Capitalists are interested in one thing: money in large amounts

Marx’s double-edge law

Despite the arguments of David Harvey, writes Michael Roberts Marx’s law of the tendency of the rate of profit to fall is fundamental in understanding capitalist crises.

This year’s Historical Materialism conference in London was apparently attended by over 850 people, with some 400-plus papers presented over three days.1 HM brings together radical and Marxist academics and activists to discuss and debate issues covering the spectrum of socialist issues: philosophy, culture, science, history and economics. This year’s theme was on climate change and ‘extinction’. But this article will concentrate on the Marxian economics sessions and, within that, only those sessions at which I presented or attended - and thus only scratching the surface.

My first presentation was to help launch a new revised version of Invisible leviathan, a book by professor Murray Smith of Brock University, Ontario. Postgraduate student Josh Watterton also added some new insights on the empirical work on the US rate of profit too. Murray Smith’s book is a must-read for those who want to understand Marx’s law of value (the ‘invisible leviathan’) and get a clear rebuttal of all the distortions and mistakes made by Marxists and others about the law since Marx died. I have reviewed this book before and wrote a foreword to the new edition.2 And Josh Watterton’s work will soon be available too, so I will not go any further in reviewing that session.

Instead I want to concentrate on my second session: namely the discussion between me and professor David Harvey. David Harvey (DH) is one of the world’s pre-eminent geographers and a prolific writer of books and articles on Marxian economic theory, as well as on the structure and trends in modern capitalism. For his latest view on that, see his book Capital and the madness of economic reason.

Over the years, DH and I have debated and discussed issues on Marx’s law of value and his law of profitability.3 DH rejects the view that Marx’s law of the tendency of the rate of profit to fall (LTRPF) has much to do with changes in a capitalist economy or as a cause of crises.4 He has criticised me and others who hold that view of being ‘monocausal’ - ie, obsessed with one cause, when crises are the result a multiplicity of causes.5 He also thrown doubt on whether Marx’s law is logically valid, empirically supported and even if Marx continued to support it in his later years. I will not go over old ground here and you can read these various issues on my blog in many posts.6

On this occasion, DH entitled his presentation ‘Marx’s “double-edged law” of the falling rate of profit and the rising mass of profit’. He kindly sent me an unfinished paper of his that outlined the argument he was going to make. The gist of it was that many Marxists pay too much attention to the rate of profit in looking at capitalism and not what is happening with the mass of profit. And yet Marx’s law is double-edged. Marx spells it out in volume 1 of Capital:

... despite the enormous decline in the general rate of profit … the number of workers employed by capital - ie, the absolute mass of labour set in motion by it, hence the absolute mass of the surplus labour absorbed, appropriated by it, hence the mass of surplus value it produces, hence the absolute magnitude or mass of the profit produced by it - can therefore grow, and progressively so, despite the progressive fall in the rate of profit.

Mass or rate?

He then adds: “this not only can, but must be the case”. The same laws “produce both a growing absolute mass of profit, which the social capital appropriates, and a falling rate of profit”. And then Marx asks: “How, then should we present this double-edged law of a decline in the rate of profit, coupled with a simultaneous increase in the absolute mass of profit arising from the same causes?”

Thus DH argues that it is really the mass of profit and capital that we must look at for an indication of what is happening in a modern capitalist economy. At the HM session, he pointed out examples of why mass was more important than the rate of change in the mass.

Quantitative easing (an expansion of the mass of money supply) used by central banks since the end of the global financial crash to save the financial system and the economy with floods of money was one example. Central banks were using ‘mass’ rather than rate (interest rate). But this had only benefited the rich through the stock and bond markets.

Then there was climate change. So large had annual carbon emissions reached (over 400 parts per million) that the rate of increase was increasingly irrelevant; the damage was already done and cutting back the mass was now the issue.

On the economic front, DH pointed out that world gross domestic product had doubled in real terms every 25 years and so even slow growth in GDP was less important to analyse than the sheer size of annual output and use of resources. China was now sucking up the world’s natural resources fast and producing cement at astronomical levels - not because it was growing fast (growth is slowing) but because China was now so large (mass).

These were very imaginative insights by DH. But, disconcertingly for me, he made no further explanation of this theme in relation to Marx’s law of profitability (LTRPF) or, for that matter, the double-edged nature of Marx’s law, as expressed above. I had prepared a detailed response to the arguments in his paper, most of which he had not mentioned in his address. But I decided to plough on regardless and try to answer his new critique of what I called the work of ‘we falling-rate-of-profit boys and girls’ (and there are girls).

