Falling rate of profit

[bloody_capitalist_sham]

how strong is it as a theory, when looked at empirically?

are there any prominent examples?

also, with the tendency for the rate of profit to fall, lose out to the counter-veiling tendencies which mitigate the falling rate of profit?

can anyone go into detail to explain the the counter tendencies?

and what do people think about Robert Brenners "profit squeeze theory"

is that justifiable?

[gilhyle]

Need to be clear that the Law is a law expressing a tendency not a law predicting an empirical regularity.

Anything that increases relative surplus value is a long term counter tendency.

It is not really whether the rate of profit has actually fallen that concerns us, rather it is whether capitalist society can continue to accumulate surplus value that concerns us. Technical developments and the replacement of labour by machines create disproportions that interrupt accumulation.

[ComradeRed]

how strong is it as a theory, when looked at empirically? Depends at which explanation of the "law" you look at.

For example, the explanation in the third volume of Das Kapital is rather questionable.

Granted, it was Marx's notes, and we don't know if Engels pieced it together properly.

I assume you are investigating it from the third volume of Kapital, and that is probably where it is presented in a weak and ambiguous manner.

There is no derivation of it, and no empirical support for it, hence why it's the weakest presentation.


are there any prominent examples?
Argentina is a prime example:


Fiscal Imbalances Culminate in Crisis

Despite the reforms implemented in the 1990s, structural weaknesses in the public finances, and particularly in the tax system, were not addressed. The lack of fiscal reform explained why, despite strong growth, the government ran persistent deficits and became more indebted. Pensions reform compounded the imbalance. The government remained responsible for existing pensioners as well as for a share of the payments to be made to future retirees, but most payroll contributions were transferred to private pension funds. In addition, the rapid increase in public-sector debt from 1994 raised interest payments. These structural trends were aggravated by the prolonged recession that started at the end of 1998, and culminated in the 2001 crisis. Attempts were made in 2000-01 to reduce the fiscal deficit, and the authorities obtained an IMF loan and organised two voluntary debt-rescheduling operations, but the measures came too late. A sovereign debt default was formally declared in December 2001.

The Currency Board Collapses and the Sovereign Defaults

The currency board collapsed under the twin burden of fiscal and financial pressures (a rising government borrowing requirement and severe credit constraints) and a lack of competitiveness (worsening relative prices of tradeables owing to parity with a strong US dollar). In response to the run on the banking system and the currency, the authorities imposed a deposit freeze and foreign-exchange controls. The freeze on deposits (the so-called corralón) provided the catalyst for the protests that led to the collapse of Fernando de la Rúa’s government in December 2001. In January 2002 the currency board was abandoned and the peso devalued. After a brief attempt to sustain a new parity, the peso was floated. --bold emphasis added, underlines are the Economist's.

Pg. 27 of the Country Profile: Argentina 2007.

The IMF loan bailed out Argentina's economy, which is why it didn't fully collapse.

If it did, it would have affected the world market...which would have been a severe strain on the international economy.

[renegadoe]

The distinction between the falling rate of profit as a law and a tendency is important. Capital fluctuates between periods of successful accumulation, and periods of difficulty in accumulation. In the long-term, though, the tendency is that it becomes harder and harder for capital to accumulate successfully through its current methodology, thus forcing the regime of accumulation to modify itself accordingly.

I'd recommend you check out David Harvey's A Brief History of Neoliberalism, where he has gathered empirical evidence that suggests the recent shift into neoliberal capitalism was triggered and has been institutionalized due to this tendency. Harvey statistically shows how for the last three decades, the income margins of the upper strata of the bourgeoisie have been falling exponentially, necessitating the massive privatization and accumulation by dispossession that has become a defining aspect of capital's operation today.

I wish I could provide some of that information, but, alas, I do not have the book with me at the moment.

[renegadoe]

The annoying part of being a Marxist is that there is little to no statistical information available for us that has not been persuaded by the material (eg: profit-driven) interests of the bourgeois statistic-gathering institutions. However, we are able to obtain small samples of evidence which reveal that our assertions continue to be true.

