Not in awe of 'experts'

Bruce Wallace and Steve Dobbs may view him as a ‘bungling amateur’, but Arthur Bough insists that they are wrong about the falling rate of profit

In their article published in last week’s Weekly Worker, Bruce Wallace and Steve Dobbs say dismissively of me: “he quotes Marx as if he was an expert”.1I am not sure how someone would quote Marx as if they were not an expert - perhaps the way Bruce and Steve do. But I have never claimed to be an expert - just a worker with a view; albeit one with a degree in economics and politics, and 40 years experience of studying Marx and his works. The Weekly Worker approached me to write the article they are responding to,2 not vice versa.

Of course, it is unconscionable for non-experts, in the elitist view of comrades Wallace and Dobbs, to express an opinion, as they make clear in their comment about “the bungling amateur, Bough”. What they really mean is it is only ‘recognised experts’ - part of some self-defined elite - that have the right to quote Marx knowledgeably. The rest of us should simply sit quietly and admire them in awe. Such an approach is understandable from those who developed as members of organisations claiming to be Leninist, but where the ‘Leninist’ tag simply requires the foot soldiers to keep quiet, toe the party line and leave the thinking to their elders and betters. It is why even the slightest division of opinion amongst the “expert” elite, of these organisations causes a schizophrenic neurosis that necessarily leads to yet another split.

What that says about the kind of socialism they would build is fairly clear - and it is not a kind that most workers would find attractive. I came across that approach in the 1970s in the way the Militant Tendency operated and that perhaps explains why the response of comrades Wallace and Dobbs is more notable for its intemperate tone and attempts at sarcasm than for the quality of the argument they muster in response.

Unfortunately, for them, I have too many years under my belt, including too many dealing with hectoring and aggressive bosses as a union militant, to be bothered by that kind of approach. But perhaps I should be flattered that my humble thoughts required the combined efforts of not one, but two “experts”. In fact I was shocked at how little of Marx’s theory they seem to have grasped. Perhaps that is why, when I debated these issues with Steve some time ago, on his own blog, he could not sustain his argument. It is hard to know whether this is a case of two heads being better than one, because we will never know how much worse it would have been had either one written the article on their own.

I am accused of “selective textual citations” from Marx, which is the code used by people to dismiss Marx quotes that contradict the argument they are making. However, I plead guilty to being selective in the quotes I chose. I chose those that were most appropriate - unlike them, who seem to have picked their quotations on the basis of whatever was closest to hand, and even then manage to misread them. The quote of mine they take exception to is where Marx states that the falling rate of profit must be accompanied by a rising mass of profit. Their assertion that this quote was selective, meaning somehow unrepresentative, is itself dishonest. They admit to reading my blog articles on the falling rate, and will have seen that I provide four similar quotes.3

Given space, I could have used all of those and more, but this is beside the point, because, having made a fuss about it, they then admit: “Marx does show that, as the rate of profit falls progressively, the mass of profit must increase ...”

According to them, “comrade Bough completely misunderstands, or misrepresents, the argument of Marx regarding the law itself ... he states that the rateof profit is not the decisive determining factor in the continued expansion of capitalist production.” But even a cursory reading of my article shows the reason for giving that quote was to demonstrate that there is no basis for believing that a falling rate of profit means a falling mass of profit, and, therefore, an inevitable collapse of capitalism. That is why it is followed by Marx’s comment criticising Adam Smith, and pointing out that, “Permanent crises do not exist”. So I am afraid I cannot give Bruce and Steve top marks for even being able to read a fairly simple-to-understand paragraph.

Capital or capitals?

The next bit of their argument is truly bizarre. They say I interpret Marx’s statement about the rising mass of profit as permanently offsetting the fall in the rate of profit, and counter that “Marx does not argue this at all.” To prove this increased mass of profit does not offset the falling rate, they provide a Marx quote, and say: “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’.”

If they are going compensate for their lack of argument with invective and sarcasm, they should at least try to make sure their own citations, and reading of them, are accurate. A look at Marx’s quote shows it does not talk about a plethora of “capitals”, but a plethora of “capital”: ie, singular. Marx is describing too much capital, and later he discusses the plethora of money-capital in similar terms. He is talking about an overproduction of productive and commodity capital. He has in mind the 1840s, when, as he and Engels set out, the annual rate of profit was actually high and rising, and led to this overproduction.

