The Falling Rate of Profit by Joseph Gillman. Dennis Dobson 1958. 25s.
the tendency to a falling rate of profit is one of the main buttresses of Marx’s theoretical structure. Marx develops the theory in chapter 13 of vol. III of Capital, basing it on certain relations between the constituents of the social product. The latter is made up of c+v+s, where c = constant capital reproduced, v = variable capital (the wage fund) reproduced, and s = surplus value (the source of all profit, interest, rent and payment of unproductive workers). Then we have three socially significant ratios derived from these quantities. (a) The rate of surplus value, representing the degree of exploitation of labour throughout the economy:
This relation, since it involves only ratios of the quantities c, v and s, has the advantage that it is independent of the units (whether socially necessary labour-time or money-units of varying value) in which they are measured.
Marx’s argument is that the accumulation of capital is a necessary feature of the capitalist system (Capital, I, Chs. 24, 25); that an increasing proportion of the new capital takes the form of c rather than of v (Capital, I, Ch. 25, §2–3), thus raising the ratio k (also probably the quantity **); that the constant tendency to a rise in k necessarily produces a fall in ** (Capital, III, Ch. 13), it being assumes that ** is either constant or rises more slowly than 1 + k.
Marx admits (Capital, III, Ch. 13) that this process may be temporarily checked by certain counter-acting forces. A rise in ** may be brought about by the lengthening of the working day; by the speeding up of machinery; by the cheapening of the workers’ subsistence, thereby reducing the value of labour-power; or by the lowering of wages below the normal value of labour power. A fall in ** may be produced by the cheapening (in terms of labour) of the elements of constant capital through technical progress. Finally, the development of foreign trade may work on both ratios, raising ** by cheapening the workers’ susbistence, and lowering ** by cheapening the elements of constant capital. (Later Thus far is part of the common stock of Marxist theory. What Gillman has done is to attempt to clothe the bare bones of theory with the flesh of numerical data. He has used American national-income statistics in order to test empirically the validity of the Marxian hypothesis about the rate of profit. At first sight the results are not favourable. Using the stock basis (the most appropriate one), of reckoning the rate of profit, he finds that, between 1880 and 1920, ** has a strong downward trend from about 0.67 to 0.30; while ** rises, from 1.0 to about 1.3; and K rises much more steeply from about 1.5 to about 4.5. This is according to the book; but after 1920 the rate of profit remains fairly steady round about 0.32 with a slightly rising trend. K and ** fluctuate wildly; but their trends are almost level, at 4.2 and 1.35 respectively.
Various explanations can be suggested for these facts. The relative constancy of ** may be explained on the assumption that American labour, by a mixture of industrial bargaining power and political pressure, has reduced the hours of work, and has kept real wages well above the subsistence level (even the American conventional subsistence level)—in fact, at an approximate constant fraction of the real product of industry. (For an indication that this is not completely outside the Marxian schema, see Value, Price and Profit, chapter XIV. However, Marx did not seem to consider this a permanent possibility under capitalism). Gillman devotes a chapter to the problem of constant relative shares, and comes to the conclusion that modern capitalism is faced with the threat of being changed into a consumption economy—i.e. one in which production is carried on for the sake of consumption, and in which accumulation has become small or non-existent.
Gillman also deals with the effect of monopoly in keeping up the rate of profit. However, he does not make clear just how monopoly acts in terms of the Marxian variables, other than through promoting the technical changes notes above. The price-raising effect of monopoly is difficult to explain in Marxian terms. To the extent that monopolies raise price above the ‘price of production’ that would prevail under competition, they presumably make an extra-profit in exchange with the non-monopolised sector (including all the workers), thus, in effect lowering real wages and so increasing ** and, through **,**.