Karl Marx: not a catastrophist. Capitalism must be overthrown

Incomprehensible and erroneous

Did the tendency for the rate of profit to fall cause the crisis of 2008-09? Bruce Wallace and Steve Dobbs reply to Arthur Bough

In a recent Weekly Worker article Arthur Bough claims that the debate over Karl Marx’s law of the tendency for the rate of profit to fall (LTRPF), and the argument that it is the underlying cause of the current capitalist crisis, is based on “false premises”.1

Unfortunately he does not really give us any context regarding the debate, but instead presents us with four vague and imprecise questions that are supposed to encapsulate the debate and then he immediately provides us with the answers!

So he says the debate is about such things as:

Q1. Is there any such law to begin with?

A. Yes, but it is not the law that some believe it to be.

Q2. Is it a basis of Marx’s theory of crisis?

A. No.

Q3. Does it mean capitalism increasingly becomes prone to crisis, necessitating the collapse of the system?

A. No - not at least on the basis of the information we have currently.

Q4. Does it explain the crisis of 2008-09?

A. No.

So the debate is definitively resolved to the satisfaction of comrade Bough on the basis of his encyclopaedic knowledge of Marx’s critique of capitalism. Leaving aside ‘the law as such’, Bough states that Karl Marx “demonstrates that there is no reason, therefore, why this law should lead to a collapse of capitalism”.

Perhaps comrade Bough feels he has proved a point against the “many who claim” (he never says who they are) that the tendency for the rate of profit to fall will lead to the collapse of capitalism? Indeed on his blog he denounces the “prognostications of the catastrophists” who allegedly predicted the demise of capitalism in a cataclysmic big bang.2

This is a typical straw-man method that he employs. He creates an imaginary argument (catastrophe) that he fails to attribute to anybody, then he proceeds to knock it down with the aid of some highly selective quotations from Marx.

Just to be absolutely clear: neither Karl Marx nor any other serious living Marxist we know of believed or believes that the falling rate of profit leads, in and of itself, to the collapse of capitalism. This ‘method’, if it can be called that, is completely dishonest. If Bough wishes to take exception to the views of others he should name them so they can respond. Does comrade Bough lack the confidence to do so?

However, comrade Bough completely misunderstands, or misrepresents, the argument of Marx regarding the law itself. Using selective textual citations, he states that the rate of profit is not the decisive determining factor in the continued expansion of capitalist production: rather it is the mass of profit, because Marx “devotes considerable time to demonstrating that, as the rate of profit falls, the mass of profit must rise”.

Top marks for being able to read and understand one paragraph from volume 3 of Capital, chapter 13, but comrade Bough stops short just as Marx goes into his exposition of the ‘Internal contradictions of the law’ in chapter 15. Bough’s confusion as to how the law of the tendential fall in the rate of profit is supposed to work is astonishing. The presentation in volume 3 is very clear: chapter 13 (‘The law itself’) is followed by chapter 14 (‘Counteracting factors’) and chapter 15 (‘Development of the law’s internal contradictions’).

Rate and mass

What does Marx actually mean when he explains the relationship between the rate and the mass of profit that is explored in chapter 15?

Marx does show that, as the rate of profit falls progressively, the mass of profit must increase, but comrade Bough portrays Marx’s argument as if, as the rate of profit falls, it is compensated for, or counteracted/offset, permanently by the increasing mass of profit. However, Marx does not argue this at all.

Bough says:

Marx showed that, even as this rate of profit fell, the mass of profit must rise, because these are both caused by the same process of an expansion of capital and rise in social productivity ... There results a massive expansion of the quantity of commodity units produced. The profit per unit falls, but by less than the expansion of the quantity of units produced, so the mass of profit continually rises despite these falling profit margins. The two things are different sides of the same phenomenon.