If they wanted to know what Marx was talking about here they simply have to look at Capital volume 3, chapter 14, where he cites the increase in stock capital. It is a countervailing force, Marx says, because these mammoth firms accumulate capital faster than all others, despite a lower than average rate of profit, because the owners of these companies, the shareholding money-capitalists, no longer obtain profits, but a small amount of interest in the form of dividends, and a large capital with a low rate of profit can accumulate faster than a small capital with a high rate of profit. Marx says this compensation applies to “the total social capital and to the big, firmly placed capitalists” and says later in chapter 15,

The rate of profit - ie, the relative increment of capital - is above all important to all new offshoots of capital seeking to find an independent place for themselves. And as soon as formation of capital were to fall into the hands of a few established big capitals, for which the mass of profit compensates for the falling rate of profit, the vital flame of production would be altogether extinguished. It would die out.

What makes their argument truly bizarre, in this instance, is that they put up as a refutation to my supposed position the following: “Unfortunately comrade Bough’s picture of capitalism leaves out Marx’s key concept of the concentration and centralisation of capital.”

Astonishing! On the one hand, they misread Marx to claim that the increase in the mass of capital cannot offset the falling rate of profit, because there are a plethora of capitals for whom this does not apply, and the next minute they claim that I have failed to take into account the fact that concentration and centralisation is constantly diminishing the number of these small capitals, and creating in their place “a few established capitals”, for which, as Marx says, “the mass of profit compensates for the falling rate of profit”.

I do not know how much Bruce and Steve have kept up with economic developments since 1865, but I can tell them that this process has continued apace since then, so that most modern economies - not just anonymous ones, but real ones like the US - are today dominated by a “few established big capitals, for which the mass of profit compensates for the falling rate of profit”. But maybe Bruce and Steve simply accept the view of bourgeois “experts” of the neo-classical school, who present an image of modern capitalism as being still dominated by, and operating under, the same economic conditions as early 19th-century free-market capitalism, and for whom the concentration and centralisation of capital described by Marx and Engels never happened.

They then give us more ‘unselectively’ chosen textual citations from Marx, to ‘prove’ that his theory of overproduction is based on the falling rate of profit. Unfortunately, not one of those quotes actually says that. They all speak of the resolution of “contradictions”, but, as Marx sets out in some of the quotes they have chosen, those contradictions can be as much based on a rising rate of profit, causing new capitals to be formed, existing capital to overexpand and so on, as on any falling rate of profit. That is the situation that Marx and Engels describe in chapter 15 - of a rising rate of profit leading to overexpansion, rising wages causing the rate of surplus value to fall, culminating in a crisis of overproduction that produces a catastrophic fall in the rate of profit. In Theories of surplus value part 2, chapter 17, where Marx actually sets out his theory of crisis, he does not mention the law of falling profits once - not one word. Rather odd, surely, if you believe that law to be the basis of his theory of crisis!

Rate or rates?

Comrades Wallace and Dobbs then say: “Bough introduces a phoney novelty in the form of turnover time, which, according to him, masks the real rate of profit.” Not just according to me, but according to Marx and Engels too. They did not think the rate of turnover was a “phoney novelty”; they thought it was important for understanding the real rate of profit. The two comrades are like a “certain Biederman”, who was shocked at the suggestion of a 1,000% rate of surplus value used by Marx in volume 2, but who Engels states might then “be pacified by this annual rate of surplus value of more than 1,300% taken from the living experience of Manchester”.4

Marx spends 10 out of the 21 chapters of volume 2 dealing with this “phoney novelty”! In the preface to Capital volume 3, Engels writes:

But since its subject matter, the influence of turnover on the rate of profit, is of vital importance, I have written it myself, for which reason the whole chapter has been placed in brackets. It developed in the course of this work that the formula for the rate of profit given in chapter 3 required modification to be generally valid.

This quote also deals with another of the claims of Bruce and Steve: that Marx’s use of the term ‘rate of profit’ is unchanged throughout. But then what would Engels know compared to “experts” like them? They say that my explanation, following Engels here, that Marx uses three different types of ‘rate of profit’, is confused. Not at all, as I have argued elsewhere.5In chapter 4, Engels sets out the definition of the annual rate of profit, which differs from the rate of profit, because it specifically deals with the effect of the rate of turnover of the circulating capital.

In chapter 9, describing the formation of a general rate, Marx uses this definition, but without specifically dealing with the effects of the rate of turnover. However, in chapter 13, the analysis is conducted almost entirely on the basis of a rate of profit where the capital turns over just once during the year, and where, therefore, what is being described is the equivalent of the profit margin, p/k. In chapter 18, Marx deals with the role of the rate of turnover of merchant capital, and in chapter 17 he also modifies the definition of the annual rate of profit, to include merchant capital alongside productive capital.