Having returned to my bookshelf, I was able to crack open my copy of the aforementioned Harvey book, and found the couple charts that I recalled before (for anyone with the book, they are figures 1.2 and 1.3, in the first chapter, 'Freedom's Just Another Word...'). Figure 1.2 plots the share of assets held by the top 1% of the US population from 1922 until 1998. The highest point is from 1930, with just under 50%. The figure declines, with temporary gains, with the last peak in 1965 (the height of the post-war boom, before the first signs of recession preceding the 1972 crash), at 38%. 1975, however, sees a fall to 20% (no doubt due to the OPEC oil crisis which facilitated the shift into post-fordist neoliberalism) - only reaching a peak of 35% until the mid nineties. Needless to say, bourgeois income assets dropped again with the crash of the dot.com boom and the following recession.

Figure 1.3, however, is interesting in correlation with 1.2. It graphs the share of assets held by the upper 0.1% of the U.S. population - which is at 12% in 1913 (its maximum height on the graph) and mimics closely the shape of figure 1.2 until the late seventies. From 1980 until 1998, the figure triples, rising from ~2.1% up to 6% in just a couple decades.

It makes sense that a more general way we can investigate the assertion of the tendency of the rate of profit to fall is by studying the income assets of the highest strata of the bourgeoisie. And this validates Marx's assertion - the percentage is highest in the early stages of the US economy, lowest during crises, and goes downhill consistently throughout. But the second graph demonstrates one of the central goals of the bourgeois shift to neoliberal accumulation - to restore the class power of the bourgeoisie by reversing the trends set by the Keynesian welfare state. Neoliberalism stratifies even the bourgeoisie, favoring the .1% over the 1%, and declining from there. But even this project has proven to be unstable and very crisis prone - and doesn't seem like it's going to be able to maintain for much longer.

But BCS, your question remains incredibly important for us Marxists. If we can show that the tendency for the rate of profit to fall remains generally true, then we can empirically prove that capitalism will always drive itself into crisis, with each crisis worse than the last. Our limited information know suggests that this is in fact the case - but to confirm our assertion would take a lot of labor, probably necessitating the interest of the academic Marxists, and thus is just not possible at this point in time.

[gilhyle]

I assume you are investigating it from the third volume of Kapital, and that is probably where it is presented in a weak and ambiguous manner.

There is no derivation of it, and no empirical support for it, hence why it's the weakest presentation.

THe problem I have with this is the two ideas that a) it needs to be 'derived' and b) that it should or could have empirical verification.

I dont see any reason necessarily to draw the conclusion that there is a secular tendency for the TRPF to outrun the counter tendencies over any time period that would be significant for us.

You might argue that this makes it untestable, but that is to miss the point of what Marx was doing.

[ComradeRed]

THe problem I have with this is the two ideas that a) it needs to be 'derived' and b) that it should or could have empirical verification. Uh, everything needs to be derived.

Otherwise, it's an assertion.

Further, if you're going to be scientific about this, there damn well better be empirical support!

Otherwise...it wouldn't happen...

That's the significance of empiricism.


I dont see any reason necessarily to draw the conclusion that there is a secular tendency for the TRPF to outrun the counter tendencies over any time period that would be significant for us. Well, since you haven't given any reason for: a) the counter tendencies to outrun the TRPF, b) why it being temporally significant to us counters the collapse of capitalism.


You might argue that this makes it untestable, but that is to miss the point of what Marx was doing. Since neither of us are Marx, nor are we able to ask him, this assertion is empty rhetoric.

If you have a theory that is untestable, it's useless.

Specifically in this instance, you would be no better than a vulgar economist.

[gilhyle]

Well yes, it depends what you mean by 'derived'. Clearly there is a sense in which there is process of conceptual refinement going on in Volume ONe and Two from which it is 'derived'. If that is what you mean - fine.

