Rob Sewell on the tendency of the rate of profit to fall

posted 18 Jan 2013, 05:41 by Admin uk   [ updated 21 Jan 2013, 02:06 ]

By Mick Brooks     

Rob Sewell (in his article entitled The tendency of the rate of profit to fall in In defence of Marxism 2, Autumn 2012, some of which is on and begins his treatment with a rant against unnamed ’academic ‘Marxists’  who have, in his view, exaggerated the importance of the law of the tendential fall in the rate of profit as a component in Marx’s crisis theory. Unfortunately he gives not a single quote from these sinners. We don’t know who they are or what they actually said; we just know that RS doesn’t like them. The problem with this approach to writing an article is that you can’t make a proper critique of opponents’ work if you don’t actually tell your readers what they are saying.             

In fact this article appears to be a belated reply to arguments raised among Socialist Appeal supporters and their international co-thinkers on the causes of capitalist crisis. Some comrades raised the importance of the law of the tendential fall in the rate of profit and its operation as an explanation for the present crisis. That is the theme of my book Capitalist crisis – theory and practice.

RS begins interpreting Marx on the subject by referring to a quote in the Grundrisse where he explains the tendency for the rate of profit to fall. Marx shows that, in their search for profit, capitalists accumulate more and more constant capital relative to living labour. But, since constant capital is dead labour, though it makes the worker more productive, it does not itself yield surplus value. Only living labour does that. The declining proportion of living labour in the production process thus leads to a tendency for the rate of profit to fall.

Marx goes on to state: “This is in every respect the most important law in political economy, and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint. It is a law which, despite its simplicity, has never before been grasped and, even less, consciously articulated.” (p.748)

 Marx made this statement twice, in the Grundrisse  written in 1857-8: and in almost exactly the same words in the 1861-3 economic manuscripts (Collected Works Volume 33, p.104): “This law, and it is the most important law of political economy, is that the rate of profit has a tendency to fall with the progress of capitalist production.”

Clear enough? Apparently not. RS goes on: “By the time Marx writes Capital, he writes not about the most important law, but rather of the law being of “great importance” for capitalist production. The emphasis had clearly changed.”

If you actually look the complete quote from Capital Volume III up (which 99 out of 100 won’t bother to do) you find: “Since this law is of great importance to capitalist production, it may be said to be a mystery whose solution has been the goal of all political economy since Adam Smith, the difference between the various schools since Adam Smith having been in the divergent approaches to a solution.” (Capital Volume III p.319)

As the reader can see Marx is developing the same idea he expressed in the Grundrisse in a different way. He is not attempting to downgrade the significance of the law. By truncating the quote, RS seems to intend to mislead the reader.

RS stresses that the law is simply a tendency, suggesting that it doesn’t matter. “It is a tendency and not a law, as Marx emphasised,” in the section Tendency always applies? Unfortunately for RS, he doesn’t seem to grasp that for Marx all economic laws take the form of a tendency. If he doesn’t understand this, he doesn’t understand much about Marx’s approach to political economy. For Marx a tendency has the meaning of a force at work, not a statistical trend.

For instance: “Such a general rate of surplus-value — viewed as a tendency, like all other economic laws — has been assumed by us for the sake of theoretical simplification.” (Capital Volume III p.275)

A few paragraphs later RS contradicts himself, stating that, “Marx also points out that all economic laws have the nature of tendencies.” Which is it to be, RS?

Marx deals with The law of the tendential fall in the rate of profit in Chapters 13-15 of Capital Volume III: they are called The law itself, Counteracting factors, and Development of the law’s internal contradictions. Marx thus deals successively with tendency, counter-tendency, and the interaction of tendency and counter-tendency to produce crisis.

How does the law manifest itself? RS quotes Marx:

“Thus, the law acts only as a tendency. And it is only under certain circumstances and only after long periods that its effects become strikingly pronounced.”