The two comrades also claim that Marx did not write chapter 16 of Capital volume 2, saying it was written in its entirety by Engels. Wrong - it was written by Marx. The preface to volume 2 shows that it is contained in manuscript 2. It is chapter 4 of Capital volume 3 that was written in its entirety by Engels.

But what do I know? I am no “expert” like them. But then, boys, if you are going to use as your polemical style an elitist, arrogant dismissal of your opponent’s argument, you really should learn to get things like basic facts right. And this is not the first time. Some time ago, on his blog, Steve Dobbs had to retract some fairly basic factually incorrect claims he had made about me, such as that I was a member of the Socialist Party of Great Britain, and that I supported a “state capitalist” analysis of the USSR.6 To be honest, if you are going to be so lax about basic facts, it makes it hard to take anything you say seriously.


We then get another series of comments, which really make me question exactly how much of Marx’s economic theory they really do understand. I had made the point that there has been a change in the composition of the total social capital so that today we have far more service industries, etc, and far fewer manufacturing industries. This is important because, if the rate of turnover of these industries is much higher than that of the older industries, this will have an effect on the general annual rate of profit. As Marx puts it in volume 3, chapter 9 of Capital,

Since the general rate of profit is not only determined by the average rate of profit in each sphere, but also by the distribution of the total social capital among the different individual spheres, and since this distribution is continually changing, it becomes another constant cause of change in the general rate of profit.

They remark: “One gets an image of a hamburger chain, but do hamburgers turn over (cook) faster today than 50 years ago?”

Which is totally irrelevant. The comparison is not between hamburger production today and 50 years ago, but between hamburger production and, say, ship production! If a greater proportion of the social capital today is involved in types of production where the rate of turnover is higher than 50 years ago, the average rate of turnover of the social capital will also be higher, creating a higher annual rate of profit.

They then give a further irrelevant subjective set of quotes about bankruptcies amongst restaurant chains. By the same token, Starbucks make big profits, and Jamie Oliver alone employs 8,000 chefs in his highly profitable restaurants. However, the point was not about the profitability of restaurants, but the effect of the rate of turnover. Restaurants are not the only type of new industry reflecting this changed composition of the total social capital. According to the Household Expenditure Survey of 2012, about 12% of UK expenditure is on “recreation and culture”. A further 8% is spent on “restaurants and hotels”.7 Pretty much everything under these headings has a higher rate of turnover than do manufactured commodities.

As for “Restaurants do not turn over their capital on a daily basis and certainly not their fixed capital (buildings, kitchen equipment, etc)”, this is truly astounding. A cursory reading of Capital volume 2, on the turnover period, would have shown them that this period is measured in terms of the “circulating capital”. The question of the fixed capital is irrelevant. In chapters 7 through 17, Marx explains that the turnover period comprises the production period and circulation period for the produced commodity. But, for the reasons he describes there, in illustrating the difference between fixed and circulating capital, this must then be only the turnover period of the circulating capital.

Take a house builder. The turnover period is the time required to build the house and sell it, thereby recovering the advanced circulating capital (materials and labour-power), plus the wear and tear of the fixed capital. The fact that the excavators and other fixed capital owned by the builder have a turnover period of 10 years is irrelevant for Marx’s definition of the turnover period, or his calculation of the annual rate of surplus value based on it, or later for the calculation of the annual rate of profit, as I have demonstrated elsewhere.8On the basis Marx and Engels determine, for the turnover period of advanced circulating capital, it is clear that restaurants do turn over that circulating capital on a daily basis. They advance productive capital in the form of materials and labour-power each day to their productive process, and the commodities produced in that productive process are consumed and paid for on the same day, thereby reproducing that advanced circulating capital, including the wear-and-tear portion of the fixed capital.

Comrades Wallace and Dobbs then, rather oddly, say Marx “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.”

No, it does not. The issue of the turnover of the fixed capital is irrelevant, for the reasons Marx sets out in Capital volume 2. It is why he spends 10 chapters analysing the process of this turnover of circulating capital. On this basis, Marx develops the annual rate of surplus value, as distinct from the rate of surplus value. Engels then, on the back of this analysis, deals with the issue of fixed capital in forming the annual rate of profit in Capital.