No I think it is untestable because it is a conceptual framework. Its a tool to be used for further analysis. The question is whether its a useful conceptual framework. It is not the case that the only thinking one can do that is useful is the formulation of an empirically testable hypothesis. An awful lot of theoretical physics would go by the way-side if that was true.

It is a profoundly significant fact about Marx's analysis that it does not lead all the way from the abstract concept of the commodity to the concrete analysis of his contemporary conjuncture - it gets close to that but it doesnt get there.

As to the relative power of the tendency and the countertendencies, the simple fact is this is not resolved in Volume Three - you dont have to be Marx to see that.

[ComradeRed]

Well yes, it depends what you mean by 'derived'. Clearly there is a sense in which there is process of conceptual refinement going on in Volume ONe and Two from which it is 'derived'. If that is what you mean - fine.Well, what I mean is this:

"If GDP increases, inflation increases."

There is no reasoning why this is, nor any derivation of it from previous propositions or reality (it cites no statistics).

It is not derived. It is an assertion.

If there were a proof (like, a logical argument) or statistical evidence, then it would be derived either from previous propositions or from empirical evidence.


No I think it is untestable because it is a conceptual framework. Ultimately it will be tested, because if capitalism doesn't collapse then it's wrong.

But we won't know that until the universe collapses in on itself.

[BobKKKindle$]

This is what you're looking for:

http://www.isj.org.uk/index.php4?id=340 - "The rate of profit and the world today". I'll quote the section on empirical evidence - but the rest of the article is good as well.

The empirical picture

How does the empirical record of profit rates over the past 30 years measure up to these various arguments? And what are the implications for today?
There have been a number of attempts to calculate long term trends in profit rates. The results are not always fully compatible with each other, since there are different ways of measuring investment in fixed capital, and the information on profits provided by companies and governments are subject to enormous distortions (companies will often do their best to understate the profits to governments, for tax reasons, and to workers, in order to justify low wages; they also often overstate their profits to shareholders, in order to boost their stock exchange ratings and their capacity to borrow). Nevertheless, Fred Moseley, Thomas Michl, Anwar Shaikh and Ertugrul Ahmet Tonak, Gérard Duménil and Dominique Lévy, Ufuk Tutan and Al Campbell, Robert Brenner, Edwin N Wolff, and Piruz Alemi and Duncan K Foley22 (http://www.isj.org.uk/index.php4?id=340#115harprof_22) have all followed in the footsteps of Joseph Gillman and Shane Mage who carried through empirical studies of profit rate trends in the 1960s.
A certain pattern emerges, which is shown in graphs given by Duménil and Lévy (figure 1) for the whole business sector in the US and by Brenner (figure 2) for manufacturing in the US, Germany and Japan.
Figure 1: US profit rates accounting for (—) and abstracting from (- ) the impact of financial relations23 (http://www.isj.org.uk/index.php4?id=340#115harprof_23)
http://www.isj.org.uk/images/115/115harpro1.jpg



There is general agreement that profit rates fell from the late 1960s until the early 1980s. There is also agreement that profit rates partially recovered after the early 1980s, but with interruptions at the end of the 1980s and the end of the 1990s. There is also an important area of agreement that the fall from the mid_1970s to the early 1980s was not a result of rising wages, since this was the period in which US real wages began a decline which was not partially reversed until the late 1990s. Michl,24 (http://www.isj.org.uk/index.php4?id=340#115harprof_24) Moseley, Shaikh and Tonak, and Wolff25 (http://www.isj.org.uk/index.php4?id=340#115harprof_25) all conclude that the rising ratio of capital to labour was an element in reducing profit rates. This conclusion is an empirical refutation of the Okishio position. “Capital intensive” investments by capitalists aimed at raising their individual competitiveness and profitability have had the effect of causing profitability throughout the economy to fall. Marx’s basic theory is validated.
Figure 2: US, German and Japanese manufacturing net profits rates26 (http://www.isj.org.uk/index.php4?id=340#115harprof_26)
http://www.isj.org.uk/images/115/115harpro2.jpg



