Letter: Declining rate of profit? (2010)

Letter to the Editors from the August 2010 issue of the Socialist Standard

Declining rate of profit?

Dear Editors

The July edition of your journal contains a brief review of my recently published book Global Capitalism in Crisis: Karl Marx and the Decay of the Profit System. Although the book treats a great many issues of interest to socialists, the reviewer chose to focus on just one theoretical issue that I treat at some length in the book, namely, the specification of the wage bill of socially necessary unproductive labour (SNUL – in commerce, finance and the state) as a component of “constant capital” rather than as a part of surplus value or variable capital.

The reviewer is right to suggest that this approach is important to my analysis of the current global slump as rooted in the on-going displacement of living, productive labour from production (what Marx called a rising “organic composition of capital”).However he or she implies that my empirical measurement of constant capital in the Marxian ratios for the average rate of profit and the organic composition of capital includes the costs associated with unproductive labour. This is not the case, as such costs are assimilated by me to the flow of constant capital rather than to the “capital advanced,” i.e. to the constant capital stock. The magnitude of the constant capital flows does not enter into the measurement of either the average rate of profit or the organic composition of capital.

The main effect of treating SNUL costs as a component of the constant capital flow is that it removes these costs from the measurement of either aggregate surplus-value or aggregate variable capital, thereby allowing for more accurate measurements of Marx’s key quantitative ratios. In my view, the assimilation of SNUL costs to surplus value or to variable capital (or to both) has been a key stumbling block in empirically evaluating Marx’s law of the falling tendency of the rate of profit and to recognizing the centrality of this law to the dynamics of capital accumulation in the era of capital’s decay.

Murray E.G. Smith (by email)

Reply: 

We certainly accept that some of Marx’s writings on productive and unproductive labour are open to interpretation and were not fully worked out (e.g. the treatment of this issue is rather different in the Appendix of Volume I of Capital called ‘The Results of the Immediate Process of Production’ compared to the chapter in Volume 2 on ‘The Costs of Circulation’).

However, we get a strong sense that you are effectively redefining the rate of profit formula so that it might more easily show what you seek to prove and what others have failed to prove before you (that there is a pronounced and statistically observable long-term tendency for the rate of profit to fall in capitalism that will lead to the system’s demise).

This attempt seems divorced from some of the realities of capitalism and misses much of what has underpinned political and economic debate in recent decades: namely that it is the rate of profit after tax that is key for investment decisions and that governments have been in a desperate struggle to the reduce the tax-take from profits for years. Indeed, taxes themselves are ultimately a burden on capital – from surplus value – as therefore is the state machine funded by them, and this is the important point we seek to emphasise. – Editors.