Tags
Borzooieh tabib, industrial rationalization, Michael Heinrich, Michael Roberts, the fall in the rate of profit, the rate of surplus-value
Source: Michael Roberts Blog
Norm’s note: for context, I’ll refer you to this post by Michael Roberts, titled ‘The two Michaels (Heinrich and Roberts) in Berlin – dogmatism versus doubt.’ Clearly, in claiming that Marx’s ‘ law of the tendency of the rate of profit to fall‘ is logically inconsistent, Michael Heinrich missed something, as the comment by ‘Borzooieh tabib‘ so elegantly demonstrates:
Borzooieh tabib Says:
June 4, 2015 at 4:06 am | Reply
Rate of profit
this line of thoughts
Let us calculate every thing based on socially necessary hours of Labor time, and calculate for every single worker, and for every single working day .
Rate of profit = S/C+V
If P would be the amount of value produced by a worker in one hour with a given technological condition:
S/C+V can change to sP/cP+vp
s would be the time(not value) spent for Production of S( expressed as value)and c the time of production of C and, v the time spent for production of V
But s+v is maximum 24 hr if we
assume that worker does not need any rest time and all the time working
Therefore s =24-v
So rate of profit = Ps/ Pc+Pv
Or. s/c+v
Or. 24-v / c+v
Or ( 24/v ) -1 / ( c/v)+1
With advancement of technology v decreases so (24/v), increases ,
and also c/v increases
Because we are talking about long run trend , the amount of v gets very small so 24/v and also c/v will be very large numbers so we can omit -1 and +1 in formula
So (24/v) -1 / (c/v) +1 can be changed to:
(24/v) / (c/v)
Or. 24 / c
But accumulation of capital means that c is increasing ,( the time spent in production of C expressed as value)
So 24/c as the formula of rate of profit in the long run , will fall, (inspire of technological advances which increases S/V (the rate of surplus value,)
Indeed.
And directly relevant to the issue at hand, see this: Unmaking of Marx’s Capital, final, 7-22-13.pdf
The abstract of the essay reads:
Michael Heinrich’s recent Monthly Review article claims that the law of the tendential fall in the rate of profit (LTFRP) was not proved by Marx and cannot be proved. Heinrich also argues that Marx had doubts about the law and that, for this and other other reasons, his theory of capitalist economic crisis was only provisional and more or less in continual flux.
This response shows that Heinrich’s elementary misunderstanding of the law––his belief that it is meant to predict what must inevitably happen rather than to explain what does happen––is the source of his charge that it is unproved. It then shows that a simple misreading of Marx’s text lies at the basis of Heinrich’s claim that the simplest version of the LTFRP, “the law as such,” is a failure. Marx’s argument that increases in the rate of surplus-value cannot “cancel” the fall in the rate of profit is then defended against Heinrich’s attempt to refute it. Finally, the paper presents evidence that Marx was indeed convinced that the LTFRP is correct and that he regarded the crisis theory of volume 3 of Capital as finished in a theoretical sense.
What is in bold is my emphasis, because what ‘Borzooieh tabib‘ demonstrates is precisely that “increases in the rate of surplus-value cannot “cancel” the fall in the rate of profit,” that is to say, that in the pursuit of profits by means of technological innovation or industrial rationalization, you can simultaneously have an increasing rate of surplus-value AND a falling rate of profit. Therein lies the rub.
Related:
Marx’s law of profitability: answering old and new misconceptions
I have long disagreed publicly with Michael Roberts’ view on the rate of profit thesis. There is just no way to determine actual profits–levels or therefore rates. This is for various reasons. Here’s just a few: first, at the core of global capitalism is the multinational corporation. Numerous studies show that their profits are at least a third determined by financial asset investments, what’s called ‘portfolio’ investment. The MNCs have become, and are increasingly becoming, financial institutions. Marx’s theory of profit defines profit in production as the result of exploitation of productive labor only (or some labor necessary to the distribution and commerce of productive labor). In other words, only labor that produces discrete goods. It’s a narrow, classical economics definition going back to Smith and others. But global MNCs not only create profit from the production of goods (and not all of them either). They create profit from financial asset investment and speculation. That means if one were to keep to the definition of Marx on profit, that one would have to somehow subtract out portfolio investing profit from total profit. This would have to be done for all MNCs that do portfolio investing, in order to get some kind of average profit minus portfolio profits. Michael Roberts and other largely anglo-american Marxists don’t do this. Because they can’t. There is no data retrieving formula for this, or even access to MNC balance sheets to determine this.
