could someone explain marx's theory of... - the declining ra

[ArgueEverything]

as i understand it, this was one of his most valuable contributions to economic theory, and still holds true today.

could someone explain this theory?

[peaccenicked]

I will check up more on this later but to express it in laymans language. There is a crisis of over production
within the development of capitalism. The more you sell
the hard it is to sell. Therefore profits decline.

[Guest]

ironically declining rate of profits is a rehash of a well known economic rule, diminish product due to increasing capital, which Communist that actually put marxist theory to work neglected.
Think of it this way, a computer(which will represent capital) increases worker productivity, by this logic one might think more computers would continue to increase worker productivity. But if you give a worker two computers, the second will not contribute as much to his productivity as the first but will cost as much as the first. If you continue to give this worker more computers each one will cost the same, but each one will contribute to a smaller increase in his productivity. Therefore the if you increase capital while maintaining relative stability in other factors of production such as technology, population, and depreciation of capital, economic growth will eventually converge to zero. This is diminishing product due to capital.

Unfortunately for political reasons marx characterized it as rule of diminishing profits. When nations like the soviet union, mao's china, cuba, and eastern european states decided to undertake huge leaps of economic growth, like five year plans, what they did was ignore this law of diminishing returns to capital and proceed to accumulate capital. So for a long time the USSR for instance created massive industrial complexes that increased its output, but the other factors of production which I named above remained stable, (notably techonolgy) Soviet economic growth was incredible in the post-war years, but as early as 1963 CIA funded studies by economist such as robert sallow revealed all this growth to be due to capital accumulation. The soviet economy, like all other socialist economies was a house of cards. That is why soviet technology was vastly inferior to american technology in all respects.
Why?
Beyond the reasons that I highlighted above, the basic flaw of capital accumulation is that is derived from a savings function. For instance, another mistake that marx made in his analysis is based on his assumption that growth, or capital accumulation carries no price tag:
"less labour must be expended in producing the machinery than is displaced by the employement of the machinery."-Capital, I, 428.

Marx felt that investment was a no brainer for capitalist and so they would foster the misery of the working class by replacing them with machines.
On the contrary Capital accumulation is based on savings rate, which means that if you want to invest in capital you have to save money by forestalling consumption at the present time. Think of getting anything that is real expensive, like a stereo, you save up for it. When you save up for something that means money wasn't spent.
Capital accumulation works the same way, by saving up for it. But as logic dictates you can never save more than what you have. If you make 100 dollars in a year, you can't save more than 100 dollars, if you can call me, we can be filthy rich together. So the USSR for instance kept accumulating capital, and kept increasing its rate of savings to do so. Eventually they couldn't feasibly save more with out compromising their whole system, that is why they began to import grain from the US in the 70's. What capital accumulation as a tool for growth as put forth by marx and enacted by the USSR brought about was misery. What Soviet russia was at the end was industrial paper tiger. A nation of vast industrial capability in which consumers did not have the most accesible of consumer goods. They had massive chemical plants but no stereos.
Sure you might say, there is more to life than stereos, and TV's, and Coca-cola, and other consumer products. You might say those things suck, and happiness can be found in projects that benefit the proletariat like...massive chemical plants. But the soviet people didn't think so, neither did the Eastern Europeans, neither do the Chinese.

[vox]

From the Columbia Encyclopedia, Sixth Edition, available online:

The Law of Diminishing Returns:

"in economics, law stating that if one factor of production is increased while the others remain constant, the overall returns will relatively decrease after a certain point. Thus, for example, if more and more laborers are added to harvest a wheat field, at some point each additional laborer will add relatively less output than his predecessor did, simply because he has less and less of the fixed amount of land to work with. The principle, first thought to apply only to agriculture, was later accepted as an economic law underlying all productive enterprise. The point at which the law begins to operate is difficult to ascertain, as it varies with improved production technique and other factors. Anticipated by Anne Robert Jacques Turgot and implied by Thomas Malthus in his Essay on the Principle of Population (1798), the law first came under examination during the discussions in England on free trade and the corn laws. It is also called the law of decreasing returns and the law of variable proportions."

Guest's conclusions do not necessarily follow from this. Indeed, guest's post is a rather rambling, and not totally coherent, diatribe against Marx that, I am left to believe, purposely misunderstands Marx. I have to believe that when a post quotes someone, the writer of the post is familiar with the work quoted, and in this case I fear that the writer of the post misrepresents Marx, for Marx was speaking of socially necessary labour, as I recall. Rather than, as a capitalist economist may view it, a strategy of a particular segment of industry, Marx was looking at the whole of society.

Too, it's not appropriate to speak of a "savings rate" in a credit economy, I think. Indeed, if guest truly believes that it's not 1844, then guest needs to update the argument.

vox

[Freiheit]

sorry, but i just have to say

FUCK CAPITALISM!!!

[Guest]

Hey, thanks for restating the law of diminishing returns...

Thats right vox, my conclusion SHOULDN'T follow. Yet I'm describing what Marx concluded. This is not an ideological refutation of Marx, I'm not an ideological person. If I truly believed Marxism provided solutions, I'd be the first on board. Unfortunately its foundations are somewhere in the land of cotton candy dreams and marshmellow fantasies.

[vox]

Guest,

Are all of your responses going to be this weak?

So far, you haven't talked about Marx at all, though you toss his name around a bit. Perhaps you would like to re-write your initial post, for you contradict yourself.

Somehow, I haven't missed you, A.

vox

[Guest]

Um, you're right vox, I quoted Groucho Marx. nice try.