As Marx explained and DH quoted, the LTRPF has a double edge. As the rate of profit falls in a capitalist economy, it is perfectly possible - indeed likely - that the mass of profit will rise. It is arithmetical really: a falling rate still implies a rising mass. But a double edge cuts both ways. As Marx goes on to explain in volume 3 of Capital (chapter 13),

The two movements not only go hand in hand, but mutually influence one another and are phenomena in which the same law expresses itself ... there would be absolute overproduction of capital as soon as additional capital for purposes of capitalist production = 0. at a point, therefore, when the increased capital produced just as much, or even less, surplus value than it did before its increase, there would be absolute overproduction of capital; ie, the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC.7

So the mass of profit can and will rise, as the rate of profit falls, keeping capitalist investment and production going. But, as the rate of profit falls, the increase in the mass of profit will eventually fall to the point of ‘absolute overaccumulation’: the tipping point for crises.

And it is not true that the LTRPF supporters ignore this ‘double-edge’ law. On the contrary, the most important exponent of the LTRPF in the 1920s, who virtually revived this theory of crisis against alternatives, Henryk Grossman, built his whole theory around the double-edge law and what happened to the mass of profit, as the rate of profit fell. I quote:

Not only does the rate of profit fall, but the rate of growth of the mass of profit … also falls behind the rate of growth of the total value of production. So a point is eventually reached when the increase in mass of profit is not large enough to cover the projected increase in investment, which is growing at a higher rate. The rate of profit cannot, therefore, fall indefinitely. Whatever the rate of accumulation assumed in the model, the rate of profit eventually declines to a level at which the mass of surplus value is not great enough to sustain that rate of accumulation.8

It was this mechanism, which he saw as intrinsic to the process of capital accumulation, that Grossman regarded as “the decisively important” factor in Marx’s theory of economic crisis and breakdown.9

Grossman spent a large part of his masterpiece creating tables showing how the rate and mass of profit affect each other and so ended up with a crisis based on insufficient profit to sustain further investment. Fig 1 gives you a simple arithmetic version from myself.

Here we have two capitals - one ‘Big’ ($100) and one ‘Small’ ($10). The whole economy totals 100+10 = 110. There is an average rate of profit that applies to both capitals. I start this at 10% and reduce it in each following year. The rate of profit falls, but the mass of profit (the profit for big and small capitals combined) rises each year. So that by year 9 the mass of profit is $132.8 compared to $100 at the start of year 1. But note that the rise in the mass of profit is falling towards zero. Indeed, the growth in profits for the small capital in absolute dollars is infinitesimal by year 9. And with a slowing rise in the mass of profit, investment will also slow and, Grossman argues, would eventually stop, triggering a crisis of production.


This is a very unrealistic example, however. In the example, the rate of profit falls from 10% to nearly zero. That does not happen in any capitalist economy. So let us consider a real example.

In Fig 2 we have the actual figures for the US rate of profit and the mass of profit (as calculated by me).10 The rate of profit rises from 2002 to 2006 and then starts to fall, reaching a trough in 2009. The mass of profit also rises, but then contracts in 2007 (one year later than the rate) and in 2008, coinciding with the great recession. So the falling rate of profit eventually takes the mass of profit down, leading to an investment collapse and a slump in capitalist production: Marx’s double-edge law.

This is seen much more clearly when we use quarterly figures for the mass of profit, investment and GDP, as shown in chapter 1 of the book World in crisis (London 2018), edited by G Carchedi and myself. The mass of corporate profits peaks in mid-2006, while business investment and GDP follow 18 months later. The mass of profits starts to recover at the end of 2008, but the great recession only ends in mid-2009, when investment and GDP recover. Profits lead investment, and the rate of profit leads the mass.

And in every US recession since the war it is broadly the same. The rate of profit falls before each recession from a peak by between 6% and 20% and the (growth) in the mass of profit then drops by 5%-12%. The mass of profits may not go negative (although it did before the great recession), but it slows considerably, causing an investment strike by capital.

This is not really surprising. If company managements see their profits or earnings slowing, they reduce their investment expansion and employment hiring and even reverse it.

Indeed, we ‘falling-rate-of-profit boys and girls’ have been well aware of Marx’s double-edge law, even if DH has only just discovered its importance. For example, in our World in crisis book, in one chapter, Jose Tapia from Drexel University shows the close connection between the changes in the mass of US corporate profits and investment, leading to successive crises. As Tapia concludes from his empirical analysis,

... the evidence is quite overwhelming that profits peak several quarters before the recession. Then profits recover before investment does, as illustrated by the investment trough that occurs around the end of the recession or the start of the expansion, but following the profit trough for at least a few quarters.

And G Carchedi in another chapter of that book shows that, when total new value (mass) in a capitalist economy starts to fall, along with a fall in the rate of profit and employment, a slump in production follows.

