Appendix 3: The Tendency of the Rate of Profit to Fall¶
Core Argument¶
Marx’s law of the tendency of the rate of profit to fall is a tendency, not an absolute principle, yet it has been elevated into an obsession by academic ‘Marxists’ who lack dialectics. Marx devoted only three of fifty-two chapters in Capital Volume III to it. The Grundrisse contains a single, contradictory reference to it as “the most important law”, but this remark was dropped from the finished Capital and appears nowhere in the published works or correspondence. Marx’s final formulation treats it as one of several interacting causes of crisis. The tendency arises from a rising organic composition of capital: as constant capital grows relative to variable capital, the rate of profit falls, assuming a constant rate of exploitation. However, counteracting tendencies can reverse this fall for considerable periods, as over the last 30 years. Marx emphasised it is a tendency, not a law, and that the real problem is explaining why the rate has not fallen more rapidly.
The tendency can occur alongside a rising mass of profit, as larger capital investments offset lower rates. A capital of £1 million at 40 per cent yields £400,000, the same as £5 million at 8 per cent. Capitalists combat the falling rate but tolerate it if the profit mass grows. The same causes produce both a growing profit mass and a declining rate, trapping capitalists in a vicious circle. Counteracting tendencies include: more intense exploitation of labour (increased relative surplus-value, as seen in Britain and the USA where productivity rose 83 per cent between 1973 and 2007 but male median real wages rose only 5 per cent); prolonging the working day; driving wages below their value; cheapening constant capital; the relative surplus population; foreign trade cheapening constant capital and labour-power; capital invested abroad where the organic composition is lower; and the expansion of the world market.
Historical data for the US shows the rate of profit fell from 22 per cent in 1899 to 10 per cent in 1983, with cyclical fluctuations. It fell from the mid-1960s to 1983, then rose for approximately 30 years until 2007, peaking in 1997 and again in 2006 before falling. By 2006, the rate of profit was within ten per cent of its post-war peak, driven by holding down wages, increasing productivity, and rising foreign profits. Turner’s profit-to-GDP figures show a sharp fall during the dotcom recession, a climb to 12.9 per cent by Q3 2006, then a drop to 8.9 per cent by Q4 2008, rebounding to 9.3 per cent in Q1 2009. He argues profits were not under pressure during the upswing and remained above the 1982 historic low of 6.3 per cent. The author counters that Marx never distinguished domestic from foreign profits; foreign trade is a counteracting tendency. A growing share of domestic profits came from finance, peaking at 45.3 per cent in Q4 2001. The author argues that rent and interest are part of surplus-value, not costs; excluding them is wrong. Turner claims the crisis was not caused by falling profit rates per se but by desperate attempts to drive them higher. The author insists overproduction is the fundamental cause: the market becomes too narrow for production, leading to a realisation crisis. The present crisis is an organic crisis of capitalist decline, not cyclical, rooted in overproduction and the contradiction between productive forces and private ownership. Despite a 25-30 per cent recovery in US corporate profits since 2009, there has been no investment due to massive debt overhang and lack of demand.