A Felicitous
Flaw
in Marx’s
Analysis
of the Law
of the
Tendency
of the
Rate of Profit
to Fall.
Part 4.:
Karl Seldon on Karl Marx Series.
GLOBAL STRATEGIC
HYPOTHESES.
Dear Reader,
It
is my pleasure,
and my honor, as an elected member
of the Foundation Encyclopedia Dialectica [F.E.D.]
General Council, and
as a voting member of F.E.D., to share, with you, from time to time, as they are approved for public release by the F.E.D. General Council, Karl Seldon’s commentaries on the
world-historic breakthrough work of Karl Marx.
This 4th text in
this by now long-running
series is posted herewith, together
with supporting text-images and diagrams
[Some E.D.
standard edits have been applied, in the version presented below, by the editors
of the F.E.D. Special Council for the Encyclopedia,
to the direct transcript of our co-founder’s
discourse].
Seldon –
“We have long detected, but rarely
written about, full-on, a ‘felicitous flaw’ in Marx’s analysis of the “Law of
the Tendency of the Rate of Profit to Fall”, one which deepens as capitalist
development – as the historical development of the “capital-relation” as
predominant human “social relation of production” – advances.”
“It is a ‘felicitous’ flaw,
because correcting it entails a deeper theory of the capitalist system’s
immanent, self-induced demise, and one which better conforms to Marx’s own
‘historically generic’ theory of social evolution, which sees social
evolution as leading to social revolution due to the outgrowth of the “social
forces of production” from the “social relations of production” which initially
fostered their growth.”
“Marx expressed this – ‘historically generic’ – theory of the causation of social evolution/revolution in a world-famous passage, as follows –
“At a certain stage of their development the material
forces of production in society come into conflict with the
existing relations of production, or – what is but a legal expression for the
same thing – with the property relations within which they had been at work
before. From forms of development of the
forces of production these relations turn into their fetters. Then comes the period of social revolution.”
[Karl Marx, Preface to A Contribution to the
Critique of Political Economy, 1859, reprinted in Basic
Writings on Politics & Philosophy, Lewis Feuer, editor,
Anchor, 1959, pp. 43-44. ].”
“This is because the
rectification of this ‘felicitous flaw’ shows how the growth of
societal-productive force, or of the productivity of machine-assisted labor,
which the capitalist profit-motive itself immanently promotes, literally
destroys/vanishes/evaporates much of past-accumulated capital-value.”
“It destroys especially the
capital-value of the largest, most concentrated owners of industrial capital
and of banking loan capital, threatening them with colossal bankruptcies and a
total loss of their formerly formidable economic, hence political, hence social
power, and thus brooks a violent reaction from those most-concentrated capital-owners
– those who are thus the natural leaders of the capitalist ruling class.”
“Their reaction results in
the turn from the ‘ascendence phase’ of the capitalist epoch, to its
catastrophic ‘descendence phase’ – ever since ~1913, with the passage of
the U.S. Federal Reserve and Income Tax legislation, and with the
precipitation, by the British Empire, of World War I, hoping to crush the rapid
industrialization/productive force growth of Germany.”
“In summary, this
rectification reveals that the capitalist system will die – either in the «aufheben»
accession of humanity to the next higher stage of democracy, ‘Political-ECONOMIC
DEMOCRACY’, or in ‘“the mutual ruin of the contending classes’”, due
to a deep ‘intra-duality’ in capitalism’s innermost nature: the conflict
between capital as “self-expanding [capital-]value” [Marx] versus capital as
‘self-contracting capital-value’ [F.E.D.], and how the balance of these opposite but
inter-connected, ‘intergenerate’ movements shifts, dynamically, as the societal-productive
force, and the accumulation of industrial fixed capital, and of the bank loan
capital used to finance that growing fixed capital, also grows.”
“It shows how, with the
accelerating growth of fixed-capital-based social productivity, this balance
shifts, from a predominance of “self-expanding [capital-]value”, during
the capitalist system’s ‘ascendence phase’, with its “Hundred Years
Peace”, from ~1800 to ~1900 C.E., to the turning into the growing dominance of
‘self-contracting capital-value’ during the ~1870 to ~1890 “Great
[techno-]Deflation”, and on to the institutional and global warfare response of
the, thereby become ‘descendence phase’, capitalist ruling class, in
1913 and 1914 and beyond.”
