The Rate Of Profit And The World Today

Chris Harman writes in International Socialism journal an awesome article on the classical Marxian concept: “The Tendency Of The Profit Rate To Decline”. Here are some quotes:

• The “tendency of the rate of profit to fall” is one of the most contentious elements in Karl Marx’s intellectual legacy.¹ He regarded it as one of his most important contributions to the analysis of the capitalist system, calling it, in his first notebooks for Capital (now published as the Grundrisse), “in every respect the most important law of modern political economy”.² But it has been subjected to criticism ever since his argument first appeared in print with the publication of volume three of Capital in 1894.
• The rate of profit is the key to capitalists being able to achieve their goal of accumulation. But the more accumulation takes place, the more difficult it is for them make sufficient profit to sustain it: “The rate of self-expansion of capitalism, or the rate of profit, being the goad of capitalist production, its fall…appears as a threat to the capitalist production process”.
• The crisis, however, is not the end of the system. Paradoxically it can open up new prospects for it. By driving some capitalists out of business it can permit a recovery of the profits of others. Means of production can be bought at bargain basement prices, raw material prices slump and unemployment forces workers to accept low wages. Production once again becomes profitable and accumulation can restart. There has long been a dispute among economists who accept Marx’s law about the implications of this. Some have argued that the rate of profit will tend to decline in the long term, decade after decade. Not only will there be ups and downs with each boom-slump cycle, there will also be a long term downward trend, making each boom shorter than the one before and each slump deeper. Others Marxists, by contrast, have argued that restructuring can restore the rate of profit to its earlier level until rising investment lowers it again. According to this view, there is a cyclical motion of the rate of profit, punctuated by intense crises of restructuring, not an inevitable long term decline. So Marx’s law should be called “the law of the tendency of the rate of profit to fall and its countervailing tendencies”

To read the whole article, click here.