This is the only reference to “long periods” in Marx’s writings on the subject. RS helpfully interprets this as, “only a tendency which manifests itself over the whole history of capitalist development.” We are sure that Marx is posthumously grateful for RS’s clarification. The whole passage from Chapter 14 reads differently. It explains the interaction of the tendency with the counteracting factors generated by the tendency itself to burst out into crisis. This is dealt with fully in the following Chapter 15.

“We have thus seen in a general way that the same influences which produce a tendency in the general rate of profit to fall, also call forth counter-effects, which hamper, retard, and partly paralyse this fall. The latter do not do away with the law, but impair its effect. Otherwise, it would not be the fall of the general rate of profit, but rather its relative slowness, that would be incomprehensible. Thus, the law acts only as a tendency. And it is only under certain circumstances and only after long periods that its effects become strikingly pronounced.” (Capital Volume III p.346)

Is this a reference to a “tendency which manifests itself over the whole history of capitalist development?” Surely it just tries to explain why the tendency for the rate of profit to fall doesn’t instantaneously and continuously manifest itself.

When he comes to deal with the counteracting factors, RS cites Marx on “capital invested in foreign trade”. Marx explains that if capitalists can produce goods for export in order to import (for instance) raw materials from abroad cheaper than they cost from home country suppliers, then that will reduce the organic composition of capital and tend to raise the rate of profit. RS uses this point to go on about “capital invested in foreign countries”. Does he really not know the difference between foreign trade and foreign investment?

Is the tendency for the rate of profit to fall a secular or a cyclical factor? In part it is both. There is no doubt that capitalism has gone through eras with average rates of profit that differ from other eras. Michael Roberts’ blog (The US rate of profit – the latest 25/11/12 – referred to later) deals well with these secular movements. But there is also a clear cycle of the rise and fall of the profit rate that closely shadows the cycle of boom and slump. In my book (Capitalist crisis – theory and practice) I was particularly concerned to concentrate on these cyclical factors. In particular I show that there was a fall in the rate and mass of profit in 2006, before the onset of the Great Recession; and that this was the underlying cause of the crisis:

“Underlying all the financial jiggery pokery was the fall in the rate of profit. Eventually this must cause a fall in the actual mass of profit. This is what happened. The US Bureau of Economic Analysis (BEA) shows that in the 3rd quarter of 2006 the mass of pre tax profits peaked at $1,865bn. By the 4th quarter of 2008 it bottomed out at $861bn. This represents a fall of more than one half. The collapse in profits that the BEA records from 2006 would have caused a recession in any case, with or without a banking crisis. A halving in the mass of profits is catastrophic for capitalism and explains on its own the severity of the Great Recession.” (p.32) RS on the other hand is anxious to deny this and to conceive the law as a purely secular phenomenon.

RS has a lot of quotes from Chapters 13 and 14 of Capital Volume III.  Weirdly there is not a single quote from Chapter 15: Development of the law’s internal contradictions. This is the chapter that explores the interpenetration of The law itself (Chapter 13) and Counteracting factors (Chapter 14) to produce crisis. 

Chapter 15 is the best single explanation of crisis in Marx. To take just one example, “A fall in this rate” (‘of profit’- MB) “slows down the formation of new, independent capitals and thus appears as a threat to the development of the capitalist production process; it promotes overproduction, speculation and crisis.” (Capital Volume III p.350)

You can look up quote after quote in RS’s work and find them to be deliberate distortions. To take one case, he quotes Fred Moseley in a 2008 interview on the rate of profit. He doesn’t mention that Moseley is building up to explain the present crisis as a ‘Minsky moment’. In other words Moseley is abandoning Marxism as an explanation in favour of Minsky’s financial instability thesis. Is Moseley the right person to quote on Marxist analysis of the cause of the current crisis?

Actually Moseley does admit in the interview that, “mid-2006 was the peak of its current profit cycle.” This is not what RS wants to show. The quote from Moseley suggests that the fall in profits preceded the crash and therefore might have caused it.