Roberts and others rely on government provided data on profit that doesn’t distinguish between the aggregation of real productive profit and financial speculative profits. So his profit rate data is corrupted and cannot be used to determine the falling rate of profit.
There’s a further problem: To get even total profit data, it is necessary to adjust for accounting rules that differ country to country, that influence the level and therefore the rate of change of profit. There’s also the problem that in many countries the economic data is insufficient and distorted by collection processes. Definitions of profit are also different. This corrupts the profit data when trying to aggregate it across countries and economies.
Apart from all these data definition and collection issues that make determination of the real profit rate difficult, there’s the problem of taxation that render after tax profits as the variable even more problematic. For example, in the US alone, in 2018 Fortune 500 profits rose about 27%. But 22% of that 27% was attributed to Trump’s corporate tax windfall alone. This goes on at the US state level as well. And it differs in Europe and elsewhere as capitalist states ‘race to the bottom’ in granting tax cuts to business and investors. So forget after tax profit data altogether.
In short, data on profits are grossly unreliable for accuracy, and this is especially so globally and for multinational corporations, that typically adjust their internal pricing arbitrarily to lower or raise profits in different subsidiaries producing semi-finished goods between the subsidiaries. Roberts has no access to this internal pricing data manipulation, that makes profits artificially appear higher in one subsidiary and lower in the other. How much should nominal profits then be adjusted for real profits when the internal pricing effect is unknown and clearly would differ greatly across different corporations? Roberts doesn’t know because the data is proprietary and internal to the MNCs.
I agree with many of the critiques of Heinrich, as well as the view that Marx was not completely sure of the falling rate of profit tendency as a predictor of business cycle contractions. If he had been sure, he would not have left it just as unpublished notes.
Then there’s the related critique that even if he had been convinced, it is clear that Marx was not talking about short term business cycle contractions (which include recessions, great recessions and even depressions). Marx’s theory applies to the long run crisis and breakdown of capitalism. This is a focus very typical of classical economics, which lacked the detailed empirical data to develop a theory of business cycle contractions. Nevertheless, Roberts and friends try to ‘fit’ this long term crisis theory into an explanation of short term contractions when they argue the rate of profit determines the outcome of crises like 2008-09 or depressions.
Marxists should get off the fixation on rate of profit as the key determinative variable. Marx’s economics is about the accumulation of capital, a deeper and broader concept than profit rates. A Marxist theory of investment (aka capital accumulation) in the 21st century, which accounts for both destabilizing financial portfolio investment as well as real asset investment, is what the focus of analysis of capital in the 21sts century should be.
The fixation of mechanical Marxists on the rate of profit and the constant reference to Marx’s notes as proof this is the key variable is more an exercise in philology than it is an analysis of the character of contemporary capitalism.
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I’m slowly coming around to something approaching your viewpoint, Jack: the system is complex and always evolving; consequently, there cannot be but innumerable ways in which it can and does come undone,
One spends a lot of time and effort trying to come to an understanding of a complicated theoretical point of view, and as a result, in spite of oneself, one develops a kind of intellectual myopia: other perspectives, by dint of neglect, tend to be overlooked or left out of account.
I’m just now reading Heinrich’s reply to his critics, and the arguments he marshals so far strike me as being robust.
So I’ve yet to come to terms with Marx’s LTFRP, but feel increasingly less certain of it than I once did.
I really need to read more of your work, as well as that of other critics of the so-called ‘law,’ and to give it all some serious think.
Your comment is highly appreciated and your points are well taken.
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