Abstract
The spectre of ‘secular stagnation’ still haunts the world economy today. Marx’s theory of capital accumulation and his law of the long-term tendency of the rate of profit to fall provide explanations for this development, feared by economists, politicians, bankers and businessmen alike. It is important (1) to analyse and explain correctly the primary tendencies of the falling rate of profit (the law itself, determined by the rate of surplus value and the organic composition of capital advanced) together with its counteracting causes, and (2) to attribute the long-term, in other words intercyclical, fall of the profit rate to certain historical regimes of capital accumulation in the developed capitalist countries and the world market. Both aspects allow us to develop a diagnosis of the specific historical situation in which the capitalist mode of production currently finds itself. For the post-war period, theoretical analyses are illustrated with the development of the rate of surplus value and the profit rate in the German economy.
Whatever shortcomings they may have, the advantage of my writings is that they are an artistic whole, and this can only be achieved through my practice of never having things printed until I have them in front of me in their entirety. This is impossible with Jacob Grimm’s method which is in general better with writings that have no dialectical structure. (Marx 1865b , p. 173)
In our following text, all quotes from Volume III of Capital are taken from MEW 25 (i.e. Engels’s edition of 1894). We are aware of the differences between Marx’s originary manuscript from 1863–1865 and Engels’s edition. This does not concern, however, the problem we are discussing, in other words the ‘law of the tendential fall of the rate of profit’. And the controversies about this ‘ law’ to which we are looking back have been conducted by referring to this edition.
We are aware that is is quite different in other fields, e.g in the discussion oft he so-called „transformation problem of values into prices“ which cannot be properly understood without going back to Marx’s manuscript (as published in 1992 in MEGA II.4.2): Marx’s problem had not been the mathematical compatibility between price- and value-systems, but rather the forms of the comprehensive process of capital, which define specific relations between individual agency and unconscious orientation processes. And this dimension has been plaid down in Engels’s edition. We have also worked on this change of perspective in the Third Volume of Capital, cf. our extensive interpretation of Marx’s manuscript in MEGA II 4.2 in Joachim Bischoff/Axel Otto et.al., Ausbeutung – Selbstverrätselung – Regulation. Der 3. Band des „Kapital“, VSA: Hamburg 1993.
(Original translation by Jeffrey Butler)
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Notes
- 1.
- 2.
On the relationship between money and capital in Outlines see Bischoff and Lieber 2008.
- 3.
See Marx 1857/1858b, p. 137: ‘Ramsay and other economists justly distinguish between the growth of productivity in the branches of industry supplying the constituents of fixed capital, and naturally of wages, and growth in other industries, e.g. the luxury-goods industries. The latter industries cannot diminish necessary labour time.’ See also p. 138: ‘Other economists, e.g. Wakefield, take refuge in discussing the field of employment for the growing capital. This belongs in the analysis of competition and is evidence, rather, of a preoccupation with the difficulty for capital to realise a growing volume of profit, which amounts to a denial of the immanent tendency of the rate of profit to fall. And the necessity for capital to seek a constantly expanding field of employment is itself a consequence’.
- 4.
On the necessary qualitative differentiation between the quantitative differences between cyclical crises and capital devaluations and structural crises with factors impeding capital devaluation, see below.
- 5.
The idea of an intentional transformation of individual value fractions of the macroeconomic commodity product into a production price system while taking the so-called reproduction scheme as a basis, as propagated by proponents of the so-called ‘ transformation from values into production prices’, proceeds from a false point of departure. It allows itself to be taken in by the specific mystifications of value creation and the production of surplus value, mistaking variable money capital for an advance payment and, connected with this, a disregard for differences in form between constant and variable capital in the creation of products and the accumulation of value. In tandem with this is the identification of variable capital with the value or price of the necessary food bought with the returns of waged labour ( variable capital as ‘approvisionnement’, a false manifestation already reproduced by Adam Smith and criticised by Marx in passing, see Marx 1893, pp. 210–211.
- 6.
Bischoff and Lieber 2011 demonstrate how this ‘tearing apart of the object’ through all rough drafts of Capital (1857/58, 1861–1863 to 1867) is reflected in Marxist research.
