[lbo-talk] Fwd: Special Page at Monthly Review (My reply to Heinrich) Part II

Shane Mage shmage at pipeline.com
Mon Dec 2 11:32:17 PST 2013



>
> ...Heinrich claims to substantiate his claim that the "Law" is
> theoretically invalid, because it cannot be logically developed from
> the basic categories and conceptions of the Marxian theoretical
> system, with an argument based on a formula that he mistakenly calls
> "value composition." [cf. footnote two] In this, as in many of
> Marx's illustrative examples in vol.1, it is assumed that the entire
> social capital is consumed and reproduced in the course of a single
> year--ie., that there exists no fixed capital. Thus he propounds as
> Marx's "not explicit" expression for the rate of profit the formula
> "p=s/(c+v)," equivalent to "(s/v)/[(c/v)+1]." From this he argues
> that his "c" increases "precisely in the course of the production of
> relative surplus-value, which leads to an increasing rate of surplus-
> value...when Marx claims a fall in the rate of profit, then he must
> demonstrate that in the long term the denominator grows faster than
> the numerator. Yet there is no evidence whatsoever for such a
> comparison in the speed of growth."
>
> Heinrich is not wrong about the relation of the stock-of-constant-
> capital/labor-value-flow ratio (the Organic Composition) to the
> production of relative surplus-value. Increase of Q, for Marx,
> expresses "the progressive development of the social productive
> power of labor," and increased productivity produces relative
> surplus-value by decreasing the labor-cost of production of labor
> power (the value of the real wage) and thus the paid portion of the
> given working day. Where Heinrich goes wrong is in his assertion
> that there is no reason for the rate of increase in the denominator
> (capital stock) to exceed the rate of increase in the numerator
> (surplus value). From examination of the correct formula for the
> Marxian rate of profit, p'=s'/Q(1+s'), it is clear that the rate of
> surplus value, s', appears with a positive sign in both the
> numerator and the denominator but that the capital stock, C, appears
> only in the denominator. Evidently, in the course of the long-run
> evolution of capitalism the rate of increase of organic composition
> must tend to exceed the rate of increase in surplus-value resulting
> from it. (A more rigorous demonstration of this relationship is to
> be found on pages 147-151 of my 1963 dissertation, "The 'Law of the
> Falling Tendency of the Rate of Profit': Its Place in the Marxian
> Theoretical System and Relevance to the US Economy, 1900-1960,"
> available online from http://archive.org/details/MagesDissertation)
>
> Heinrich's second charge against the logical derivation of the "Law"
> is that there is no systemic reason for organic composition to
> increase: "we do not know whether the denominator increases."
> Suppose that labor productivity were to increase more rapidly in the
> "capital goods" industries than in those producing articles of
> working-class consumption. Then the organic composition could
> decrease (less value embodied in constant capital relative to the
> living productive labor set in motion by it) with the result of a
> rising rate of profit unless the overall technical composition would
> have increased more rapidly than the productivity of capital-goods-
> producing labor. [footnote three]
>
> For anyone with eyes open to look around him it is impossible to
> take this argument seriously--every great city is dominated by
> commercial structures employing no productive labor at all; every
> manufacturing industry is constantly displacing workers and
> replacing them with automated machinery; energy--which once employed
> millions of miners--is ever more entirely being provided by a
> relative handful of workers operating enormously capital-intensive
> nuclear power plants, hydrocarbon wells and pipelines, offshore oil
> platforms, wind-turbines, solar panels, etc. And all this is
> clearly but the latest stage of a process that has built steadily
> over some two centuries of capitalist economic development and is,
> if anything, accelerating. But, Heinrich might argue, this is
> merely "empirical reality," and the place of technology in the
> materialist conception of history [footnote four] is merely
> "philosophy." He would demand a "theoretical" demonstration that
> this unquestionably real capitalist development is a necessary
> consequence of Marx's model of capitalism.
>
> The reply might start with the point that a very large portion of
> the inputs to capital-goods industries (raw materials, labor-power,
> electricity, fuel, etc.) are identically inputs to consumer-goods
> industries. In particular, they account for virtually the entire
> cost of construction. Any hypothetical decrease in the value of
> these inputs would have the same effect in increasing productivity
> (decreasing unit value) in both types of production. So if capital-
> goods' productivity were to increase faster than consumer-goods'
> productivity, that increase would have to come entirely from their
> machine-building component. But surely the same applies to the
> inputs (except machines) for that machine-building component. And so
> forth ad infinitum. In the face of an infinite regress the
> hypothesis of rising relative productivity in the industries
> supplying capital goods simply collapses. Different individual
> branches of industry may develop labor productivity at different
> rates and at different periods of time, but over the historical
> course of capitalist development the average productivity of social
> labor in those two gross categories, capital goods and consumer
> goods industries, cannot be distinguished.
>
> This is not, however, a theoretical demonstration that the Organic
> Composition must tend to increase. What is needed is to show how
> such a tendency follows from the necessary course of capital
> investment over the course of what, in Marxian terms, constitutes an
> "ideally average" economic cycle (an "ideal" cycle presupposes a