Unfortunately comrade Bough’s picture of capitalism leaves out Marx’s key concept of the concentration and centralisation of capital. Bough believes that the continuous growing mass of profit means that the falling rate of profit does not cause economic crisis, but Karl Marx thought otherwise. As capitalism develops and productiveness increases, “there develops a higher composition of capital: ie, the relative decrease of the ratio of variable to constant capital”.3 Concentration and centralisation of capital means that large firms and monopolies squeeze smaller and less productive firms out of business, leading to yet more concentration and centralisation:

On the other hand, a fall in the rate of profit connected with accumulation necessarily calls forth a competitive struggle. Compensation of a fall in the rate of profit by a rise in the mass of profit applies only to the total social capital and to the big, firmly placed capitalists.4

Marx then writes:

A fall in the rate of profit and accelerated accumulation are different expressions of the same process only in so far as both reflect the development of productiveness. Accumulation, in turn, hastens the fall of the rate of profit, inasmuch as it implies concentration of labour on a large scale, and thus a higher composition of capital. On the other hand, a fall in the rate of profit again hastens the concentration of capital and its centralisation through expropriation of minor capitalists, the few direct producers who still have anything left to be expropriated. This accelerates accumulation with regard to mass, although the rate of accumulation falls with the rate of profit.5

The way that Bough depicts the process is as if the entire capitalist economy of some anonymous country has a continuously increasing mass of profit that the capitalists mutually share out in perpetuity, ensuring that falling profit rates are not a problem. But this is pure fantasy. Individual enterprises are engaged in vicious competition with each other in pursuit of profit and, as Marx explains,

At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. The mass of small, dispersed capitals is thereby driven along the adventurous road of speculation, credit frauds, stock swindles and crises. The so-called plethora of capital always applies essentially to a plethora of the capital for which the fall in the rate of profit is not compensated through the mass of profit - this is always true of newly developing fresh offshoots of capital - or to a plethora which places capitals incapable of action on their own at the disposal of the managers of large enterprises in the form of credit. This plethora of capital arises from the same causes as those which call forth relative overpopulation, and is, therefore, a phenomenon supplementing the latter, although they stand at opposite poles - unemployed capital at one pole, and the unemployed worker population at the other.6

Let us repeat this point just to emphasise it for comrade Bough: according to Marx, there are a plethora (a lot) of capitals (firms), “for which the fall in the rate of profit is not compensated through the mass of profit”.

So comrade Bough’s point is completely asinine. One would expect that somebody who quotes Marx as if he was an expert would at least be able to present his arguments faithfully, but on this point Bough is without a clue. It is doubly rich that he says that the argument for Marx’s theory as an explanation of the crisis of 2008-09 is based on a “false premise”, when he does not even understand the theory he is allegedly familiar with.

Marx goes on in chapter 15 to explain:

These different influences [the growing concentration of capital and the increasing mass of surplus-value (profit)] may at one time operate predominantly side by side in space, and at another succeed each other in time. From time to time the conflict of antagonistic agencies finds vent in crises. The crises are always but momentary and forcible solutions of the existing contradictions. They are violent eruptions which for a time restore the disturbed equilibrium.7


On the other hand, the rate of self-expansion of the total capital, or the rate of profit, being the goad of capitalist production (just as self-expansion of capital is its only purpose), its fall checks the formation of new, independent capitals and thus appears as a threat to the development of the capitalist production process. It breeds overproduction, speculation, crises and surplus capital alongside surplus population.8

Just to nail Marx’s view of the impact of the falling rate of profit, he added in the Grundrisse:

These contradictions lead to explosions, crises, in which momentary suspension of labour and annihilation of a great portion of capital violently lead it back to the point where it is enabled [to go on] fully employing its productive powers without committing suicide.9


Comrade Bough presents one of the most confused and confusing arguments imaginable. He attempts to argue that, for instance, chapter 9 of Capital, volume 3 - ‘Formation of a general rate of profit (average rate of profit) and transformation of the values of commodities into prices of production’ - refers to a different rate of profit than in chapters 13-15 on the LTRPF. Yet Marx directly relates the two:

