share of the total surplus?

[MEGAMANTROTSKY]

Hi, I've moved this to the Economics sub-forum so that hopefully some well-read econ-junkies can find it and give a good explaination or suggest some places to look for critiques.

I am not an expert on economics, but to take a shot at this argument, I'd say first of all that the economic crisis may have refuted this argument by itself. It seems to me that the tendency for monopolization is one way in which capital attempts to mitigate declining rates of profits: labor can be more concentrated and rationalized (in the service of increasing exploitation of course), and in having the big fish eat the little fish, capital can reorganize production to eliminate competition which results in declining rates of profit as it takes more investment capital to keep up with technological advances and so on.

The financilization angle is pretty interesting and I'd like to hear more discussion on this. Definately un-tieing currency and allowing for speculation on top of speculation has created more flexibility for capitalism - more places to put wealth when industry can not be invested in. But it's also still ultimately tied to the real production in society and so maybe like Luxembourg worte about credit, it seems to allow capitalists to put crisis further down the road, but when the imaginary money is actually needed, then the house of cards comes tumbling back to earth.
You may find some useful analysis in "The Failure of Capitalist Production" by Andrew Kliman, who argues that the falling rate of profit was a key indirect cause of the 2008 crisis. He also has a lot more to say about Baran and Sweezy's book Monopoly Capital, as well as the financialization angle. While I'm no economic expert either, I felt like I had a much better understanding of the financial crisis after finishing. Best of luck.

[Zulu]

Wouldn't the collapse of firms fit in with the larger trend toward monopoly?
Yes, but it would also fit in with the tendency of the rate of profit to fall. Monopolization is in fact caused by this tendency, because it was a major "natural selection" factor - the firms that were able to "starve" longer than others survived.




They based this argument on the claim that capitalists now had greater power to set prices instead of being forced to sell at the prices offered by the market. Therefore under these conditions a firm would be compelled to reduce costs primarily to be able to widen their profit margins rather than to compete on price and they could get away with this precisely because of the increasingly monopolised character of modern capitalism. Crisis would then emerge because consumer spending would lack the purchasing power to absorb the surpluses.
This is correct. But it only reflects a relative and temporary effect of the monopolization process. Stating that this may have a lasting effect may only be based of the assumption that the earlier tendency of the rate of profit to fall resulted only from the competition (for the customer who wanted lower prices). But that assumption is false (or, rather, lopsided at least), because the more fundamental cause of the tendency of the rate of profit to fall is the accumulation of the constant capital, which makes the relation of the new added value (variable capital) to the value of the constant capital diminish with each production cycle. This can be alleviated in only two ways: employing more labor power (population growth, expansion of capitalism) and destruction of (part of) the constant capital (war).





If one firm with immense market power can get away with charging a price well above the average rate of profit, then the firms that make purchases from that monopoly firm will have higher costs of input which in turn will cause them to have a below average rate of profit.
Not necessarily, because in the end the higher costs will always be transfered on to the final consumer. Which adds up to the lack the purchasing power to absorb the surpluses. But here comes the consumer credit, making all those industrial monopolies dependent on the financial oligarchy, that decides who gets the credit and who doesn't.

[Sir Comradical]

Ohh yes I forgot to mention that most important part - that the rate of profit falls when the organic composition of capital rises.

[Zulu]

the organic composition of capital rises.

This.

Damn, it's counterintuitive!

I mean workers are organic, means of production are mechanic, electronic... whatever... Why the hell did Marx (or Smith, whoever it was) formulate it this way?

Pardon my rant.

[Vladimir Innit Lenin]

Ohh yes I forgot to mention that most important part - that the rate of profit falls when the organic composition of capital rises.

Why, though? Can't technological advances lead to an increase in the organic composition of capital?

The idea of monopoly capital is indeed compelling, but not without its flaws, namely that, as said above, it doesn't always hold. I'd say that the 'degree of monopoly' argument is more water-tight from a Marxist perspective; that 'perfect competition' is an illusion and the heterodox theory of 'imperfect competition' is not hugely helpful as it is sort of a 'perfect competition minus one' theory and thus doesn't really deviate from neo-classical economic ideas.

As Marxists, understanding firms as blocs of capital that (often, but not always) attract capital to themselves in various ways, we can see that on a scale of perfect competition - imperfect competition - oligopoly - monopoly, that there is always a degree of monopolisation due to the mobility of capital towards blocs of capital; globalisation is a proof-case in point that this is an undeniable reality. Looking at oil companies and multi-national corporations, I often find this compelling. But this isn't water-tight either: sometimes capital is, for whatever reason, attracted to start-ups and the degree of monopoly theory, much like the similar monopoly capital theory of Sweezy, doesn't do that well in addressing this.

