The Basic Analysis

B. The Basic Analysis

The analysis of “The Law as Such” commences with an assumption of a given rate of surplus value s/v, the real wage basket per day and labor embodied therein, the length of workday, and intensity of labor all held constant (MECW 37: 209–10, 215; also 230). On this assumption, $100 of variable capital corresponds to the wages paid per period to a specific quantum of labor (or more accurately the value of these wages). The rate of surplus value s/v is (initially) taken as 100 percent – the laborers “work daily as many hours for themselves, i.e., for the reproduction of their wages, as they do for the capitalist, i.e., for the production of surplus value . . . ” (209). This given s/v, however, represents different rates of profit (s/C) according to the constant capital complement – again in terms of value – supporting labor. Thus:

p ′ = s/C % 50 100

(c + v) = C

Economic Growth and the Falling Rate of Profit

Marx observes that the profit rate p ′ (we shall call it R) declines because given s is calculated on a rising C (209–10). But his usual practice is to work with a given C.

It is preferable, therefore, to convert c and v to fractions of a total C of $100 value thus:

s 33 1 3 66 2 3 66 2 3

The consequence of an increase in the c/v ratio (given s/v) – “the gradual fall of the general rate of profit” – is described in an important passage applying to the economy as a whole:

If it is . . . assumed that this gradual change in the composition of capital is not confined only to individual spheres of production, but that it occurs more or less in all, or at least in the key spheres of production, so that it involves changes in the average organic composition of the total capital of a certain society, then the gradual growth of constant capital in relation to variable capital must necessarily lead to a gradual fall of the general rate of profit, so long as the rate of surplus value, or the intensity of exploitation of labour by capital, remains the same (210).

It is apparent from his reference to average capital composition that in deriv- ing the law of declining profits Marx presumes a solution to the Transformation problem; the complexities engendered by divergence between “values” and “prices of production” are set aside, and the analysis proceeds entirely in terms of values. This is a procedure with damaging consequences for the argument (e.g., Steedman 1977: 44; Wolff 1979; also Baumol 2001: 235–10), but we shall assume the problem away in order to proceed with the main formulation. Some analyses simply assume uniform composition (e.g., Dickinson 1956–57: 121n).

The assumption of a constant s/v seems to be crucial to the case for a falling profit rate. This was how Joan Robinson (1967 [1942]), and before her Bortkiewicz (1952 [1907]), approached the case. But the assumption raised insurmountable difficulties. For constant s/v requires that rising productivity in the wage-goods industries – which implies increasing s/v – be exactly counterbalanced by rising commodity wages: “Marx can only demonstrate a falling tendency in profits by abandoning his argument that real wages tend to be constant. This drastic incon- sistency he seems to have overlooked, for when he is discussing the falling tendency of profits he makes no reference to the rising tendency of real wages which it entails” (Robinson 1967 [1942]: 36). In fact, holding the real wage constant, and allowing for productivity increase, the rate of surplus value is unconstrained: for (v + s) is constant (with given labor time of given intensity), so that as v falls towards zero,

113 s/v rises towards infinity. Robinson concludes: “Marx’s argument fails to establish

B. The Basic Analysis

a presumption that the rate of profit tends to fall” (40). 1 A similar objection will be found in Sweezy (1942: 100–1) and Gillman (1956: 20); and we have a restatement of the Bortkiewicz-Robinson perspective in the charge that Marx failed to appre- ciate “that the rate of surplus value is not only functionally but positively related to the very same process of mechanization that raises the organic composition of capital” (Blaug 1980: 46).

There are, on the other hand, those who deny Joan Robinson’s contention, and go so far as to assert a necessary decline in R, on the basis of the absolute maximum to “new value.” For example: “an increase in the rate of surplus value cannot ultimately compensate for the rise in the organic composition of capi- tal. That is, in the long run, the effect of the organic composition of capital will assert itself ” (Cogoy 1987 [1973]: 59). Similarly, Ronald Meek allowed that while Marx was not justified in asserting “a continually falling” R upon increase in c/v (e.g., MECW 37: 211), his own arguments do allow one to say “that there will eventually come a point beyond which no conceivable rise in the rate of surplus value – not even a rise to infinity – could possibly prevent the mass of surplus value produced by the given capital (and thus the rate of profit) from falling below its original level” (Meek 1967: 135). And Dickinson maintained that assuming (as he believed Marx did assume) s/v to be constant, the profit rate declines continuously; whereas allowing for increasing s/v simply introduces the possibility of an initial increase in R which is followed by a falling trend (1956–57: 125). And he con- cluded his mathematical study thus: “The sole value of an investigation such as this makes it impossible summarily to dismiss Marx’s theory of the falling rate of profit as a mere chimera. Even though he left the proof of it in Capital mathemati- cally incomplete, Marx’s assertion that there was a connection between increasing organic composition of capital and a falling rate of profit was a sound intuition that a more rigorous method has largely justified” (130).

In what follows, we shall take account of these disparate views regarding the implications flowing from the characteristics of surplus value. We shall also con- sider Marx’s assumption in deriving the “law” that an increase in the technical com- position of capital – the “physical” capital/labor ratio – is reflected in an increased value composition – the ratio of the value of constant capital to the value of vari-

able capital (e.g., MECW 37: 234); 2 for this assumption too has been subject to

1 Robinson considered the analysis to be a “red herring,” and a particularly unfortunate one since it “prevented Marx from running the theory of effective demand to earth” – alluding to

the underconsumptionist feature (1967 [1942]: 50–1). 2 A word here regarding definition: “I call the value composition of capital, in so far as it

is determined by its technical composition and mirrors changes of the latter, the organic composition of capital” (MECW 35: 608; also 37: 145). For much of what follows in this chapter the organic composition thus strictly defined is irrelevant because, following Marx, we have the values of capital goods and wage-goods varying differentially, so that changes in value-composition do not “mirror” precisely changes in technical composition.

Economic Growth and the Falling Rate of Profit

considerable criticism (e.g., Sweezy 1987 [1973]; Groll and Orzech 1987). These tasks require that we develop a framework, faithful to Marx, to approach the issue; and that we get a firm grip on Marx’s own position. It turns out that while the critics are correct that Marx failed to justify his case for a declining trend in the profit rate, the main reason offered for the failure – rising s/v – is invalid.

In the course of our analysis, which bears upon the contrast between Ricardian and Marxian economics, we consider the implications of allowing a differential impact of technology on the cost prices of wage-goods and capital-goods. Marx’s case, it emerges rather unexpectedly, would be strengthened by assuming a relatively faster productivity increase in wage-goods production. Marx himself, however, did not take up this line of argument.