In view of the many different causes which make the rate of profit rise or fall one would think, after everything that has been said and done, that the general rate of profit must change every day. But a trend in one sphere of production compensates for that in another; their effects cross and paralyse one another. We shall later examine to which side these fluctuations ultimately gravitate.10

Marx spells out exactly the direction towards which the general rate of profit ‘ultimately gravitates’ in chapters 13-15, and why the “progressive tendency of the general rate of profit to fall is, therefore, just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour”.11

Bough introduces a phoney novelty in the form of turnover time, which, according to him, masks the real rate of profit. He states: “In Capital, volume 2, Marx analyses the effect of the rate of turnover on the annual rate of surplus value. His analysis is extensive, and central to his study of the circulation of capital.” If only this were true. Marx did not write any of it: Engels wrote it in its entirety.

However, we are presented with a real beauty by comrade Bough, who makes this assertion about the effect of faster turnover time:

To understand the importance of this, compare one of the new industries, such as a restaurant chain, to an old manufacturing industry. The latter may turn over its capital only 10 times a year, whereas the former turns over its capital every day, or 365 times a year!

One gets an image of a hamburger chain, but do hamburgers turn over (cook) faster today than 50 years ago? To understand the importance of this look at the number of restaurant chains that go bust! As Restaurant Finance Monitor asked in March why so many restaurant chains are filing for bankruptcy:

Fitch Ratings called the bankruptcies “a warning sign of financial distress among restaurant chains”. But, it added: “We do not view them as portending to widespread bankruptcies of US restaurants, but a reflection of difficulties faced by brands that have lost their competitive position and relevancy with consumers.”12

Restaurants do not turn over their capital on a daily basis and certainly not their fixed capital (buildings, kitchen equipment, etc). That is why the Sbarro pizza chain, which emerged from bankruptcy just two years ago, already finds itself heading back in the same direction. The company has about $140 million in debt and has just closed 155 outlets.

The main problem with Bough’s preposterous exposition is that it is entirely abstract without the support of even a modicum of serious economic research.

The ‘turnover time’ argument was well known to Marx and is a bit more complicated than Bough thinks. Constant capital may be fixed or circulating. Fixed constant capital (such as plant and machinery) may be turned over once every 10 years (not, as Bough dreams, 10 times a year). Circulating constant capital (such as raw materials) may be turned over every six weeks. Marx saw this as a complication in presenting the law of value and in working out a general rate of profit (without which you cannot begin to discuss the law of the tendential fall in the rate of profit). He dealt with this mainly in Capital, volume 2 (subtitled The process of circulation of capital). This difficulty makes the calculation of the annual rate of profit, which Bough thinks is a crucial problematic concept, a little tricky.

Most empirical analyses of the contemporary rate of profit actually use the value of constant fixed capital (at historic or current costs) as the denominator. The reason for this is that it is very difficult to work out the turnover time for constant and variable capital from statistics such as those provided by the US Bureau of Economic Analysis.

However the problem is also well known to contemporary Marxist economists and is fully taken into account in their analysis. For example, the Argentinian economist, Esteban Maito, in his paper The historical transience of capital: the downward trend in the rate of profit since the 19th century, acknowledges turnover time:

The rate of profit on fixed capital tends, however, to converge with the Marxian rate of profit in the long run. The reason for this is simple. The growth in turnover speed of circulating capital steadily reduces the participation of that circulating capital in the total capital advanced: ie, related to fixed capital.13

Unlike the bungling amateur, Bough, Maito does real, number-crunching research that factors in turnover time, and his conclusions are telling:

Many considerations were made on the ability of capital to overcome the crisis and regenerate constantly. Periodic crises are specific to this mode of production, and allow, ultimately, a partial recovery of profitability. This regeneration capacity is, again, a characteristic aspect of capital and the cyclical nature of the capitalist economy. But the periodic nature of these crises has not stopped the downward trend of the rate of profit in the long term. So that, compared to those arguments claiming the inexhaustible capacity of capital to restore the rate of profit and its own vitality, which therefore consider the mode of production as a natural and ahistorical phenomenon, it’s necessary to assert its inevitable historical transience, in the light of empirical evidence.

