What is the tendency of the rate of profit to fall? (Jim) by der Augenblick

There's been some mention on this blog and on the list of the "tendency of the rate of profit to fall" over the past few months. For those who lack of the benefit of a comprehensive grasp of Marx's critique of political economy, I thought I would provide a brief, easy-to-understand explanation of this phenomenon and the argument Marx gives for it.

The law of the tendency of the rate of profit to fall concerns the rate of profit, so that's the first thing we need to define. Marx defines the rate of profit as:

s /(c + v)

"s" is defined as the value of surplus-labor, "c" is defined as the value of constant capital, and "v" is defined as the value of variable capital. Your work day is divided into labor you're compensated for in the form of a wage and labor you're not compensated for but which you perform gratis for the capitalist. Marx calls the value of the labor you're compensated for "variable capital" (represented by "v" in the equation). Marx calls the value of the labor you perform for free "surplus-value" or "s". The value of constant capital - "c" - is the value laid out for the means of production: things like heavy machinery and the building the labor takes place in, but also computers and whatever other labor-saving techniques the capitalist can use.

Imagine the capitalist starts with a lump sum of money, say, $100, and he spends $20 of that on labor and $80 on means of production. The $20 represents the value of labor, or "v", and the $80 represents the value of the means of production, or "c". Whatever the capitalist gets out of the production process over and above what he lays out is his profit, represented here by "s". So you can see the rate of profit is nothing other than the ratio of the value of his profit to the value of what he starts with.

An increase in productivity lowers v toward 0. This is because an increase in productivity (via scientific labor management techniques, introduction of machinery, etc.) makes the worker generate more value in less time, so a fortiori he produces his means of subsistence in less time. This means necessary labor is finished in less time. Variable capital is what is paid out as the equivalent of necessary labor. Therefore, increased productivity lowers v toward 0.

Consider the ratio of surplus-value ("profit") to variable capital ("wages"), or s/v. If v goes toward zero, the value represented by s/v goes toward infinity. (You divide a given quantity, s, by an infinitely shrinking quantity, v.) But even if this is the case, there is still a limit on how high s can rise, since s is still determined by things like the number of workers you have, the length of the working day (which can't approach 24 hours), and the upper limit on the intensity of physical and mental endurance. So in fact, even if you increase the number of workers, the length of the working day, and the intensity of work, the rate of profit
(s/(c+v)) tends not toward infinity but rather to s*/(c+v), where s* is the upper limit determined by the number of workers you can have, the length of the work day (limited to less than 24 hrs), and the intensity a human can possibly stand even with the aid of machines or computers. This is the case even as v approaches zero.

What raises the productivity of the worker, thus reducing v, is the "relative surplus strategy": introduction of machinery, increasing the intensity of work, utilizing scientific management of labor, etc. This raises what Marx calls the "organic composition of capital", which is nothing but the ratio of the means of production utilized and the labor power utilized in any operation. Increasing the organic composition of a particular capital means you use more machinery, more computers, more technology, more "dead labor" for each living, present worker you employ. But there is no theoretical limit to the rise in the organic composition of capital the way there is a limit to the other things. Therefore, in s*/c, the c (the value of the means of production you can employ) can rise continually. s* is in fact limited, but c is not, so the value s*/c will fall, i.e., its value
will diminish.

The tendency of the organic composition of capital to rise means that it becomes harder and harder to extract surplus-value. As you use more machinery and make the worker more productive, you need to invest larger and larger sums of money to get the same profit back.

Does that make sense?

Marx believes the tendency of the rate of profit to fall is a cause of crisis. It is inherent in the process of capitalist accumulation, and it leads one part of that process—namely, the production process—to "seize up".

However, you should note that the accumulation process is more than the production process. It also includes the process of purchasing labor-power and the means of production on the market. It also includes selling the product of labor. According to Marx, each step of the accumulation process is fraught with the potential for crisis, because capitalism is an unplanned system of production and circulation of the product of labor. While the tendency of the rate of profit to fall explains crisis arising from the labor process, it does not explain crises in other portions of the accumulation process. In order to explain those potentials for crises, Marx utilizes theories of overproduction and underconsumption.

You can read a short, accessible account of these theories in Robert Tucker's (ed) The Marx-Engels Reader. The essay is called "Crisis Theory (from Theories of Surplus-Value)".

Marx To Lincoln Revisited on the Occassion of Obama's Inauguration (Keith) by Keith

To celebrate the inauguration of Barack Obama as the first Afro-American President in the United States I thought it would be fun to post the congratulatory message written by Karl Marx and sent by the First International to Abraham Lincoln on the occasion of his second inauguration.

