Book Review from the June 2017 issue of the Socialist Standard
'The World in Crisis'. Edited by Guiglelmo Carchedi and Michael Roberts, (Zero Books, 2017)
Karl Marx believed that capitalism had a tendency for the rate of profit to fall, and that this is ‘the most important law in political economy’. The Socialist Party has been non-committal on this ‘law’, partly because of its unfinished state (basically notes edited for publication by Engels after Marx’s death), and partly because the ‘law’ seems to be questionable due to what Marx called ‘counteracting factors'’. Also, some leftists have invoked a tendency for the rate of profit to fall as the cause of capitalism’s inevitable collapse (not heard so often these days, they are capitalism’s falling rate of prophets).
This collection of essays from writers around the world examines the evidence from states around the world (including China) using Marx’s theory of value. Marx’s ‘law of the tendency of the rate of profit to fall’ (LTRPF) can be stated in a couple of sentences:
• Capitalism is based on the competitive accumulation of profits through technological innovation.
• Technological innovation increases output but reduces the value of commodities and therefore the profit of what is produced.
This, in one form or another, is the explanation for the cause of capitalism’s inherent economic crises. What the writers here refer to as the ‘Great Recession’, which began in 2008, was the LTRPF manifesting itself as a financial crisis. The LTRPF is also a rejection of explanations of crises in terms of a general lack of purchasing power (Keynesian economics), high wages or government spending (the right wing) or inequality (the left wing).
Against the LTRPF Marx identified five counteracting tendencies which raise the average rate of profit:
1. Increases in the intensity of exploitation (getting more out of the same or fewer workers).
2. Reduction of wages below their value (in money wages or in real terms through inflation).
3. Increasing unemployment (depressing wage levels and holding back wage rises).
4. Cheaper constant capital (less money spent on productive assets).
5. Foreign trade and investment (new markets and export opportunities).
Marx mentioned other possible counteracting tendencies but did not go into detail. For Marx and the authors in this book the counteracting tendencies are insufficient to prevent a long-term fall in the average rate of profit. The long-term trend is downwards (in the UK since the late nineteenth century), punctuated by upsurges brought about by the counteracting tendencies. The main part of this book is a detailed statistical analysis of evidence from around the globe. It is, the editors admit, ‘often dense in analysis and flush with figures and numbers’. But for anyone looking for the hard data which backs up Marx’s LTRPF, here it is.
Marx was in no doubt that ‘permanent crises do not exist’ and the writers here agree. So what of the future? The intensification of class struggles and further bouts of austerity for the working class, alternating with booming economies, seems the most likely. All in the name of a declining rate of profit. Perhaps the most important consequence of the analysis in this book is that there are no reformist solutions. As long as the profit system – capitalism – remains the future for the working class is a world in crisis.