Marx makes this clear in volume 3, chapter 9:

We must, therefore, remember in comparing the values produced by each 100 of the different capitals, that they will differ in accordance with the different composition of c as to its fixed and circulating parts, and that, in turn, the fixed portions of each of the different capitals depreciate slowly or rapidly as the case may be, thus transferring unequal quantities of their value to the product in equal periods of time. But this is immaterial to the rate of profit. No matter whether the 80c give up a value of 80, or 50, or 5, to the annual product, and the annual product consequently = 80c + 20v + 20s = 120, or 50c + 20v + 20s = 90, or 5c + 20v + 20s = 45; in all these cases the redundance of the product’s value over its cost-price = 20, and in calculating the rate of profit these 20 are related to the capital of 100 in all of them.9

The fixed capital always has to be present, and so is calculated as part of the capital advanced for the turnover period, when it is determined: ie, the turnover period of the circulating capital. The answer is simple: the rate of turnover of the circulating capital is determined by the time it takes for the advanced circulating capital to be reproduced. But, as Engels sets out in chapter 4, the total advanced capital includes the fixed capital, and so it must be included too. Consequently, the total advanced capital is the value of the fixed capital, plus the value of the circulating capital advanced for one turnover period. The formula is then s x n/C, where s is the surplus value produced in one turnover period of the circulating capital, n is the number of turnovers during the year, and C is the total advanced capital. There is nothing complicated at all about this calculation, and in chapter 4 Engels gives several examples of how to do it.

Our two experts comment: “Unlike the bungling amateur, Bough, [Esteban] Maito does real, number-crunching research that factors in turnover time, and his conclusions are telling …”

But, as Michael Roberts and others on his blog have pointed out,10 Maito not only includes a rate of profit figure for China prior to it becoming a market economy, but he also excludes wages and salaries. Given that Marx’s main determination of the rate of turnover of circulating capital undertaken in Capital, volume 2 is on the basis of the turnover period of the variable capital - because the turnover of the circulating constant capital is itself determined by the time the labour-power requires to process it - that is rather an omission, you might think!

Rate of profit

They then go on:

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.

In the first decade of this century alone, global fixed capital formation doubled, global GDP almost doubled, and the global working class increased by 30%. In the last 30 years, the global working class has doubled in size. Marx says expansion of capital equals an increase in the size of the proletariat. But, given that for Marxists capital is formed by the accumulation of surplus value, the simple question they have to answer is: if the rate and mass of profit was not expanding during this period, where did all this additional capital, that created whole new economies, and multi-billion-dollar industries in technology, etc, come from? How was it that, despite all of this additional investment in productive capital, the growth of surplus value was such that the supply of money-capital exceeded the demand for it by huge amounts, causing the global rate of interest to experience a 30-year secular decline?

When I wrote in my previous article that “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”, that comment was not in relation to any particular period of stagnation, but is simply a paraphrase of what Marx says on the matter.

Wallace and Dobbs comment: “His [ie, my] 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.”

Nothing I said suggests it was all just “a chapter of accidents”. This argument is just part of their pre-packaged set of responses to anyone who disagrees with their insistence that the 2008 crisis was caused by the law of the tendency for the rate of profit to fall (LTRPF). It is no more a “chapter of accidents” than the 1847 financial crisis, which, according to the description of Marx and Engels, was similarly founded on a high rate of profit. This created low interest rates and encouraged speculation in railway shares, and swindling in bills of exchange. It was sparked by a credit crunch, arising from the limitations of the 1844 Bank Act, following a gold drain in response to crop failures.

The comrades say: “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.” How on earth does this deviate from Marxist theory, other than in its most crude, mechanistic version? Market share is a question of demand and, as Marx sets out, demand is a function of use-value, not value!

Bruce and Steve may be too young to have been around when this was discussed amongst members of the Conference of Socialist Economists, back in the 1980s. But there was no doubt then about the idea that large, oligopolistic firms no longer competed only on the basis of price, which was seen as destructive of profits, but instead competed for market share on the basis of quality and choice, and sought to increase profits by continually reducing costs, and innovating to raise productivity. The agreements amongst the five global car-makers to share amongst themselves the costs of research and development, and to produce common engines, gearboxes, etc that they use in a range of their models, is an indication of that.

Having given more irrelevant details about Mercedes sales success, they then show that they do not even understand the difference between annual rate of profit and profit margin, when they say,“The profit margin is only 3.3%!” But, as Marx and Engels describe, firms can have low profit margins, but high annual rates of profit! The profit margin is calculated against the laid-out capital: ie, the cost of production - which does not include the advanced fixed capital, but only its wear and tear. The annual rate of profit, on the other hand, is calculated on the basis of the advanced productive capital, including the full value of the fixed capital. But, the more productive the capital, the higher its rate of turnover - and so the lower, relatively, the value of the advanced circulating capital and, consequently, the higher the annual rate of profit.