RS asserts, “The present crisis was not caused by a crisis in profitability, but certainly resulted in one.” In that case we would not expect profits to fall till the onset of recession in 2008. But they fell before the crisis. How does he explain that?

RS quotes Kliman to show that, “the rate of profit fell from a peak of 25% in 2006 to 17.9% in 2008”. The actual time at which profits fell is not clear from this quote. Kliman has since published a book. In it he clarifies when profits fell. He computes several measures of the rate of profit, but all of them crash in 2006 (See Chapter 5 of The failure of capitalist production). 

This is quite different from RS who strives to misrepresent Kliman by dating the fall in profits to 2008, after the onset of recession. RS ‘interprets’ Kliman’s quote above to show that, “In 2008 there was a massive fall in production which drove down profit rates. The rate of profit peaked in 2006 and then began to fall in 2007 with the onset of the financial and banking crisis following the bursting of the US housing bubble in 2005.”

It is definitely not Kliman’s view that the Great Recession was essentially a financial affair, though it seems to be RS’s. If it were a pure financial crisis the conclusion would surely be that, if we sort out the cowboys who run the banks, capitalism could carry on indefinitely. In his Introduction Kliman specifically repudiates, “The conventional wisdom that the latest economic crisis was an irreducibly financial one.” (The failure of capitalist production p.6) His view is that capitalism is the problem, not just the financial system.

In  his book Kliman explains, “I argue that Marx’s theory regards a fall in the rate of profit as an indirect cause of crisis, it leads to crisis only in conjunction with financial market instability and instability caused by low (as distinct from falling) profitability” (p.13). This coincides broadly with the view in my book that the fall in profits is the underlying cause of crisis.

RS then offers a long quote from Brenner (in The TRPF in practice) beginning, “profitability has rebounded significantly.” In fact the quote begins in Brenner‘s book “In the US, in sharp contrast, profitability has rebounded significantly...” (p.252) RS’s misuse of the quote produces an outright distortion. Brenner is presenting the US case as an exception to the general trend he is analysing.

RS quotes Brenner again, “the US profitability recovery has been very major and its positive economic effects very real.”

The full quote is as follows:

“This new and optimistic scenario certainly cannot be ruled out, for the US profitability recovery has been very major and its positive economic effects very real. Even so there are grounds for doubting that the international conditions are in place to realize it...”

What is the point in lying about what a writer says, rather than proving them wrong if you disagree with them? In any case Brenner wrote this book in 1998, one year after profits peaked from their post-War low point in 1983. He has continued to comment on the rate of profit. My book mentions his views from 2009 where he holds to his opinion that there has been a secular decline in the rate of profit, with occasional revivals.

RS also quotes extensively from Graham Turner’s No way to run an economy. Why? Turner does not regard himself as a Marxist or as an authority on Marxist political economy. He uses widely available official data, such as comes from the US Bureau of Economic Analysis. Some authors quoted here (such as Michael Roberts and Andrew Kliman) have made strenuous efforts to apply Marxist concepts to official data and derive a ‘Marxist rate of profit’. Turner has been impressed by the close fit between movements in the rate of profit (however calculated) and the unfolding of the crisis, but raises some reservations. Naturally RS emphasises the reservations and downplays the close fit of movements in profits as a possible cause of the crisis. 

RS also gives a ‘non-quote’ from Michael Roberts in January 2009 (No footnote, no reference. Does he make them up?). “The rate of profit in the major G7 economies peaked in 1997; it fell sharply to 2001 and then recovered to 2007.” He could have quoted from Roberts’ book, but then his audience might find out that it exists and want to read it. As far as I know the only other outfit apart from RS that pretends that books it disagrees with don’t exist is the papacy. 

In his book The great recession Roberts gives the date each chapter was written. In it he corrects an article written in November 2006 as follows: “Subsequent data to 2008 shows that the rate of profit in the US peaked in 2005 and declined thereafter” (p.117). Clear enough?