Address of the International Working Men's Association to Abraham Lincoln, President of the United States of America

Sir:

We congratulate the American people upon your re-election by a large majority. If resistance to the Slave Power was the reserved watchword of your first election, the triumphant war cry of your re-election is Death to Slavery.

From the commencement of the titanic American strife the workingmen of Europe felt instinctively that the star-spangled banner carried the destiny of their class. The contest for the territories which opened the dire epopee, was it not to decide whether the virgin soil of immense tracts should be wedded to the labor of the emigrant or prostituted by the tramp of the slave driver?

When an oligarchy of 300,000 slaveholders dared to inscribe, for the first time in the annals of the world, "slavery" on the banner of Armed Revolt, when on the very spots where hardly a century ago the idea of one great Democratic Republic had first sprung up, whence the first Declaration of the Rights of Man was issued, and the first impulse given to the European revolution of the eighteenth century; when on those very spots counterrevolution, with systematic thoroughness, gloried in rescinding "the ideas entertained at the time of the formation of the old constitution", and maintained slavery to be "a beneficent institution", indeed, the old solution of the great problem of "the relation of capital to labor", and cynically proclaimed property in man "the cornerstone of the new edifice" — then the working classes of Europe understood at once, even before the fanatic partisanship of the upper classes for the Confederate gentry had given its dismal warning, that the slaveholders' rebellion was to sound the tocsin for a general holy crusade of property against labor, and that for the men of labor, with their hopes for the future, even their past conquests were at stake in that tremendous conflict on the other side of the Atlantic. Everywhere they bore therefore patiently the hardships imposed upon them by the cotton crisis, opposed enthusiastically the proslavery intervention of their betters — and, from most parts of Europe, contributed their quota of blood to the good cause.

While the workingmen, the true political powers of the North, allowed slavery to defile their own republic, while before the Negro, mastered and sold without his concurrence, they boasted it the highest prerogative of the white-skinned laborer to sell himself and choose his own master, they were unable to attain the true freedom of labor, or to support their European brethren in their struggle for emancipation; but this barrier to progress has been swept off by the red sea of civil war.
The workingmen of Europe feel sure that, as the American War of Independence initiated a new era of ascendancy for the middle class, so the American Antislavery War will do for the working classes. They consider it an earnest of the epoch to come that it fell to the lot of Abraham Lincoln, the single-minded son of the working class, to lead his country through the matchless struggle for the rescue of an enchained race and the reconstruction of a social world.

Signed on behalf of the International Workingmen's Association, the Central Council:
Longmaid, Worley, Whitlock, Fox, Blackmore, Hartwell, Pidgeon, Lucraft, Weston, Dell, Nieass, Shaw, Lake, Buckley, Osbourne, Howell, Carter, Wheeler, Stainsby, Morgan, Grossmith, Dick, Denoual, Jourdain, Morrissot, Leroux, Bordage, Bocquet, Talandier, Dupont, L.Wolff, Aldovrandi, Lama, Solustri, Nusperli, Eccarius, Wolff, Lessner, Pfander, Lochner, Kaub, Bolleter, Rybczinski, Hansen, Schantzenbach, Smales, Cornelius, Petersen, Otto, Bagnagatti, Setacci;
George Odger, President of the Council; P.V. Lubez, Corresponding Secretary for France; Karl Marx, Corresponding Secretary for Germany; G.P. Fontana, Corresponding Secretary for Italy; J.E. Holtorp, Corresponding Secretary for Poland; H.F. Jung, Corresponding Secretary for Switzerland; William R. Cremer, Honorary General Secretary.

The Basics of Marxism (Keith) by X.

Three concepts are necessary to understand the basics of Marxism: Class, Surplus, and Exploitation. Before proceeding to these three concepts a caveat is necessary. Marx and Engels' collected works fill 50 volumes and many texts remain unpublished. The secondary literature on Marx's theory is elephantine, not to mention the original contributions to revolutionary thought from practicing Marxists as well as revolutionaries from other theoretical traditions. So, it would be a remarkable lie if I were to say that the introductory remarks below represent the essence of Marxism or socialism--it is a big topic. And there are very many Marxisms, each with their own emphasis and developed in differing historical conditions. If this weren't the case Marxism wouldn't be a theory but a religion. And it is important to remember that anyone who tells you that their Marxism is the only Marxism is not a revolutionary theorist but a priest trying to build a religion.

