[OPE-L:2526] Re: Great LeapS Forward

akliman@acl.nyit.edu (akliman@acl.nyit.edu)
Fri, 14 Jun 1996 15:02:47 -0700 (PDT)

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This continues my reply, begun in ope-l 2520, to Duncan's ope-l

I was addressing why I think my FRP scenario, which is rooted in rising
productivity leading to capital devaluation, is what Marx was referring
to in Vol. III, and why it is a problem for capitalist society. To

(1) That the difference between the anticipated profit rate and the actual
rate will be less if fixed capital has a finite life changes only the
magnitude of the fall, not the possibility itself. Moreover, long-lived
capital (30-40 years) has an IRR almost the same as infinite capital, because
later returns are discounted so heavily.

(2) When old factories go out of business, this doesn't raise the actual
IRR for society as a whole. The value has been invested, and can't be
made to vanish retroactively. Capitalists do write down losses, but
charge them against profits, which lowers the profit rate--this is merely a
different technique that accounts for devaluation. But it doesn't ignore it,
the way simultaneism does.

(3) Duncan suggests that over long time spans, the effect of devaluation
disappears. I don't understnad this. If Capital is continually becoming
devalued, due to continually rising productivity, and if the realized
general profit rate (which is, in my example, the weighted average of
the IRRs, as Duncan acknowledges) at every moment depends on capital
devaluation, if new investments become devalued, then how does the
effect of devaluation ever disappear (except thru crisis annihilating

(4) I don't understand why devaluation is a problem for owners
of old factories only if they mis-anticipate the fall in values. They
still go out of business even if they forsaw the fall. If foresight leads
them not to invest to begin with, then this certainly doesn't spur
the expansion of the system.

(5) I do not agree with Duncan that only the owners of old factories
are hurt by the technical change we're examining, but not the "system as a
whole, since [ ... it] improves the conditions for the expanded reproduction
of capital." These factories are *part* of the system as a whole. If
enough go under, we've got a serious recession--in the system as a whole.
Thus, the capital devaluation scenario predicts and explains crises.

It is true that the tech. change we're examining raises productivity, and
that it thus reduces *physical/technological* obstacles to expanded
reproduction. But that was an issue for Ricardo, not Marx. He denied
any physical obstacle, writing that the true barrier to capitalist
production is capital itself. He says the profit rate falls BECAUSE
labor becomes more productive(this is inexplicable apart from capital
devaluation being understood the way John, Alan, and I do, which is strong
support that we're representing Marx's theory accurately). On pp. 357-
58 of Vol. III (Vintage), Marx writes:

"To express this contradiction in the most general terms, ... the capitalist
mode of production tends towards an absolute development of the productive
forces ... while on the other hand its purpose is to MAINTAIN THE EXISTING
CAPITAL VALUE and to VALORIZE IT to the utmost extent ... it is directed
towrads using the EXISTING CAPITAL VALUE as a means for the greatest
possible VALORIZATION OF THIS VALUE [To my mind, this indicates very strongly
that Marx was studying the profit rate on historical costs.] The methods
through which it attians this end involve a decline in the profit rate,

"The periodical DEVALUATION OF THE EXISTING CAPITAL ... disturbs the given
conditions in which the CIRCULATION AND REPRRODUCTION PROCESS of capital
takes place, and is therefore accompanied by sudden stoppages and crises
in the production process" [my emphases].

So rather than Marx thinking devaluation enhances the reproduction of the
capitalist system, he says the opposite. Later in the same chapter, he
gets more explicit about the crisis mechanisms: capital lies
idle, means of production cease to function as means of production, some
is physically destroyed, claims on future profit are "devalued simultaneously
with the fall in the revenues on which [they are] reckoned [p. 362]," some
gold and silver lies idle, some portion of commodities can be sold "only
by an immense reduction in their prices, i.e. by a devaluation in the capital
they represent. The elements of fixed capital are more or less devalued in
the same way. Added to this is the fact that since certain price relationships
my emphases]. "The chain of payment obligations at specific dates is
broken in a hundred places" (ibid.), the credit system breaks down. "All
this therefore leads to violent and acute crises, sudden forcible devalua-
tions, an actual stagnation and disruption in the reproduction process, and
hence to an actual decline in reproduction" (ibid.)

All of this is premised on rising productivity, falling values, and thus
devaluation of capital having already occurred as a *potentiality* before
the sudden collapse of prices makes it appear in reality.

In our day, I think most of this still holds, except that the role of gold and
silver is not so crucial, we have to understand how state debt and
inconvertible money lead the crisis to be expressed by means other than
falling prices mostly (such as debt crisis), and we need to emphasize the
physical destruction aspect more. In the 30s and 40s, it took not only
a whole decade of depression but then the unprecedented destruction of
WWII to destroy enough capital so that it was profitable to resume "normal"
accumulation once more. And even this required the very heavy hand of
state intervention.

But the cause of the crisis is decidedly non-physical. This is so important,
because it means we can overthrow and transform the system (and even have
high productivity--if we so choose); there is no physical or eternal
necessity for it. So to that extent, no, the FRP of my examples don't
involve factors which inhibit reproduction-as-such. They inhibit
*capitalist reproduction*, because it is a value-producing system: "absolute
overproduction of capital is not absolute overproduction in general, not
absolute overproduction of the means of production. It is an overproduction
of means of production only in so far as _these function as capital_ [Marx's
emphasis], and hence have to produce an additional value in proportion to
their value that has expanded together with their mass" (p. 364). This they
cannot due, due to devaluation.

So I think devaluation is central to Marx's understanding of the FRP and
crisis. I think, and think he thought, that it is a real problem for
some capitalists, and for the system as a whole. And because this is
what my examples show, and/or imply, I consider this as very strong evidence
that I'm representing what Marx's own theory was.

Duncan and/or others may disagree that this was Marx's theory, and/or that
the risding productivity/falling value/rising capital composition/devaluation
of capital/falling rate of profit/crisis story has much to do with capitalist
reality. Nonetheless, I (and John and Alan) have proven it is a logical
possibility--which has been denied for so long. Unless it is demonstrated
that this was not Marx's theory, it seems to me that the time has come
(or did back in 1982, to be more precise) for people to acknowledge that
one cannot truthfully claim that Marx's law of the FRP per se (as against
particular intepretations of it) is false. The historical record must be
corrected. That one doesn't agree with this theory, or doesn't think it
was Marx's, does not change the fact that the refutations of the Okishio
theorem are indeed refutations. Only the *demonstration* of either a logical
flaw in the refutations or a *demonstration* that the refutations fail to
conform to, i.e., contradict, Marx's theory deprive them of their character
as refutations. Why in sixteen years has this not been acknowledged and
become an accepted "fact"?

Andrew Kliman