“Since 1914, plus yet another World War, the latter aiming to destroy both Germany and Russia as rising industrial/productive-force powers, humanity has suffered the rise of the ‘Rocke-Nazi’, ‘capitalist-anticapitalist’, ‘human-antihumanist’, “people are pollution” – ‘‘‘humanocidal’’’ – ruling class faction, now seeking to reverse the historic growth of the “social forces of production”, and thereby to collapse the human population, by de-industrializing both the [once-]advanced industrial nations of the “Global North”, and the newly-industrializing “BRICS”, etc., nations of the “Global South”, so as to destroy the growing productive forces at their very heart – the majority-class human population itself – via their “95%”* global “ecological” extermination.”
“This ‘descendence-phase’, ‘Rocke-Nazi’ ruling faction, the formerly-‘uncontestedly’-ruling, ruling-class
faction, is now under concerted, withering attack, globally, by the emergent,
restorationist, pro-re-industrialization “Trump faction” of the capitalist
ruling class, in a vicious, worldwide, no-holds-barred internecine class
war within the capitalist ruling class, but popularly supported, on the
side of the Trump faction, by a majority of the majority class electorate, in
the U.S. and elsewhere.”
“Now, to the nature of the
flaw in Marx’s Theory of capitalist-system Rate-of-Profit-Dynamics, and to the
correction of that flaw.”
“Marx’s account of “The Law
of the Tendency of the Rate of Profit to Fall”, e.g., in «Das Kapital»,
volume III, Part III, Chapters XIII to XV, suffers from a, highly uncharacteristic
for Marx, one-sidedness on his part, as we shall see in more detail
below.”
“Marx’s account of the
productive-force-growth-induced devaluation of [especially fixed-]capital-value
captures only one side of that process and its consequences. Marx notes how the shrinkage in the
capital-value-invested denominator of his deeply-analytical, core profit-rate
ratio, s’/(c+v), tends to raise the magnitude of that profit-rate
ratio as a whole – true, IF the net (’) surplus-value
(s’) numerator of that ratio remains unchanged, does not
itself also decline in value sufficiently, in a decline registered as also a
consequence of productive force growth in the context of World Market competition.”
“But Marx neglects to
mention, or to consider, the impact of productive-force-growth-induced
fixed-capital devaluation on that (s’) numerator, due to the enforced write-off
of the amount of each fixed-capital, competition-caused loss of capital-value; reducing
that numerator due to the subtraction of the written-off
value-amount from that profit-source numerator.”
To his credit, Marx explicitly recognizes that a more concrete expression of the core, abstract profit-rate of the capitalist system includes the component of the as-yet-undepreciated capital-value of the fixed capital “stock” used in production, not just the “constant capital” component of the flow of capital-value due to the “wear and tear depreciation” of that fixed capital –
“The rate of profit must be calculated by measuring the mass of produced and realized surplus-value not only in relation to the consumed portion of capital reappearing in the commodities [KS: i.e., the “wear-and-tear depreciation” part, cd, of “constant capital”: c = cd + cm + ca], but also to this plus that portion of unconsumed but applied capital which continues to operate in production.” [Marx, Capital, vol. III, Part III, Chapter XIII, p. 229 in the 1967 New World paperback edition].
– i.e., the part of fixed-capital
value still remaining after each production-period must be included in the
invested capital-used denominator, implying that, more concretely, the rate of
profit should be measured, not just as s’/(c + v), but,
instead, as s’/(f + c + v).”
“But, for the largest ownership-concentrations
of industrial fixed capital, when a competitor, e.g., an upstart innovator in
the domestic market of that concentrated capital [Preston Tucker and John
DeLorean come to mind], or an upstart in a newly industrializing nation,
starting with much lower wages, no legacy of obsolescent fixed capital, and the
latest, most-advanced in industrial fixed capital technology [the Japanese Car
Industry comes to mind] – maybe less costly to purchase, maybe also less costly
to operate – than the older vintage of fixed capital owned by that
ownership-concentrated capitalist, starts to undersell and/or
out-design on competing products in that legacy capitalist’s domestic market,
and/or on the world market, the resulting write-off, and scrapping, of that
capitalist’s therefore-obsoleted fixed capital plant and machinery, and the
cost of replacing it with the same fixed capital wielded by the upstart, can
drive that legacy capitalist’s enterprise into deep unprofitability,
or even into wholesale bankruptcy, especially if episodes of
such technological obsolescence depreciation of that legacy capitalist’s fixed
capital recur regularly, and, more likely, with increasing frequency, as
profit-motivated technological innovation accelerates worldwide, especially in
upstart industrializing nations, such as Germany, Italy, Russia, and Japan once
were, and such as China, Brazil, India, South Africa, Vietnam, and others,
still are.”