There may be some truth to the Austrian school's theory that sometimes, capital doesn't tend towards already-existing units of capital (i.e accumulation and centralisation of capital towards monopoly) because of 'entrepreneurial' factors. I don't have that much of a problem accepting this as an explanation of economic behaviour or psychology, as opposed to a defined economic theory in itself. It may be self-reinforcing, i.e. this veering of some capitalists to invest in start-ups ('entrepreneurialism') may be something that said capitalists believe in, and as self-fulfilling prophecy they are drawn towards investing in start-ups. Also there may be some economic motive for this - higher percentage return on investment being one, if it's a tiny start-up that goes global i.e. Facebook. It's attractive to incorporate this idea of the Austrian school as a behavioural, auxiliary component into our Marxist critique as it is a way not of positing economic theory (in other words, i'm not saying we should base our ideas of capital mobility and accumulation on Austrian school economic theory), but of explaining outliers; indeed, the overwhelming tendency seems to be towards a greater degree of monopoly as capital attracts to the centre, but this theory is incomplete without explaining why capital doesn't always attract to existing units of capital.

[Vladimir Innit Lenin]

This.

Damn, it's counterintuitive!

I mean workers are organic, means of production are mechanic, electronic... whatever... Why the hell did Marx (or Smith, whoever it was) formulate it this way?

Pardon my rant.

The organic composition of capital is just every input into the production process besides labour. It's not the worst way of explaining the production process.

[Sir Comradical]

Why, though? Can't technological advances lead to an increase in the organic composition of capital?

Yes that's what it means. The organic composition of capital is c/v, that is the ratio of constant capital to variable capital, or in other words, the ratio of machines to people in value terms (assume values translate to prices).

Anwar Shaikh explains it:


Increasing mechanization gives rise to what Marx calls a rising technical composition of capital. Ever greater masses of means of produc¬tion and materials arc set into operation by a given number of workers. According to Marx, this in turn implies that out of the total labor value (C + L) of the final product, progressively more comes from the means of production used up and progressively less from living labor. In other words, the rising technical composition is reflected in value terms as a rising ratio of "dead to living labor," of C to L.

The rate of profit, as we have seen, is S/(C+V). But S = L-V, since surplus labor-time (S) equals the time workers actually put in (L) minus the time necessary to reproduce themselves (V). Therefore, even if "workers lived on air" (V=0), the most that S could be is 'max/C=L/C. Consequently, L/C is the ceiling to the rate of pro-fit, while the floor is of course zero. Now, if a rising technical composition docs indeed reflect itself as a rising ratio C/L - hence a falling ratio L/C — then the actual rate of profit will be pro¬gressively squeezed between a descending ceiling and an unyielding floor, so that it must itself exhibit a downward tendency. This is what Marx means by the tendency of the rate of profit to fall.

[Vladimir Innit Lenin]

Meh. I'm not sold by that explanation. Marx's model is flawed because, due to the equation S/(C+V), there is no way for the model to take account of technological innovation, or anything that results in increased productivity per effective worker. It's not a bad model, but it does tend to only work, in this sense, within its own constraints. It's incomplete, but that's not surprising because the bloke was writing 150 years ago.

I'm still to read Luxemburg's 'Accumulation', but i'll be interested to see what she makes of it all.

[Sir Comradical]

Meh. I'm not sold by that explanation. Marx's model is flawed because, due to the equation S/(C+V), there is no way for the model to take account of technological innovation, or anything that results in increased productivity per effective worker. It's not a bad model, but it does tend to only work, in this sense, within its own constraints. It's incomplete, but that's not surprising because the bloke was writing 150 years ago.

I'm still to read Luxemburg's 'Accumulation', but i'll be interested to see what she makes of it all.

Increasing the rate of exploitation is a counteracting tendency that works against the TRPF. Marx covered it like a motherfucker.

[Vladimir Innit Lenin]

How is technological advance in general an increase in the rate of profit? That only is the case if workers are replaced by machines with no compensation but, though that does often happen, it's not something that HAS to follow on and thus it does render the model slightly lacking in that sense.

[Sir Comradical]

How is technological advance in general an increase in the rate of profit? That only is the case if workers are replaced by machines with no compensation but, though that does often happen, it's not something that HAS to follow on and thus it does render the model slightly lacking in that sense.

I didn't say that.

Rate of exploitation =/= Rate of profit.

Rate of exploitation = s/v

Rate of profit = s/c+v

Getting workers to work harder has the effect of widening the gap between the cost of reproducing the worker and the value created by the worker.

Cutting wages has the same effect.

This counteracts the falling rate of profit.

[Vladimir Innit Lenin]

But if technology leads to the redundancy of workers, that will theoretically increase the rate of exploitation as 'v' will decrease, yet it doesn't necessarily follow that the rate of exploitation increases (if workers are paid off, given alternative employment or other benefits to replace loss of income derived from employment)?