- 7.
The competition-mediated form in which individual capitalists implement increases in the forces of production—generally referred to as ‘anticipation’—substantiates the connection between the reciprocal pre-suppositions of the different sides of bourgeois-capitalist totality. Moreover, it is evidence that the relations of the process of direct production are integrated into a regulatory system for the entire economy. Therefore, when anticipation is discussed in Chapter 10 of Capital, Volume I, then only in terms of the categories used: extra surplus value is later referred to more precisely as surplus profit, individual and social value ( market value) as individual and sector-specific cost price or individual and market production price.
- 8.
We reject the separation of the law of the tendency of the rate of profit to fall from the crisis character of the development of capital as recommended by Heinrich (2007): ‘How does it look with regard to Marx’s crisis theory, is it in fact so dependent on his law of the rate of profit ? At least on the basis of Engels’s edition of the third volume of Capital we can hold the view that Marx conceived his crisis theory as a consequence of his “law of the tendency of the rate of profit to fall”, although he could not complete it. Marx’s thoughts on crisis theory changed several times, both in regard to substance and in methodological importance, after beginning his elaborations of the critique of political economy in 1857. Yet nowhere in the various rough drafts and deliberations on the categorical structure of his work can evidence be found suggesting he sought to couple the crisis theory with the profit rate law’ (p. 77).
- 9.
Here, we must distinguish between capital employed in the production process, both total (gross) fixed capital and total living labour independent of its division into paid and unpaid labour, as well as the respective capital value advanced for certain periods of time, which encompasses net fixed capital (gross fixed capital less cumulative write-offs) and money capital advanced for the purchase of raw, auxiliary and operating materials, as well as external labour and worker acquisition ( variable capital advance). Changing functional differentiation in the value composition of the capital advance and the organic composition of utilised capital does not have implications for the actual situation discussed here, namely that the change in the technical composition of capital determines the development of organic composition and, as the turnover relationships of capital are only a secondary modifying circumstance, the value composition of the capital advance as well.
- 10.
Something analogous also holds true for an extraordinary economy in circulating constant capital through continuing increases in productivity due to the favourableness of natural conditions for mining and agriculture, which are expressed in prolonged value reductions for units of industrial raw materials and agricultural products. Under developed conditions, such exploitation of favourable natural conditions is generally also tied to social, in other words industrially determined, increases in productivity. In addition, one-time exploitation of natural resources would not be the pre-condition for a limitation—in the extreme case a reversal—of an increase in the organic capital composition, but rather a prolonged and sustainable condition. Both determine these circumstances as exceptional situations, in other words as modifications of general principles that can only be empirically registered and analysed.
- 11.
The finished form of the general profit rate not only contains the structure of the different components of industrial capital originating in the production and circulation processes, but also the respective profit rates of commercial or merchant capital, as well as of bank and insurance capital. Merchant capital’s rate of profit acquires commercial profit from the profit margin between sale and the cost prices of commodities lowered by the material and personnel costs of circulation, which, as with industrial capital, figure as advance factors. The profit rate of bank capital opens up access to bank profit from interest-based business (debtor minus creditor interest) and non-interest transactions (provisions, commercial profits) of bank capital. ‘Bank profit’ refers to the bank’s investment capital, its material and personnel circulation costs—the situation for private insurance companies, which like banks earn their profits from underwriting capital, is analogous. The latter is made up of the premium payments from customers (insured people and goods, etc.) minus expenses paid for claims (in addition to reserves set aside) and interest paying investment of the difference. ‘Insurance profit’ also refers to insurance companies’ investment capital (circulation costs). The rates of profit of these different types of capital are gathered together in the equalisation process to a macroeconomic average profit rate in competition, through which the scale and distribution of total capital in the various spheres of production and investment, as well as the assessment of macroeconomic circulation costs in the entire national production process, is regulated.
- 12.
