More Brenner

Rakesh Bhandari bhandari at phoenix.Princeton.EDU
Sun Mar 14 19:38:45 PST 1999

Christian, thank you for your interest.

First quick answers to your queries: Brenner splits the capital labor ratio and the capital output ratio; he dismisses as Malthusian the idea that an increase in the former implies an increase in the latter. More on this below.

You are exactly correct that Brenner rejects diminished capital productivity and a real wage squeeze for diminished profitability post 65. I went to this economists' conference in Boston on Sat.--organized my notes on Brenner all night, took the 6:00 am train, gave the paper in my sleep, took the 6:00 pm train back; saw Payback and Analyze Me today (the former about the most racist Anti Asian flick I have seen, fucking pissed me off; DeNiro is rather excellent, but this Italian mob stuff stereotype is about as funny as a slit throat).

Oh, yeah, many of the economists seemed convinced that unbeknowst to himself, Brenner really was showing that real wage increases had brought the profit rate down. That is, if prices fell due to intl competition more steeply than real wages, then real wage increases squeezed profits. I find this a rather weak rebuttal of Brenner; so much is obvious to Brenner anyway. But he asks why did such weak real wage increases (such as they were) begin to squeeze profits when they had been easily accomodated before. Something else had to be depressing the nominal output capital ratio all of a sudden. Because that ratio fell more steeply in sectors exposed to trade, he then infers that the nature of intl competition must have changed.

But as I tried to suggest in my previous message, Brenner's analysis hinges just as much on insufficient exit as on the changing nature of intl competition.

Let's just the say the economy is made up of two firms. Brenner's pt is that if the inefficient firm had been driven out, then the innovator, though selling at lower prices, would have enjoyed the same rate of profit on that larger-scale investment in low cost capacity due to the sale of a greater mass of use values. Selling at a lower price should allow him to expand the market, as well as his market share. The innovator would accept the same average rate of profit since he has secured a greater mass of surplus value (I am reconstructing Brenner's argument a bit here)

Not gaining sufficient market share due to insufficient exit of the inefficient firm to have secured the greater mass of surplus value that would enable the average rate of profit on the large scale investment in low cost capacity, the innovator then has to retaliate with prices that do not allow him to secure the prevailing average rate of profit. His only hope now is to secure a greater mass of surplus value by accepting profit rates below the prevailing average. A price war breaks out then brings his and his competitor's profit rate down.

For Brenner, it is the absence of sufficient competition that drives the average rate of profit down. It is not competition that brings the profit rate down.

At the conference yesterday, Dumenil repeated the idea that Brenner's theory is one of profit rate decline to excess competition. Not exactly. It's profit rate decline due to insufficient competition or insufficient exit.

Now to fill out my criticism of this approach:

Brenner has located the problem of falling profitability in pricing behavior and exit strategy within the realm of competition, not from the progressive increase in the ratio of constant to variable capital within the hidden abode of production itself. Profit rates are variables chosen by competitors in struggle; or they are determined through criss crossing strategies of price warfare and scrapping decisions the results of which any bourgeois economist skilled in game theory could reasonably anticipate--at least retroductively.

The surface of bourgeois society is divorced from the underlying relations of production the labor value theoretic analysis of which is abandoned for an emphasis on the so called horizontal relations of capital. Itself the unintended consequence of firms operating in terms of price and profits, the changing relation between indirect and direct labor time in the economy as a whole is considered irrelevant to the determination of the profit rate. The reference to such a relation at the level of whole is implicitly treated as no less a mental construct than Sombart held it to be: value again is reduced to a gedankensbild and hardly an illuminating one at that.

No matter how momentous the relative explusion of direct labor from the production process--itself the unintended consequence of firms finding it individually profitable in price terms to reduce costs by substituting much direct labor for less machine costs per unit-- this cannot explain a declining rate of profitability, for Brenner, without the dubious Malthusian posit of diminishing returns in output relative to capital: costs after all have been reduced per unit due to greater output from the use of the machine, i.e., capital productivity has improved; thus, only an inability to mark up prices sufficiently could then explain declining profitability, he reasons.

Brenner then infers the liklihood of an exogeneous shock to prices and the nominal output capital ratio that prevents "the adding of that more or less arbitrary quota of profit on the commodity's actual value", as Marx characterized Smith's profit theory which is exactly Brenner's (see Bonefeld, Fine, et al, Dumenil et al); Brenner then gives that shock the form of international competition on the basis that prices fell harder in sectors exposed to trade, though profit rates fell before the onset of intl competition, fell even when balances in trade were maintained, fell in less exposed sectors as well and rose as intl competition evidently intensified. Yet Brenner never tires of the refrain that mfg profitability would have not suffered if intl competition had not prevented the mark up of prices.

Whatever his stated politics, Brenner brings us one step closer to the import duty socialism represented by Max Kayser who provoked Marx and Engels' challenge to the social democratic Reichstag fraction.

At best, we would expect this reasoning from a practical businessman, not a Marxist. Of course it makes no sense to a capitalist--more it is irrelevant to him--that the very method by which he can most successfully reduce his unit costs tends to bring about a change in labor value relations in the system as a whole and therewith changes in the average rate of profit behind the backs of businessmen whose fortunes are nonetheless ultimately determined by the movement of that rate. This Marxist has simply forgotten that the critique of political economy demonstrates the inability to understand bourgeois soceity from within the realm of competition.