The most important concept in my view is surplus labor and its related opposite, necessary labor. Surplus just means "more" or "extra" -- as in more than is necessary. All societies produce a surplus of goods and services. Take, for example, a communal egalitarian society like the Iroquois or Cherokee in their pre-European contact state-- all members of the tribe work except the very young, the very old, the sick, or disabled. In order to care for those that cannot work (the young, the old, etc.) those who can work must produce a surplus, extra—they must produce more than is necessary for their own sustenance. This extra is the difference between what the people who do work need to live and what they produce for others. These societies are egalitarian or non-exploitative because the people who produce the surplus control it collectively and decide how to use it-- to take care of the old, the young, and the sick.

Now let's look at surplus in very different social relations. Take slave-based societies: The slaves do the work and the master gets the product of their work and decides what to do with it. The difference between what the slaves get back as food, clothing, and shelter and what the master keeps is the surplus. This form of social organization is very different than the arrangements of the Iroquois or Cherokee. In those societies the people who do the work decide on what to do with the surplus. In slave society the people who do the work have no say over the surplus—that is exploitation by definition. Exploitation occurs when the people who do the work and produce the surplus are different from the people who get the product of that work and the surplus. The difference between the people doing the work and the people getting the surplus produced is a class difference. Exploitation is at the heart of class difference. In a society where the people who create the surplus are different from the people who get the surplus and decide what to do with it, there are class differences, and class struggle.

Marxism defines class by the relationship between groups of people (classes) and the production, appropriation, and distribution of surplus. I should qualify that assertion by saying different Marxists have different ways of thinking about classes, some identify classes by consciousness, others by property or power, mainstream discourses usually think in terms of income or status: i.e., "blue collar or "white collar," or "middle class." Sometimes these alternative ways of thinking about class yield insights, but often they obscure the question of exploitation. Thinking about class in these different ways will lead to very different politics and social practices. I will say more about this towards the end of this essay, but first we should look at a couple more class structures.

In European feudalism somewhat different arrangements for exploitation occurred. In the corvée system a peasant might work on a piece of land for three days and kept the fruit of his labor for himself. Then he was required to work an additional three days on a different piece of land—the fruit from this labor was delivered to the feudal lord. The first three days are necessary labor (necessary to re-produce the peasant by providing food, clothing, shelter and so forth) and the second three days are surplus—taken by the lord.

Exploitation and class difference are obvious under slavery and feudalism. The slave and the peasant know that they do the work and their lords and masters don't work. The systems are justified in two ways: violence and ideology. Slavery and feudalism require the extensive use of force, but force can be a blunt and limited tool. In addition to force ideologies are developed to win the consent of the exploited. Some religious ideologies, for example, propose that social hierarchies are ordained by god and reflect the spiritual world, or ideologies like paternalism, or white supremacy which racialize class differences making them seem natural, biological, or divinely sanctioned. The obviousness of exploitation in a slave or feudal society disappears under capitalism.

What is clear under slavery and feudalism becomes mysterious under capitalism. The hidden nature of capitalist exploitation accounts for the rise of economics as a science. Economics emerged with the rise of capitalism because it was unclear, for instance, how market prices were determined, or where profit comes from. Marx's most important works, the four volumes of his magnum opus Capital (totaling over 4,000 pages) is a study of how surplus is produced, appropriated, and distributed in capitalist societies, or as he called it "the capitalist mode of production." Marx built on the work of his predecessors, especially Adam Smith's The Wealth of Nations, and David Ricardo another important classical political economist.

The short story of work under capitalism goes something like this: When you go to work part of the day you spend producing the goods and/or services that you will get back in the form of wages or as a salary. This is the necessary part of the working day because you are making the value that you need in order to buy the things you need to live. But once you have accomplished this you will keep working, and during this time you will be producing surplus that the capitalist will take. Part of the surplus produced by workers becomes the capitalist profit and the rest is distributed by that appropriating capitalist to others (some goes to other capitalists like bankers as interest, landlords as rent, some goes to the state as taxes, and so forth). This surplus will take different forms, capitalist profits, bankers' interest, landlord rents, stock holder dividends, and can be used by the capitalist (or in a modern corporation the board of directors) in a large variety of ways. Marx wants us to see that labor produces surplus and the exploitation of workers is the origin of these different forms of capitalist income.