DH commented in the discussion that I and other LTRPF exponents only ever seem to concentrate on the US for data and ignore other countries. Anybody who reads World in crisis will find analyses from scholars on the US, Canada, Mexico, Argentina, Brazil, Greece, Spain, the UK, China and Japan. At HM itself there was a paper that looked at the LTRPF and the mass of profit in Finland! In addition, there are studies on Sweden, Germany, Italy, Korea and South Africa.

Too much

In the session, DH brought to our attention the importance of looking at the mass or size of things and not just the rate of change. That is undoubtedly useful. But I think his purpose was also to weaken belief in the role of Marx’s law of profitability and its relevance to crises. By bringing up the double-edge law, it seems to me, DH was saying that a rising mass of profit, capital stock or GDP is the problem. And thus the problem for capitalism is not insufficient profit due to a falling rate, but too much surplus due to rising mass. How we are going to absorb or cope with ‘too much’ is the problem.

This connects with DH’s view that crises under capitalism arise because of too much capital or profit relative to the ability of consumers to use it. Indeed, DH argues that it is consumer confidence and the level of consumption that matters in triggering crises, not the rate or level of profits and investment. But the evidence on that does not support DH’s thesis, as I have shown before.

In every US recession since 1945, it has not been a fall in household consumption levels that has emerged before a slump, but a fall in business investment levels. Consumption may be 70% of US GDP on official accounts (it is actually much less), but it is the 15%-20% of GDP in capital investment that is the swing factor in causing slumps. Consumption hardly drops - because households have to go on paying for energy, food and basics, running up debts and running down savings.

It was argued from the floor in the debate that consumption has stayed up because households borrowed (particularly mortgages for housing) in the neoliberal period, and, when that borrowing got too high, then the house of cards collapsed and this caused the great recession. This thesis was expounded by several post-Keynesians and mainstream economists like Mian and Sufi in their book, House of debt.11 It has been dealt with by me in posts on my blog,12 so I will not go into it now.

Marx’s double-edge law of profit is actually the basis of the profit cycle that leads to boom and slump and then boom again in capitalist economies.

Starting at the top, the capitalist economy booms, but the rate of profit falls; then, as we go clockwise, the rate of profit eventually slows the rise in the mass of profit and then leads to the fall in investment. At the bottom that triggers a financial and credit collapse. Then, once the costs of capital and labour have been reduced through the laying off of labour, merging companies and liquidating weak ones, the survivors can start the process again, as the rate and mass of profit rises again.

DH rejects Marx’s law of profitability as the underlying cause of crises in favour of what he has called a multiplicity of causes. He accuses those who focus on Marx’s rate of profit law as being “monocausal”. But he finds it difficult to refute the empirical evidence of a falling rate of profit. So now he has moved the goalposts from the rate to the mass. But shifting the goalposts just leaves us with a new goal to score in.

Marx’s double-edge law is not a refutation of the law of profitability as the underlying cause of crises: on the contrary, it is the foundation. And alternative causes (like underconsumption, ‘too much surplus to absorb’, disproportion, financial fragility, etc) remain unconvincing and unproven in comparison.

Michael Roberts blogs at

  1. . www.historicalmaterialism.org/sites/default/files/2019-11/HM_2019.pdf.↩︎

  2. . https://thenextrecession.wordpress.com/2019/04/06/invisible-leviathan-marxs-law-of-value-in-the-twilight-of-capitalism.↩︎

  3. . See https://thenextrecession.wordpress.com/2017/09/23/capital-150-part-two-the-economic-reason-for-madness.↩︎

  4. . https://thenextrecession.wordpress.com/2016/08/09/the-great-financial-meltdown.↩︎

  5. . https://thenextrecession.wordpress.com/2015/04/02/david-harvey-on-monocauses-multicauses-and-metaphors.↩︎

  6. . https://thenextrecession.wordpress.com/2018/04/02/marxs-law-of-value-a-debate-between-david-harvey-and-michael-roberts.↩︎

  7. . www.marxists.org/archive/marx/works/1894-c3/ch13.htm?fbclid=IwAR1MQiowpPpii5mdO4fPm

  8. . H Grossman The law of accumulation and breakdown of the capitalist system (1929); The change in the original plan for Marx’s ‘Capital’ and its causes (1932).↩︎

  9. . H Grossman The law of accumulation and breakdown of the capitalist system (1929).↩︎

  10. . See my article measuring the US rate of profit in 2018, leading up to the great recession: https://thenextrecession.wordpress.com/2019/11/04/us-rate-of-profit-measures-for-2018.↩︎

  11. . See https://thenextrecession.wordpress.com/2014/03/11/is-inequality-the-cause-of-capitalist-crises.↩︎

  12. . See, for example, https://thenextrecession.wordpress.com/2014/06/28/its-debt-stupid.↩︎