Profit rates did recover from about 1982 onwards—but they only made up about half the decline that had taken place in the previous period. According to Wolff, the rate of profit fell by 5.4 percent from 1966-79 and then “rebounded” by 3.6 percent from 1979-97; Fred Moseley calculates that it “recovered…only about 40 percent of the earlier decline’’;27 (http://www.isj.org.uk/index.php4?id=340#115harprof_27) Duménil and Lévy that “the profit rate in 1997” was “still only half of its value of 1948, and between 60 and 75 percent of its average value for the decade 1956-65”.28 (http://www.isj.org.uk/index.php4?id=340#115harprof_28)


can anyone go into detail to explain the the counter tendencies?

There are many different countervailing factors. A Capitalist may try to increase the absolute surplus value (by making the working day longer, so the worker is producing more units of output for the same wage) or increase the rate of surplus value (making workers work harder, increasing productivity) or even just by reducing the workers pay - which Marx called "Immiseration". Alternatively, a capitalist may, through the state apparatus, either by political pressure or military action, open up foreign countries for investment, which allows the capitalist to release surplus investment capital, in order to prevent a further increase in the organic composition of capital in the domestic economy.

The State may also increase tax on corporations and increase public expenditure, especially in the military sector, to slow the rate at which constant capital increases relative to variable capital by restricting the capital available for (re-)investment. Kidron examines this factor and developed the theory of the Permanent Arms Economy, which provides an explanation for the post-war economic boom.

[Guerrilla22]

or even just by reducing the workers pay

Classic economist advocate this in times of decreased profit. Therefore, in their minds unemployment was technically impossible because the employee could simply agree to a lower wage rather than "force" the employer to lay the worker off. Of course, Marx saw the fallacy in this logic as did reformist like keynes, who stated that you can't simply lower wages, without a proportional drop in the cost of living, to increase profits because the amount of capital being put back into the economy will ultimately drop. Of course, Keynes' theory of the solution wasn't all that great, it was essentielly what FDR implemented during the depression.

[BobKKKindle$]

Classic economist advocate this in times of decreased profit. Therefore, in their minds unemployment was technically impossible because the employee could simply agree to a lower wage rather than "force" the employer to lay the worker off. Of course, Marx saw the fallacy in this logic as did reformist like keynes, who stated that you can't simply lower wages, without a proportional drop in the cost of living, to increase profits because the amount of capital being put back into the economy will ultimately drop. Of course, Keynes' theory of the solution wasn't all that great, it was essentielly what FDR implemented during the depression.You're describing the theory of the "natural rate of unemployment" - Classical economists argue that, if labour markets are flexible, unemployment will not persist for a long time and the economy will tend towards equilibrium. The experience of the great depression empirically proves this theory wrong. Lowering wages also intensifies a problem arising from the drive to accumulate surplus value: Overproduction. Because workers are paid less in wages than the value of what they produce, they never have enough demand (taking the working class as a whole) to buy back everything they produce - and so goods accumulate, forcing the capitalist to either find a way to get rid of this surplus (by destroying the goods or opening a new market) or cut back on production. Lowering wages reduces the aggregate purchasing power of the working class, making overproduction worse.

Incidentally, I don't want to drift off-topic, but FDR's "New Deal" was actually a very moderate form of keynesian demand-management, because he was not willing to incur a public accounts deficit - which is the entire point of Keynesian fiscal policy, because it injects money into the circular flow of income.

[Guerrilla22]

You're describing the theory of the "natural rate of unemployment"

Yeah, they are interconnected though, which is what I was trying to get at.

[FireFry]

It concerns me really when economics is examined in measure of dollars rather than people. This analysis is centered around the matter of fact of bourgois economics, that is, economics used only by the few against the most, for the benefit of selectively the few.

And this is how an anarchist spends his weekends ; debating economics.

Hahaha.