The story is simple when looking at an egalitarian society, or a slave society. In these societies everyone knows that labor produces the goods and services that we need to live on. It is no mystery. But under capitalism it is a great mystery. The mystery emerges basically for two reasons. The first is what Marx calls commodity fetishism and capital fetishism. Fetishism is expressed in an idea like "money makes money." Under capitalist social forms it appears that money magically produces itself. What is hidden then is the exploitation of labor, money only makes money if it exploits labor somewhere along the way. The second reason for the mystery of exploitation under capitalism is ideology. Workers are daily bombarded by an ideological assault (paid for out of the surplus we produce) telling us that the system is just, that "capitalist take risks" and so they deserve a "reward," or investors "contribute" their capital and "deserve a return" and other such nonsense designed to legitimize exploitation.

As we argued elsewhere on the blog, revolution is a process. So ending exploitation is not something that will happen by decree after a great revolutionary event. Overthrowing the capitalist mode of production is a process. In the past many Marxist and socialists thought state ownership of the means of production and suppressing the market (markets are just places where people buy and sell) were the way to overcome capitalism. Identifying socialism with state ownership of the means of production follows very naturally if class is defined in terms of property ownership. In this view capitalist are "owners" and workers are "non-owners." I see three problems with this "classical view." First, exploitation is based on the production of surplus value and the appropriation of the surplus by people different from the workers who made it. Is this situation changed by state ownership? Not necessarily. In a modern capitalist enterprise, known as the corporation, the "owners" don't appropriate the surplus they just "own" a piece of paper (the stock certificate). The surplus is appropriated by the board of directors which makes the decisions about what to do with the surplus. Or take an example of state ownership: The state owns the postal service and still postal workers labor under the same basic conditions as the rest of us. This leads to the second problem with this view: State ownership was the goal pursued in the Soviet Union. During the revolution workers seized their factories and turned them over to the "workers state." After the revolution surpluses were appropriated by commissars or state managers. Without addressing the achievements and shortcomings of the Soviet experience it is enough to point out that using the definition of exploitation discussed above the Soviet Union wasn't able to overcome exploitation (in fairness they weren't trying to, they defined class by property ownership and were concerned with ending private capitalism through state ownership.) The last problem with this version is getting from private ownership of the means of production to public ownership of the means of production requires an (unlikely) insurrection and momentous seizure or power, because there is no transition, no in-between stage: The workers must take state power and make private industry public.

Choosing to define class by surplus production is in keeping with the strategy and tactics of revolutionary democracy and in keeping with our rejection of the politics of insurrection (and their kissing cousin—protest mode). Insurrection, just like protest, is a tactic, not a strategy. Whether or not there is an insurrection in the future, we still have to overcome exploitation step by step, starting today, as a part of the revolutionary process. We have already discussed on the blog an overarching revolutionary democratic strategy. Overcoming exploitation is the same process: People who do the work also make the decisions about how that work gets done and what to do with the surplus that work produces. In a modern corporation the board of directors gets the surplus and decides what to do with it. We must develop tactics so that workers can take these boards over. Every union's long term goal should be the democratic seizure of the board of directors by the workers. In Universities our goal should be the democratic seizure of boards of trustees and boards of governors by faculty, staff and students. We can also set up worker co-operatives where the people who do the work decide on how to spend the surplus. Some of that surplus can be used to finance the movement –the growing revolutionary democratic movement will make sure social conditions that allow worker co-operatives to exist continue and expand.

Overcoming exploitation is a major theoretical and practical project. In the above I put forth a few rudimentary ideas. We must start thinking seriously about this question, and experiment practically with tactics to overcome exploitation one shop, one factory, one college, one school, one corporation at a time. But in order to think about exploitation we must know how it works.

In New Brunswick, the Revolutionary Democratic movement is organizing an electoral campaign to transform the city council from a system based on at-large representation to one based on neighborhood representation. As the city becomes increasingly democratized (a ward based system is a step in this direction, part of the revolutionary process) we can propose and agitate for laws that will spur the development of worker co-operatives. Instead of tax breaks for corporations, we argue for tax breaks to worker co-ops and state-funded programs to assist in setting up co-ops.

As part of the local movement, we can urge teachers and staff and students to take over the board of education, and with an increasingly democratic city we can demand laws and policies to make it feasible. We don't have to wait for some distant future event or "crisis" to end exploitation. We can start working for it now.

In the above discussion I relied on Marx's works especially the four volumes of Capital (the fourth volume is called Theories of Surplus Value). In addition, Stephen Resnick and Richard Wolff, have been arguing forcefully to put Marx's theory of surplus production back on the agenda. See especially their texts Knowledge and Class, and Class Theory and History: Capitalism and Communism in the USSR. See also Lenin's essay "On Cooperation."