We would encourage readers to examine Maito’s evidence and his methodology, which shows a historical, secular decline in the rate of profit of all the advanced core economies, which also applies to the peripheral emerging economies, including China.

Bourgeois economics

Comrade Bough’s main point, after much confusion, is that the rate of profit did not fall prior to the great recession. He argues to the contrary, without a scrap of empirical evidence to support it, that “the rate of profit was actually rising”. In fact, he asserts, “in the latter half of the period of stagnation the general annual rate of profit rises, and the conditions are created for the next boom cycle”.

The only empirical evidence he eventually cites in the entire article is that presented by Doug Henwood. However, Henwood’s US data shows that the rate of profit hit a post-war low around 1982, recovered for 15 years prior to 1997 and has never regained its 1997 high since. He shows that the rate of profit fell during the great recession of 2008-09 and has undergone a limited recovery since, but stopped rising after 2011 and looks pretty precarious at present. We would also add that the rate never rebounded to the superprofit rate of the post-war boom.

Yet why choose Henwood’s data? There are questions about how he gathered it and calculated his results. In any case it is problematic whether Henwood can be considered a genuine Marxist economist at all. He is marginally on the left, but has publicly stated that if data (“any series of numbers”) is produced that shows a falling rate of profit he will not accept it. In his opinion it would be wrong in any case, because neoliberalism has been a smashing success from a capitalist viewpoint. But Henwood has been challenged by the Marxist economist, Andrew Kliman, to explain his results. He rebuffed the challenge and actually stated in a comment on his blog: “I refused to get involved in any of these value theoretic games. They’re a total waste of time. Enjoy your day.”14

Those wishing for a proper critical approach may pursue Kliman’s response to Henwood on the Diet podcast.15 Comrade Bough cites not a single other authority on the rate of profit debate and ignores the work of Kliman and Michael Roberts, amongst a host of others. In this sense Bough’s contribution, apart from being abstract, confusing and poorly argued, does not raise the level of discussion, but obscures the issues at stake.

Bough is critical of those who propose the LTRPF as the underlying cause of crisis, without naming any of them. But what is his alternative? He refers to the great recession repeatedly as a “financial” crisis. His explanation seems to be that because of the (unproven) high profits up to 2008 interest rates were very low. This led to the formation of bubbles, which eventually burst. So it was all a chapter of accidents really.

Although we reject the prospect of automatic collapse, in Bough’s analysis there is no reason why capitalism could not go on for ever. At root Bough’s explanation is practically identical to that of the bourgeois economists, even if he adds some Marxist window-dressing of a rather tattered nature.

Some of his assertions are totally impressionistic and have nothing at all to do with the law of value. One glaring example of his deviation from Marxist theory is in relation to the value of commodities as, according to Bough, market share can be won on the basis of quality. He says:

Market share can be won, and profits made, by appealing to the idea of quality, rather than cheapness, and indeed the latter usually undermines the image of the former. Mercedes does not make large profits selling cars to China on the basis of their cheapness, and the quality is associated with the value added by labour, not the value transferred from materials.

Mercedes does indeed make large profits selling their cars to China, but they are expensive - the quality of the product depends on the value of the raw materials that go into their production and the labour exploited during the production process. One reason why Mercedes makes such high-quality cars is because of the massive investment in the latest productive technique: in other words, an increase of constant capital in the form of machinery. The amount of surplus value extorted from car workers is tiny on the robotised production lines of the major automotive manufacturers.

Indeed why bother to make value the basis of economics at all if the key determinant can be the quality of the product? However, Bough, as usual, merely expresses the latest bizarre idea in his head. A quick check of Bloomberg reveals that Mercedes had a massive loss in 2012. But what is the current situation?

