[D66] Fwd: [Marxism] Carchedi: the current crisis is caused by Marx’s “law of the tendential fall in the average rate of profit”

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Subject: [Marxism] Carchedi: the current crisis is caused by Marx’s “law of the
tendential fall in the average rate of profit”
Date: Mon, 24 Oct 2011 10:15:39 -0400
From: Louis Proyect <lnp3 at panix.com>


http://isj.org.uk/index.php4?id=761&issue=132
Behind and beyond the crisis
by Guglielmo Carchedi

The 2007 financial crisis has reignited the discussion on crises,
their origin and possible remedies.1 At present the most
influential thesis on the left sees the crisis as caused by
underconsumption and recommends Keynesian policies as a solution.
This paper argues that we should understand the crisis from the
perspective of Karl Marx’s “law of the tendential fall in the
average rate of profit” (ARP), for short “the law”. Its
characteristic feature is that technological progress decreases
the rate of profit, rather than increasing it as is usually
assumed. Let us see why.

The law in a nutshell

The law’s essential features are as follows:

(1) Capitalists compete against each other by introducing new
means of production incorporating new technologies. This is not
the only form of competition but it is by far the most important
one for understanding the dynamics of the crisis.2

(2) The new means of production increase the efficiency (output of
use values per unit of capital invested) of the technological
leaders in the
productive sectors.

(3) At the same time, the new technologies are designed to replace
labourers with means of production. Therefore the technological
leaders’ proportion of capital invested in means of production
relative to that in labour power, the organic composition of
capital, increases. Unemployment follows.

(4) Since only labour creates value, less labour power employed
means less (surplus) value created by high-technology capitals.
All other things being equal, the ARP falls: ‘‘The rate of profit
does not fall because labour becomes less productive, but because
it becomes more productive”.3 Notice that it is the rate of profit
and not the mass of profits that falls. The latter can increase
when the former falls. Conventional economics cannot see that it
is the very dynamics of the system, ie technological competition,
that causes the fall in the ARP and thus crises, because
implicitly or explicitly it reasons only in physical or use value
terms.

(5) It follows that a greater quantity of use values incorporates
a smaller quantity of (surplus) value, ie that falling profit
rates and rising outputs are two sides of the same coin.

(6) The technological leaders perceive increased productivity as
the way to realise higher profit rates. They do not know that
their workers produce less surplus value. However, rises in the
rate of profit of the technological leaders come about because
they appropriate surplus value from two sources. First, from other
sectors, if the new products attract purchasing power from other
sectors. Initially those suffering as a result will be the weaker
capitals in those other sectors. Second, from the technological
laggards in their own sector because the more productive capitals
can sell at the same unit price a greater output per unit of
capital invested. So the technological leaders’ rate of profit
rises, while that of the laggards and the ARP falls. Eventually,
capitalists who cannot innovate go bankrupt.

(7) Like all laws of development, this one is tendential. The same
factor, technological innovation, determines both the tendency
(the increase in the organic composition and the resulting fall in
the ARP) and the countertendencies. Several countertendencies can and do coexist.

(8) The tendency is such because it is kept back and delayed by
the countertendencies. But it eventually emerges when the
countertendencies exhaust their counteracting power. Then the
crisis emerges. There is a sudden jump in bankruptcies and
unemployment whose real scope had not been allowed to manifest
itself (fully) by the countertendencies.

(9) It follows that the tendency continues to operate even if
temporarily reversed by the countertendencies. This becomes
empirically visible when the ARP is computed in the absence of the
countertendencies.

(10) The crisis creates the conditions for the recovery. The
recovery emerges when these conditions have become sufficiently
strong. Periods of growth alternate with period of crises.

(11) Since technological competition is the dynamic of capitalism,
the economy tends necessarily towards an increase in the organic
composition of capital, a decrease in the ARP, and crises. But the
concrete shape of the ARP is the result of the interplay of the
tendency and its countertendencies.