Even Marxist economists think it is possible to understand how the rate of profit falls due to pricing strategies consciously employed by firms in the realm of competition. Marx effectively critiques Shaikh's critique of the Okishio theorem as the way to understand the fall in the rate of profit. The idea that a falling profit rate could be explained by the conscious strategy of firm driving the profit rate down in order to survive vis a vis competitors while contenting himself with a greater mass of profits is roundly dismissed by Marx. Such argumentation is based on "commonplaces and imagined possibilities". See Capital vol III, p. 330. Vintage.

For Marx, a lower average profit rate is not something chosen in the heat of battle; it exists independently of individual capitalists. It comes about as result of firms trying to reduce unit costs in prices. Unit costs are reduced by substituting quite a bit of direct labor per unit for less machine costs per unit. This should raise the rate of profit, thinks the businessman. Unit costs are lower, after all. It doesn't raise the rate of profit or even maintain the old one, reasons Brenner, because not enough firms have vacated in order to allow him to sell the new stuff or because international competition prevents a good mark up. The businessman would agree with Brenner. He would want to eliminate excess capacity that's flooding the market; he may want the govt to negotiate voluntary export restrictions as well to give him market room to allow him that arbitrary mark up. But everyone is baffled why if unit costs have been reduced due to the use of machines (improved capital productivity) firms cannot make sufficient profits. It just is not obvious to businessmen and the economists who only systemitize their understanding that the unintentional result of this ceaseless attempt to reduce unit costs has been to reduce the average rate of profit through the relative expulsion of direct labor and therewith the rate of accumulation and effective demand for the growing commodity output, thereby preventing the realization of mass of surplus value.

Of course the businessman's response to this situation can only be to further reduce unit costs by finding ways to substitute even more direct labor for less machine costs per unit. Businessmen have exactly no understanding and no interest in Marx's theoretical critique.

Now I don't mean to be polemical here.

Yet can Brenner explain excess capacity without reference to invisible, albeit real, magnitudes, i.e., without value analysis? The introduction of new low cost capacity need not yield overproduction given sufficiently strong effective demand. Lack of effective demand and excess capacity are two sides of the same coin. How does Brenner explain the weakness of effective demand? For Marx of course it derives from a crisis in accumulation, one of the major points of Marx's reproduction schemes being that categories of demand for investment and consumer goods are determined by the rate of accumulation itself . The crisis in accumulation has to be explained prior the problem of excess capacity; the fomer cannot be explained by the latter.

Some may remember that I have been making this argument since Sept. I was surprised to see the same argument along with the diagrams I used to make it appear in the paper by Glick, et al yesterday. Oh well.

The nature of competition is conditioned by the rate of accumulation. The slow down in the latter has to be explained first. That is, at a high rate of accumulation, there is peaceful competition. When accumulation slows down, then fraticidal competition.

But to understand the determinants of the rate of accumulation we need to make some heroic abstractions.

This is at the heart of Marx's methodological procedure--that is why he constructs a value theoretic model in which he purposefully abstracts from nation states, various strata and classes and competition and refers to "no more than the production and acumulation of capital in an imaginary [or idealised] system in which total capital confronts the working class as a whole--thus it refers to the pure operation of the mechanism of surplus value production and the dynamics of the accumulation process. Marx's aim is to demonstrate the existence of a tendency, inherent in capitalist development and dominating it, by reference to which alone the real movement of capital can be explained. By this means he demonstrtes that all of the difficulties of capital arise from the nature of capital itself, from surplus value production and the development, governed by it, of the social productivity of labor on the basis of the capitalist mode of production."

More specifically, Marx demonstrated that ever fewer workers must create an ever greater suplus value in order to produce the profits required by the capital already in existence if it to continue to expand. Inevitably a point will be reached at which the greatest quantity of surplus value that can possibly be extorted from the diminished working class is no longer sufficient to augment the value of the accumulated capital. This is how Marx explains the slow down in the rate of accumulation which slow down is the effective cause of excess capacity and the fraticidal competition to which it gives rise.

Brenner himself recognizes so much: "we may be on the verge of still another perhaps even more brutal round of that heavily zero sum battle for world markets in mfg, UNDER THE CONDITIONS OF SLOW GROWING DEMAND, that has so for too long stood in the way of renewed intl dynamism," thus invoking the conditions that need be explained.

With a high rate of accumulation and therewith effective demand for the growing commodity output, there is room for all producers; it is probable that an understanding may evolve where no one will undertake greenfield investment by the others would be undercut and afflicted with serious moral depreciation, if not outright technological obsolescence. Market share for the respective combatants remains stable until projected effective demand becomes bleak due to a slow date in the rate of accumulation; each then anticipates the other in the construction of low cost capacity, yielding the destructive dynamic that Brenner mistakes for actual cause of the long down turn. In short, the value theory of accumulation and crisis can explain the weakness of effective demand where Brenner must simply assume it for the persistence of excess capacity and the outbreak of fraticidal competition to which it gives rise. Which is the point made by Dumenil, Glick and Levy in a paper to be published in Historical Materialism. Oh well, I wish I had thought of it.

yours, rakesh

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