“Marx is, of course, right,
that, after the book value devaluation [and the write-off
subtraction in the numerator, against net profits, in the accounting
period in which recognition of the fixed capital ‘techno-depreciation’ is
forced], has reduced the capital-invested-and-used denominator, (f +
c + v), the profit rate of that concentrated-ownership capitalist may rise
– if that capitalist’s company can survive the drop in profit caused in
the accounting period of the
productive-force-growth-caused fixed-capital devaluation.”
“As Marx also rightly points
out, if that devaluation leads to the bankruptcy and liquidation of that
company, an opportunist capitalist can buy, e.g., at auction, the fixed-capital
and other assets of that, dissolved, business for the proverbial “pennies of
the dollar”, and thus enjoy a – albeit transient – even-higher profit-rate,
even if that “carpet-bagger” uses the obsolescent fixed capital, given its now
so much lower, liquidation-auction purchase cost to him/her.”
“However, as fixed-capital
value grows and accumulates, as the very expression of productive force growth,
and as the profit-incented speed of fixed-capital technical innovation also
accelerates, accounting periods with ‘techno-depreciation-induced’
capital-value losses – i.e., with productive-force-growth-induced capital-value
losses – can aggregate to a secular fall in the general rate of profit on
capital.”
“Moreover, the numerator-shrinking,
profit-shrinking effects of such ‘techno-devaluation’ of fixed capital are not
confined to the single accounting period in which the capital-value-vanishing
is recognized.”
“This is because, as another
consequence of the accelerating growth of the social productive force, and the
corresponding accelerating growth of the physical mass, and, to a lesser
extent, of the “value-mass” of capital-value, of the fixed capital component of
industrial productive capital, self-financing of fixed capital purchases, by an
individual capital, from its own profits, becomes less and less a viable
option, especially for the largest, most ownership-concentrated capitalist
firms. Bank loans are increasingly
needed for such massive fixed-capital purchases.”
“This means that, when a
portion the fixed capital of such firms becomes competitively obsolete, ‘techno-devalued’,
and, e.g., has to be scrapped, or sold for its “net realizable value”, e.g., as
scrap metal, etc., and if this occurs before the bank loan used for its
purchase has been paid-off – “amortized” – in full, then the profit-numerator-shrinking
impacts of that ‘techno-devaluation’ continue,
accounting-period-after-accounting-period,
due to the ongoing, e.g., monthly, debt-service
[re-]payments on the loans by which the replacement fixed capital was purchased.”
“Again, this is because the
‘self-contracting capital-value’-afflicted capitalist must continue to pay
“debt-service” – e.g., monthly or quarterly principal-plus-interest payments –
to the bank(s) who provided the loan(s) to purchase that fixed capital plant
and equipment, even though, having been scrapped, it is no longer earning any
revenue with which to help pay that debt-service.”
“Still more, that capitalist,
to return to competitiveness, will have had to take out (an) additional bank
loan(s), to finance the purchase of the newer, competitive, not-yet-obsolescent
fixed capital plant and equipment, that also require recurring, e.g.,
monthly, [re-]payments via debt-servicing.”
“So, compared to the upstart
competitors, that forced her/his old fixed-capital’s value-contraction, who typically,
as upstart new-entrants, have only one bank loan each on their books, for
the bank loan(s) used to purchase their new, out-competing fixed capital, the
legacy capitalist will have two loans to pay on, whose continuing debt-service
payments will subtract from, and reduce, his/her profit numerator: a decided,
ongoing competitive disadvantage for the legacy capitalist, no matter how vast her/his
capital-holdings had been, and no matter how politically and socially powerful
he/she used to be.”
“If the banks’ loans’
debt-service is not paid to the banks – if the
‘technodepreciation-aggrieved’ capitalists go into default on these loans –
then the loaning banks can force those “non-performing” capitalist firms into
bankruptcy & liquidation.”
“When accelerating
technodepreciation leads, on a continuing basis, to many such “non-performing
bank loans”, the ‘‘‘profit-rates’’’ of banks making industrial fixed capital
loans – their interest income – will also fall.”
“If the “non-performing
loans” compositions of those banks’ loan-capital portfolios exceed a certain
threshold, then those banks’ capital becomes “impaired” – i.e., those banks
become “insolvent” – and they may be forced by banking regulators, e.g., by the
U.S. OCC, into bankruptcy and “fire-sale” liquidation.”
