Concluding Comments: On the Significance of the Falling Profit Rate

I. Concluding Comments: On the Significance of the Falling Profit Rate

If we inquire where precisely the importance of the falling profit rate lies we can- not point to a concerted discussion. There are though the suggestive indications, touched on in Chapter 2, pp. 66–7, in particular the weakening of the motive to accumulation and the resultant threat to the capitalist system (MECW 37: 240). 24 Yet the weight to place on the disincentive effect is unclear, since Marx commends Richard Jones for emphasizing “correctly that in spite of the falling rate of profit the inducements and faculties to accumulate are augmented . . . ” (265). The curve relating the profit rate and accumulation – whatever its slope – is continually shift- ing outwards because of an increase in the purchasing power of aggregate profits, because “the wants and the greed for wealth increase,” and because of various institutional changes which ease the savings-investment process.

Centralization too – or “the formation of capital . . . [by] a few established big capitals” (258) – is in part a consequence of the falling profit-rate trend: “A drop in the rate of profit is attended by a rise in the minimum capital required by an individual capitalist for the productive employment of labour. . . . Concentration increases simultaneously, because beyond certain limits a large capital with a small rate of profit accumulates faster than a small capital with a large rate of profit” (249) – a familiar Smithian theme. In fact, the “centralisation of existing capitals in

a few hands and a deprivation of many of their capital . . . would soon bring about the collapse of capitalist production if it were not for counteracting tendencies, which have a continuous decentralizing effect alongside the centripetal one” (245; emphasis added).

Marx proposes a further consequence of the profit-rate fall, its encouragement of instability on the part of small firms specifically: “At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. The mass of

(50). The problem of the inducement to invest is central because “[i]f capitalists were always prepared to invest their surplus in capital goods, without regard to the prospect of profit, the output of capital goods would fill the gap between consumption and maximum potential output . . . however wretched the level of consumption.”

For a comparison of Marx and Keynes on effective demand and unemployment, see Sardoni 1986. 24 Marx recognized Ricardo’s prescience in this regard (MECW 37: 258).

There is also a danger that if the profit rate falls below a certain minimum, capitalists might engage in hoarding, not compensating for reduced investment by increased consumption outlays (Bronfenbrenner 1965: 219).

I. Concluding Comments: On the Significance of the Falling Profit Rate 133 small dispersed capitals is thereby driven along the adventurous road of speculation,

credit frauds, stock swindles and crises,” in consequence of “a plethora of the capital for which the fall in the rate of profit is not compensated through a mass of profit” (here citing the Economic Manuscripts, MECW 33: 112). Similarly, the fall in the profit rate “breeds overproduction, speculation, crises, and surplus capital alongside surplus population” (MECW 37: 240). This process is again reiterated: “ a fall in the rate of profit connected will accumulation neccessarily calls forth a competitive struggle. Compensation of a fall in the rate of profit by a rise in the mass of profit applies only to the total social capital and to the big, firmly placed capitalists. The new additional capital operating independently does not enjoy any such compensating conditions. It must still win them, and so it is that a fall in the rate of profit calls forth a competitive struggle among capitalists, not vice versa” (255). We return to these matters in Chapter 5 on the cyclical dimension.

We have said nothing of the effect of the destruction of the lower strata of the mid- dle classes in consequence of the “concentration” (or, better, the “centralisation”) process – a reflection in part of the falling return on capital – and their inflow into the proletariat putting downward pressure on the wage (on which see Chapter 6, pp. 172–3; Chapter 7, p. 495). Now in Capital 1 Marx writes of the process whereby “the larger capitals beat the smaller,” forcing the latter to “crowd into spheres of production which modern industry has only sporadically or incompletely got hold of . . . ,” a process which “always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, partly vanish” (MECW 35: 621; also 750). But nothing is said here specifically of their “vanishing” into the proletariat. And this is true also of Capital 3 (MECW 37: 240, 245).

Reduced real wages do, however, play a role in the story, capitalists depressing wages in an effort to check “the tendency of the rate of profit to fall” (234). The complexity we face here is that this is represented as a case of “depression of wages below the value of labour power” – this may, however, be an Engels insertion – which usually relates to cyclical not secular pressure (see Chapter 1, p. 44).