By Andrew Kliman (first published in the New Left Project)
Karl Marx’s law of the tendential fall in the rate of profit is indispensable for explaining the Great Recession, and understanding how to prevent major economic crises in the future.
David Harvey, a well-known Marxist geographer, recently published a draft paper (Harvey 2014) that vigorously criticises Karl Marx’s ‘law of the tendential fall in the rate of profit’ (LTFRP), its place within Marx’s theory of capitalist economic crisis, and its relevance to the Great Recession and the recession’s prolonged aftermath. The law says that the rate of profit tends to fall because of labour-saving technological progress under capitalism. By lowering costs of production, technological innovations tend to keep products’ prices from rising, and this makes it difficult for companies’ profits to increase as rapidly as the amount of capital they invested to produce their products.
Whether this process was among the underlying causes of the Great Recession is a matter of great political importance. At issue is whether policies intended to make capitalism work better—replacement of neoliberalism with statist capitalism, financial regulation, reduced inequality, policies that favor production over finance, and so on—can succeed in preventing major economic crises in the future. The theory of crisis rooted in the LTFRP suggests that such policies cannot ultimately be successful, because they leave intact the drive to maximize profit and the link between technological progress and falling profitability, which are part and parcel of every form of capitalism.
Harvey’s chief complaint is that the LTFRP and the theory of crisis based on it are mono-causal: it ignores other causes of crisis as well as counteracting factors, and its current proponents typically present it in a way that ‘exclude[s] consideration of other possibilities’. I will argue that this is just a strawman.
The real issue is not that anyone has advocated a mono-causal theory, but that Harvey is campaigning for what we might call an apousa-causal theory, one in which the LTFRP plays no role at all (apousa is Greek for ‘absent’). He is the one who is trying to exclude something from consideration. In light of his emphasis on capitalism’s ‘maelstrom of conflicting forces’ and its ‘multiple contradictions and crisis tendencies’, one might expect that he would urge us to consider all potential causes of crisis, excluding nothing. However, Harvey is not merely suggesting that other potential causes of crisis be considered alongside the LTFRP. He seems determined to consign it and the theory of crisis based on it to the dustbin of history. A large part of his paper is devoted to questioning whether the LTFRP is a genuine law, whether Marx really subscribed to it in the end, whether there is good evidence that the rate of profit fell, and whether it fell for the reason the law says it tends to fall. I will respond to all this as well.
Two other aspects of Harvey’s paper will also be discussed:
- Harvey claims that the growth of the global labour force since the 1980s suggests that the LTFRP has not been operative. I will show that this claim is based on an elementary misunderstanding of the law.
- Harvey claims that Marx argued that ‘if wages are too low[,] then lack of effective demand will pose a problem’. I will show that this contradicts his own recent interpretation of Marx’s text, (Harvey 2012) and argue that he got it right the first time.
Let me note that his attitude to the LTFRP is neither surprising nor unique. Although he writes that the theory of crisis based on Marx’s law ‘holds an iconic position within the Marxist imaginary’, in fact nothing has been more reviled. In academia as well as the political realm, other Marxists and leftists have regularly denounced the supposed dogmatism of the theory and its supporters, and they have tried to exclude the theory from further consideration. For example, in their History of Marxian Economics, professors M. C. Howard and J. E. King (1992, p. xiii) wrote that the LTFRP ‘has done much damage to the intellectual credentials of Marxian political economy’, while Kshama Sawant’s organisation, Committee for a Workers’ International, recently suspended two ‘dogmatists’ from membership. It is particularly objectionable that efforts to exclude a potential explanation from consideration are presented as opposition to dogmatism, and that this spin is so often accepted.