“Fixed-capital-value losses,
due to Productive-Force Growth, in order to
capture their fuller effects, must be subtracted out of both the
numerator and the denominator of the profit-rate ratio. Gor example, if we denote such losses by dPFG,
for the depreciation of fixed capital value owing thereto, then
we have, for each accounting period in which competition forces the recognition
of such losses –
( (s’ - dPFG)/( (f - dPFG)
+ (c + v) ) )
– a symmetric subtraction which, perhaps counter-intuitively, does not “cancel out”, but, on the contrary, already lowers the rate of profit vis-à-vis its magnitude prior to this co-subtraction, as long as
s’ > dPFG < (f + c + v),
given (f + c + v) > s’.
When this kind of lowering of [partial-]net surplus-value, s’, recurs, aperiodically, in further accounting periods, as likely in an epoch of technology-driven accelerations in productive-force growth, a secular fall in the rate of profit can result, such as we see in the green-color-coded, bottom-most graph-line in the multi-graph posted below.”
“If we denote accounting-periodic debt service expense due on fixed-capital-purchase Loans as Ldse, due each accounting period until pay-off, with the number of “primes” (‘¢’) attached to Ldse indicating the number of accounting periods in which a given new such Loan was forcibly incurred, and count the corresponding number of productive-force-increase-induced fixed-capital write-offs by the number of “primes” attached to f, then the post-write-offs profit-rate history of a given aggregate of industrial “individual capitals” might look like this –
s’/(f + c + v) >
(s’¢ - ¢Ldse)/(f¢ + c¢ + v¢) >
(s’¢¢ - ¢Ldse - ¢¢Ldse)/(f¢¢ + c¢¢ + v¢¢)
> (s’¢¢¢ - ¢Ldse - ¢¢Ldse - ¢¢¢Ldse)/(f¢¢¢ + c¢¢¢ + v¢¢¢)
> (s’¢¢¢¢ - ¢Ldse - ¢¢Ldse - ¢¢¢Ldse - ¢¢¢¢Ldse)/(f¢¢¢¢ + c¢¢¢¢ + v¢¢¢¢)
>… .
“The idealized relation between the profit rates of a “legacy” industrial capital vis-à-vis an “upstart” competitor, given the idealization that their accounting books, reflecting their cost structures, are otherwise quite aligned, might look like this, with Ldse denoting the debt service expense on the initial Loan taken out for the “legacy” industrial capital to purchase its initial fixed capital plant and equipment, the fixed capital that was forced to be scrapped by price-competition from the “upstart” –
(s’¢ - Ldse
- ¢Ldse)/(f¢ + c¢ + v¢)legacy < (s’¢ - ¢Ldse)/( f¢ + c¢ + v¢)upstart.
“We have
attempted to capture both the denominator and the numerator impacts of
productive-force-growth-induced fixed capital-value contraction on industrial-capitalists’,
“surface-of-society” [Marx], “return-on-investment” [“ROI”] profit-rate metrics,
due to the self-accelerating growth of the “social forces of production” that
the capitalist, money-profits-obsessed system itself incentivizes, as follows –”
“Thinking through the experiences, the collective traumas, the major phenomena – the wars, the “Great Deflation”, the depressions and the “recessions”, the inflations and hyperinflations, the colonialisms and imperialisms, the “Third World” and other dictatorships, the vicious, pseudo-Marxian state-capitalist police states of the “Soviet” Union and its follower nation-states, the ideologies manufactured by the ‘Rocke-Nazi’ ruling faction to imprison the minds of the majority class, the “plandemics”, and especially the neo-Malthusian, ‘‘‘humanocidal’’’, “people are pollution”, pro-population-extermination ideologies foisted by the ‘Rocke-Nazis’ most recently, and the counter-response to them from the nascent Trump faction – one may see that the entire ‘historical phenomenology’, from the late 20th century to the present – the entirety of the ‘descendence phase half-epoch’ of the capitalist epoch – is encompassed by Marx’s “law of the tendency of the rate of profit to fall” as their ultimate “root cause”, especially once its ‘felicitous flaw’ is fixed.”
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Regards,
Miguel
Detonacciones,
Voting Member, Foundation Encyclopedia Dialectica [F.E.D.];
Elected Member, F.E.D. General Council;
Participant, F.E.D. Special Council for Public Liaison;
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