Towards the end of his article RS asserts that, “Profits in the US corporate sector are 25-30% greater than before the recession.” Where does he get this from? He doesn’t say. Compare this cavalier approach to the meticulous analysis by Michael Roberts in his blog (The US rate of profit – the latest 25/11/12), which shows this is the reverse of the truth. Roberts states, “Indeed, after making some reasonable assumptions about the data for 2012, I reckon the Marxist rate of profit fell in 2012 back to levels of the early 2000s.” (

So what causes capitalist crisis? At the outset RS asserts that, “In reality there are a host of interacting causes of crisis, some fundamental, others secondary, one of which can be the falling rate of profit.” Coming to the conclusion of his article he contradicts himself by naming overproduction as “the fundamental cause of crisis” (In the section Lowering profitability).  “This explanation of crisis is repeated again and again throughout Marx’s work,” he tells us.

No Marxist that I know of denies that capitalist crisis takes the form of overproduction, though RS seems to be setting himself up as the sole defender of this great truth. RS simply refuses to see the different levels of causation at work in capitalism. What actually causes the onset of overproduction? After all, crisis is not a permanent condition of capitalism.

The analogy in my book is of the detective in a country house murder. Colonel Plum is found bludgeoned to death in the library. The detective has not exhausted his role by observing that the Colonel has been murdered. That is plain, as is the fact of overproduction – of unsold goods – in a crisis. What the other guests want to know is who killed him, why and will the killer strike again? In other words they want to know the cause of the murder/outbreak of overproduction.

Capitalism is not just a system which undergoes crises of overproduction from time to time. It goes through cycles of boom and slump. If movements in the rate of profit are not the explanation, then what is? RS does not provide an alternative.

RS quotes in his article from Theories of Surplus Value, Volume II. Chapter XVII of this work begins with a critique of Say’s law, adopted by Ricardo, which claims that ‘every seller brings a buyer to market’ and therefore a general crisis of overproduction is impossible. Marx starts by showing that Say’s law is wrong and that a crisis of overproduction is indeed possible. He is aware that crises occur regularly. He has to go on to show why.

In this chapter Marx carefully qualifies the notion of overproduction:

“The word over-production in itself leads to error. So long as the most urgent needs of a large part of society are not satisfied, or only the most immediate needs are satisfied, there can of course be absolutely no talk of an over-production of products— in the sense that the amount of products is excessive in relation to the need for them. On the contrary, it must be said that on the basis of capitalist production, there is constant under-production in this sense. The limits to production are set by the profit of the capitalist and in no way by the needs of the producers.” (p.527)

“Defined more closely, this means nothing more than that too much has been produced for the purpose of enrichment, or that too great a part of the product is intended not for consumption as revenue, but for making more money (for accumulation): not to satisfy the personal needs of its owner, but to give him money, abstract social riches and capital, more power over the labour of others, i.e., to increase this power.” (ibid p.532)

Overproduction happens because production is for profit.

What sort of crisis are we confronted with? RS asserts: “The present crisis is not a cyclical crisis but an organic crisis rooted within the system itself.” (Are cyclical crises not rooted within the system? Are they pure accidents?  We know what an organic carrot is. What is an organic crisis?)

 “It is a reflection of the epoch of capitalist decline, where the system has exhausted itself.” This suggests the crisis will go on forever, or until the system is overthrown. But as Theories of Surplus Value, Volume II explains (p.497), “Permanent crises do not exist.” This is actually a cowardly revival of the ‘final crisis’ theory put forward by ultra-lefts in the early years of the Communist International. This wrong and dangerously misleading theory was furiously denounced by Lenin and Trotsky.

Finally, we are entitled to ask; what is the point of this article? It is purely abstract, intended solely to denounce the unnamed objects of RS’s ire. It does not help anyone understand the world around us as a precondition to changing it. My book (Capitalist crisis – theory and practice) may be flawed. It is an attempt to apply the theory of Marxism to understand the world around us as a precondition for changing it. Isn’t that what Marxism is supposed to do?