Mercedes-Benz Cars, which also makes the Smart two-seater, more than doubled first-quarter [earnings before interest and tax] to €1.18 billion from €460 million a year earlier, lifted by sales gains in China and the US and cost cutting. Its profit margin a year ago was 3.3%.16

The profit margin is only 3.3%! The fact is that most car manufacturers do not have healthy margins. That is why the US government had to step in to rescue its car plants during the great recession, with the big three companies getting a $25 billion loan!

Bough’s flights of theoretical fancy have no bearing on the real world of decaying capitalism, we are afraid to say. He just regurgitates the arguments of the bourgeois economists or, as in the case of his musings about quality, has no grasp of the facts or of a Marxist theoretical framework.

Restating the questions

Here we must restate the questions asked by comrade Bough and provide rather different responses:

Q1. Is there any such law to begin with?

A. Yes their definitely is, as elaborated by Marx in the Grundrisse, Contribution to a critique of political economy and in Capital, volume 3, but it is not the version of the law that is misunderstood and misrepresented by comrade Bough.

Q2. Is it a basis of Marx’s theory of crisis?

A. Comrade Bough says no, but Marx says that the falling rate of profit “manifests itself in contradictory tendencies and phenomena”; that it “finds vent in crises”. That it causes “explosions” and “crises” , “violent eruptions” and “expresses itself in bitter contradictions, crises, spasms”, culminating in the “violent destruction of capital”. It leads to “the actual stagnation and disruption of the process of reproduction” and “calls forth disturbances, and stoppages in the capitalist production process, crises, and destruction of capital” and propels capitals to “speculation, credit frauds, stock swindles, and crises”. It “appears as a threat to the development of the capitalist production process. It breeds overproduction, speculation, crises, and surplus capital alongside surplus population”. Perhaps Marx was engaging in hyperbole, or these are the ravings of a catastrophist.

Q3. Does it mean capitalism increasingly becomes prone to crisis, necessitating the collapse of the system?

A. Yes, it does, and future economic crises will become more violent and destructive. It does not necessarily mean that capitalism will totally collapse of its own accord, because capitalism must be overthrown as a social system through the active agency of the working class. However, economic collapse will be a definite possibility at a future point. Whether collapse leads to a higher mode of production is not preordained, but will be determined by the success or failure of proletarian leadership.

Q4. Does it explain the crisis of 2008-09?

A. In applying a Marxist analysis to the crisis of 2008-09, the LTRPF fits the facts better than the stock, conventional accounts of bourgeois economics. If the crisis was purely financial then why have we entered a long depression, now that the financial crisis is over?

We unequivocally condemn Bough’s confused mishmash of an argument and wilful misrepresentation of the ideas of Karl Marx and Fredrik Engels in his woeful contribution, which is so riddled with mistakes that it is almost impossible to reply fully. This is, in the words of Marx, a time for “sober senses” and not the time for incomprehensible and erroneous thought experiments supposedly based on the ideas of the founder of scientific socialism l


1. ‘False premises, false conclusions’, June 19.

2. http://boffyblog.blogspot.co.uk/2014/04/the-law-of-tendency-for-rate-of-profit.html.

3. K Marx Capital Vol 3, chapter 15.

4. Ibid.

5. Ibid.

6. Ibid.

7. Ibid.

8. Ibid.

9. K Marx Grundrisse: www.marxists.org/archive/marx/works/1857/grundrisse/ch15.htm.

10. K Marx Capital Vol 3, chapter 15.

11. Ibid.

12. www.restfinance.com/Restaurant-Finance-Across-America/March-2014/Why-Are-So-Many-Restaurant-Chains-Filing-For-Bankruptcy.

13. http://thenextrecession.files.wordpress.com/2014/04/maito-esteban-the-historical-transience-of-capital-the-downward-tren-in-the-rate-of-profit-since-xix-century.pdf.

14. http://lbo-news.com/2012/06/26/profitability-high-and-maybe-past-its-peak.

15. www.critical-theory.com/andrew-kliman-answers-critics-neoliberalism-capitalism.

16. www.bloomberg.com/news/2014-04-30/daimler-first-quarter-profit-surges-on-mercedes-car-gains.html.