In the following, further elements accompany differentiation between distribution and redistribution processes (market and politically determined income distribution). Over the course of the continuity of the reproduction process, these revert from results of capital accumulation to their determining requirements—with the exception of interest rates, which become part of the superficial manifestations of the profit rate. These will not be addressed in this chapter.
- 13.
The determination of total social capital as national capital was always controversial within Marxist circles. At times, the fundamental economic determination of total capital as national capital was denied, as it was assumed, given capital’s tendency to create a world market, that the existence of national economies was a mere product of political circumstance. The same holds true for the determination of the general rate of profit, also conceptually understood as a ‘world profit rate’ for all developed capitalist metropoles (see Neusüß 1972; Altvater 2010). With regard to equalising national average profit rates in and through foreign trade, this equalisation is subject to entirely different laws than the national equalisation of individual and industrial rates of profit. In fact, possible international equalisations in valorisation conditions only come about through the national processing of the value- and use value-related effects of foreign trade and the international movement of capital (see Krüger 2010, p. 781ff).
- 14.
Monopoly profits were and are alleged to arise in individual examples, but have yet to be empirically substantiated. Studies analysing the annual financial statements of companies in search of monopoly profits have regularly come up empty-handed (see, for example, Saß 1978). The yearly representative analysis of the company statements put out by the German Federal Bank also shows no evidence of monopolistic tendencies in a structural or long-term sustainable form. In this calculation, we disregard international corporations’ tax-avoidance policies by transferring profits into low tax areas. These potentially above average profits do not arise through monopoly profits before taxes, but can at best be demonstrated after taxes. In this, they do not exploit the non-monopolistic corporate sector, but rather the general public though legal and half-legal tax breaks and loopholes.
- 15.
Both consequences have successively determined the constellations between the reproductive and financial spheres of the economy after the transition from accelerated accumulation to overaccumulation of capital. In the seventh post-war industrial cycle (1976–1982), decelerated capital turnover—the initial continuity of general price increases on the commodity markets due to money wages that were (still) too rigidly downward—as well as state-supported consumer demand and growing liquidity preferences on the money capital markets due to increasing insecurity led to a simultaneous declining or low profit rate and high or increased money interest rates . Through the change in the balance of power on the labour market, a shift towards restrictive governmental financial policy and the end of money-policy accommodation for inflationary processes by the central banks since the eighth post-war cycle (starting in 1983), this first phase of structural overaccumulation was replaced by a development in which the ‘tacit connection’ (Marx 1894, p. 419) between the supply of and demand for reproductive and money capital expressed in a long-term consonance between a low rate of profit and falling interest rates due to excess macroeconomic savings (a savings glut) emerged (see Krüger 2015). ‘Since we have seen that the rate of profit is inversely proportional to the development of capitalist production, it follows that the higher or lower rate of interest in a country is in the same inverse proportion to the degree of industrial development, at least in so far as the difference in the rate of interest actually expresses the difference in the rates of profit. … In this sense it may be said that interest is regulated through profit, or, more precisely, the general rate of profit. And this mode of regulating interest applies even to its average’ (Marx 1894, pp. 359–360).
- 16.
With the central banks’ very relaxed money policy (quantitative easing) that reinforces these market tendencies, the regulatory function of the interest rate is essentially overridden. Here, however, we must differentiate: unto itself, a basic interest rate of zero or near zero is also the relativisation and revocation of the capital character of interest-bearing capital . In order for positive regulatory potentials for accumulation to arise from this, regulation of investments must take place in the framework of a macroeconomic structural policy and, in addition, be co-ordinated with the financial policies of public households. Moreover, the pre-requisite for pinpointed control of investments would be that the accumulated debts of corporations, banks, the state and private households be reduced to the extent that making payments on them would not create new mis-allocations or that not paying them would not produce uncontrolled creditor collapses (see Krüger 2016).
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Bischoff, J., Krüger, S., Lieber, C. (2018). ‘Secular Stagnation’ and the Tendency of the Rate of Profit to Fall in Marx’s Critique of Political Economy . In: Dellheim, J., Wolf, F. (eds) The Unfinished System of Karl Marx. Luxemburg International Studies in Political Economy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-70347-3_5
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