The two comrades say: “Bough’s flights of theoretical fancy have no bearing on the real world of decaying capitalism, we are afraid to say.” Which is precisely the kind ofcatastrophist nonsense that ignores the reality I mentioned at the beginning of my last article. It is the same kind of thing Stalinist economists came out with in the 1950s, when they denied that western economies were growing - only to capitulate into outright reformism when that fallacy could no longer be sustained.

What kind of decay is it that results in the global working class doubling, in the global GDP nearly doubling, in vast new industries in technology, biotechnology and gene technology being developed, in whole new parts of the globe in Asia being industrialised, and in that process now spreading apace in Africa too? What kind of decay is it that has seen, in the first 10 years of this century, 25% of all the goods and services produced in our entire history, in more inventions being patented than ever before, and so on?

Comrades Wallace and Dobbs “selectively” quote Marx’s paragraph at the beginning of chapter 15 as their only evidence that the LTRPF was the basis of Marx’s theory of crisis, but fail to point out that what he was talking about was the contradictions that arise (hence the title of the chapter: ‘Exposition of the internal contradictions of the law’), which lead to both a falling rate of profit and a rising rate of profit. They fail to account for the fact that, in the actual analysis in chapter 15, Marx is describing overproduction caused not by a falling rate of profit, but by a rising rate of profit, which causes overinvestment and a “plethora of capital” (not a plethora of capitals!). They fail to account for the fact that in 50 pages of his theory of crisis in Theories of surplus value, Marx says not one word about the falling rate of profit. Do they think he just forgot to mention it?

At the start of their rant they wrote: “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.” But by the end of it they have been led into such hyperbole that they ask: “Does it mean capitalism increasingly becomes prone to crisis, necessitating the collapse of the system?” And they answer: “Yes, it does, and future economic crises will become more violent and destructive.”

They go on: “If the crisis was purely financial, then why have we entered a long depression, now that the financial crisis is over?”

In Capital volume 1, Marx talks about crises that are purely financial, as opposed to the money crisis that arises in every economic crisis. But, he says, these purely financial crises impact the real economy. He had in mind the financial crisis of 1847. That resulted in a reduction in economic activity in Britain of 37%!

The two comrades claim that we have entered a “long depression”, but that is simply their assertion. The absolute level of growth in the world’s largest economy, China, today is greater than it was 10 years ago, its rate of growth is not much lower, at around 7%, and the main problem for its Stalinist leaders has been to prevent overheating! The US has recovered the output it lost and, despite the attempts of the Tea Party, is likely to grow at around 3% this year. Many developing African economies are growing at around the same pace they were prior to the crisis.

Moreover, the low growth in the UK (until this year) and in parts of Europe can be more readily ascribed to deliberate economic policies of austerity. Until late 2011, northern Europe was growing fairly rapidly, with Germany having annualised growth rates of around 5% in a number of quarters, and Sweden 7%. Prior to the latter part of 2010, for example, the UK had a typical ‘V-shaped’ recovery. The World Bank definition of global recession (let alone depression) is growth of less than 2.5%. Its latest report states: “The global economy is expected to pick up speed as the year progresses and is projected to expand by 2.8% this year, strengthening to 3.4% and 3.5% in 2015 and 2016 respectively.”11

But then it seems for some “experts”the purpose of “number-crunching”is simply to make the numbers say whatever you want them to say, so growth becomes not even just recession, but permanent depression, leading inevitably to catastrophic collapse.

Comrades Wallace and Dobbs conclude: “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.”

I agree. Which is why their ill-tempered, elitist and rather lazy attempt at a response takes us no further forward.


1. ‘Incomprehensible and erroneous’ Weekly Worker July 10.

2. ‘False premises, false conclusions’ Weekly Worker June 19.

3. http://boffyblog.blogspot.co.uk/2014/04/the-law-of-tendency-for-rate-of-profit_25.html.

4. www.marxists.org/archive/marx/works/1894-c3/ch04.htm.

5. http://boffyblog.blogspot.co.uk/2014/07/wallace-and-dobbs-wrong-prophets.html.


7. www.ons.gov.uk/ons/rel/family-spending/family-spending/family-spending-2012-edition/art-chapter-1--overview.html#tab-Household-expenditure.

8. http://boffyblog.blogspot.co.uk/2014/07/calculating-rate-of-turnover-and-annual.html.

9. www.marxists.org/archive/marx/works/1894-c3/ch09.htm.

10. http://thenextrecession.wordpress.com/2014/07/10/uk-economy-can-it-last.

11. www.worldbank.org/en/publication/global-economic-prospects.