> closed--ie., abstracting from exchange with other economies--model).
> This schema involves three definite Marxian theories: that the
> industrial reserve army is the regulator of the supply and demand
> for labor power; that expected profitability is the decisive factor
> in capitalist decision making; and that the supply of credit is
> endogenous to the system (ie., the quantity of credit is determined
> by the monetary quantity of transactions to be financed, not the
> reverse as in the "quantity theory of money" where the aggregate
> value of transactions depends on an exogenously determined "money
> supply").
>
> The cycle can be taken as starting with the low point ("trough") of
> its preceding cycle. The industrial reserve army (which Marx
> defines as the "pivot," the regulator, of the supply and demand for
> labor power, ie., wages) has been replenished and production is at
> its nadir (unemployment is high and capacity-utilization low).
> Interest rates have fallen as a result of lowered demand for credit
> to finance inventories and capital investment. Replacement of worn-
> out capital equipment, deferred during the bottom phase of the
> former cycle, is needed by many businesses. Thus the upswing
> involves increasing output without increasing unit costs, raising
> profits. As it proceeds profits, capital utilization, prices,
> employment, real wages, interest rates, and new investment all
> increase until the cycle approaches its peak.
>
> The renewed investment at the start of the upswing was mainly in
> inventories and replacement equipment. Output could increase
> without much need for expanded capacity, and employment-increasing
> (ie., capital-broadening, as against capital-deepening) investment
> was at its most profitable in comparison to labor-saving
> innovation. But then output-increasing investment starts to become
> ever more needed, older equipment becomes more costly to operate as
> it is worked more intensely, and labor-power becomes more costly as
> the reserve army is depleted. As new investment increases, the
> rising tendency of wages makes it become ever more biased toward
> labor-saving innovation--the higher the wage the more relative
> surplus-value is produced by every hour less labor time required to
> produce a given output. The peak of the cycle is characterized by a
> high level of capital-intensive investment, spurred on by the
> expectation of high profitability from maintenance of or increases
> in prices and demand. As the interest rate required to finance new
> investment increases (and, conversely, the "payout period" a firm
> requires to justify new investment shortens) the large investment
> projects previously begun start to come on line, putting intense
> competitive pressure on prices and so on less-productive older
> capitals. Realized profits fall short of what had been expected,
> inter-business debt payments are delayed for longer times, business
> failures with associated loan losses to the credit system increase
> and credit tightens, workers are laid off thus decreasing effective
> demand, and new investment, no longer seen as adequately profitable,
> falls off. The cycle thus has gone into reverse until, at its
> trough, a new cycle gets underway.
>
> This abstract model, which tells us almost nothing at all about the
> concrete determinations--of timing, expectations, foreign trade and
> foreign exchange, natural-resource costs and rents, market
> structure, speculation, politics, and class struggle--that shape
> every actual economic cycle and notably every crisis--nevertheless
> establishes the vital point at issue: capital accumulation (new
> investment) takes place predominantly at the height of the cycle
> when the cost of labor power is high and rising. It is therefore
> highly biased toward labor-saving technological change and this
> makes a cycle-to-cycle increase in the Organic Composition of
> Capital a necessary and fundamental component in Marx's model of the
> "economic law of motion of modern society."
>
> Because every cycle thus involves an increase in the organic
> composition of the social capital, and because increase in organic
> composition involves decrease in the rate of profit, Marx's abstract
> model of the cycle (his "crisis theory") necessarily involves an
> effect of that decrease in the peak phase of the cycle. Marx
> explains it thus: "The rate of profit, ie., the relative increment
> of capital, is above all important for all new offshoots of capital
> seeking an independent location...[it is] the fundamental premise
> and driving force of accumulation." (v.3, p. 304) This is not at all
> to assert that new investment necessarily becomes less profitable in
> operation than the previously-accumulated capital. The fall in
> profitability manifests as a decreasing "marginal efficiency of
> investment" for the social capital as a whole. The decline is
> principally felt by "older" capital, as commodities from newer more
> productive capital come onto the market, in the form of
> overproduction relative to demand at the existing price level. That
> overproduction, however, is crucial. The depressed market means that
> the return on new capital, and therefore the expected return on new
> investment, has fallen below the level on which the original
> investment decision was based. The realized payback period has
> lengthened beyond what had been projected and new projects are
> postponed. Thus the Law acts as a powerful constricting influence in
> every crisis, at the peak and recession phase of every cycle. It
> is, over the historical course of the capitalist mode of production,
> a "barrier," a force repeatedly depressing the profitability of
> investment to ever lower levels. Marx, an ardent Balzacian, might
> well approve were we to call his Law capitalism's Peau de Chagrin...


> Shane Mage
>
> This cosmos did none of gods or men make, but it
> always was and is and shall be: an everlasting fire,
> kindling in measures and going out in measures.
>
> Herakleitos of Ephesos
>
>
>
>
>



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