Capitalism's declining rate of profit

If the whole capitalist system seems more predatory and unsustainable than ever, it's because it is. The destruction of the middle class in the U.S. is the capitalist system eating its seed-corn.

There seems to be a mad scramble to grab whatever you can before the ship turns turtle. The clock is approaching closing time for the drunken party, and now the guests have gone from drinking all the booze to stealing the silverware. No one intends to clean up the mess, much less wait for the cops to show up.

The corporate media reflects this increasing insanity. News coverage continues to get further and further from reality. As issues become more important, they get talked about less and less. Meanwhile the trivial, and sometimes imaginary, becomes the obsession of the news media.

Surely everyone other than Free Market Fundamentalists can see this. So why doesn't the ruling elite stop this?
It's because systems are more powerful than individuals. Just like honest people getting elected to Congress usually wind up corrupt and cynical, a wealthy person may want the world to improve, but he/she will still get swept up in a tsunami of greed and pillaging.

That's why I think the surge in unsustainable theft, fraud, and greed is happening because the capitalist system has no other choice. The feature is built into the system. Karl Marx described it as such:

“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. This does not mean to say that the rate of profit may not fall temporarily for other reasons. But proceeding from the nature of the capitalist mode of production, it is thereby proved a logical necessity that in its development the general average rate of surplus-value must express itself in a falling general rate of profit. Since the mass of the employed living labour is continually on the decline as compared to the mass of materialised labour set in motion by it, i.e., to the productively consumed means of production, it follows that the portion of living labour, unpaid and congealed in surplus-value, must also be continually on the decrease compared to the amount of value represented by the invested total capital. Since the ratio of the mass of surplus-value to the value of the invested total capital forms the rate of profit, this rate must constantly fall.”

Because Karl Marx said it, and because a falling rate of profit has a negative/fatal impact on the capitalist system, it instantly became controversial. Many an economist have been richly rewarded in "disproving" Marx's Law.

But there are two problems for those distinguished economists:
a) it wasn't Marx that discovered this flaw in capitalism. Adam Smith did.
b) this tendency for the rate of profits to fall is measurable.

profit.png

"THE rise and fall in the profits of stock depend upon the same causes with the rise and fall in the wages of labour, the increasing or declining state of the wealth of the society; but those causes affect the one and the other very differently.
The increase of stock, which raises wages, tends to lower profit. When the stocks of many rich merchants are turned into the same trade, their mutual competition naturally tends to lower its profit; and when there is a like increase of stock in all the different trades carried on in the same society, the same competition must produce the same effect in them all."

- Adam Smith, Wealth of Nation, 1776

Adam Smith wasn't even the first to notice that the rate of profits tended to fall. Merchants had already accepted the fact. Smith was just the first to give a reason for it.

Almost on the same scale as Smith was economist David Ricardo. A few decades after Wealth Of Nations, Ricardo wrote this:

“The natural tendency of profits then is to fall; for in the progress of society and wealth, the additional quantity of food required is obtained by the sacrifice of more and more labour. This tendency, this gravitation as it were of profits, is happily checked at repeated intervals by the improvements in machinery, connected with the
production of necessaries, as well as by discoveries in the science of agriculture which enable us to relinquish a portion of labour before required, and therefore to lower the price of the prime necessary of the labourer”

rateprofit.jpg

You may have noticed that Smith and Ricardo gave different reasons why the capitalist rate of profits decline. Neither of them were 100% correct at explaining what causes this phenomenon.
So a few decades later, in 1848, another giant of economics, John Stuart Mill in his Principles of Political Economy (1848), wrote:

“The tendency of profits to fall as society advances, which has been brought to notice in the preceding chapter, was early recognised by writers on industry and commerce…

“On a limited extent of land, only a limited quantity of capital can find employment at a profit. As the quantity of capital approaches this limit, profit falls; when the limit is attained, profit is annihilated; and can only be restored through an extension of the field of employment, either by the acquisition of fertile land, or by opening new markets in foreign countries…”

ratep.png

Mill's explanation is both easiest to understand, and the most accurate analysis until Marx's explanation roughly 20 years later.
Then, about 70 years after Marx's Das Kapital Volume III, the last true giant of economics, John Maynard Keynes wrote:

“The demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure… The return from [new means of production] would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment”.

So essentially everyone that ever knew anything about capitalism all came to the same conclusion - that capitalism has a built-in flaw.
A lot of ink has been spilled in attempts to disprove Marx's explanation for the falling rate of profits, while no one has convincingly proven that the rate of profits isn't falling (although plenty have tried).
That's like attacking Newton's theory of gravity, while ignoring the fact that apples are still falling toward the Earth.

If you look at the charts above, they all show that the rate of profits declined to roughly 1990 and then stabilized.
Does that mean the problem of falling profits was solved?
No. It means 2 billion consumers, not burdened by debts, were suddenly exposed to the capitalist markets.
While it stabilized the rate of profits, it should have in theory caused them to spike higher. It didn't.

Now the markets in China, Russia, and Vietnam are mature. Which means that their rate of profits should be falling now as well.

I can't prove that the falling rate of profits is the reason for the wholesale pillaging of the globe by the ruling elite. The reason may be different, or there may be several reasons.
But if the falling rate of profits is the reason then we can expect the pillaging to get worse and worse, and it will only end with a collapse of the global economy. Or a socialist revolution.

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Trump Administration Mulls a Unilateral Tax Cut for the Rich

The Trump administration is considering bypassing Congress to grant a $100 billion tax cut mainly to the wealthy, a legally tenuous maneuver that would cut capital gains taxation and fulfill a long-held ambition of many investors and conservatives.

Hell, just cut it to zero.

What Economists Still Don’t Get About the 2008 Crisis

These are important innovations, and they address glaring deficiencies in the pre-2008 models. But they don’t feel like a big break with the status quo. Most importantly, the basic notion of recessions as driven by rational actors’ responses to unpredictable, sudden events — or shocks, as economists call them — remains in place.

That would come as a jarring surprise to many outside academia. To lots of people, it seems obvious that the 2008 crisis was long in the making — the product of years of financial and regulatory folly. In general, the notion that economic booms cause busts, instead of being random unrelated events — an idea advanced by the maverick economist Hyman Minsky — seems to have much more currency beyond the ivory tower than within it.

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@gjohnsit
libertarians agree

The study was published by Charles Blahous of the libertarian Mercatus Center at George Mason University, who is known, among other things, for arguing that Social Security retirement benefits need to be cut. Blahous seems to have set out to show that, even if you assume switching to a single-payer system will lead to major cost savings on medical care and administrative expenses, it will still require a massive increase in federal spending. He calculates that if Sanders’ bill delivered on all of its promises, it would increase federal spending on health care by $32.6 trillion between 2022 and 2031—which is, of course, quite a bit of money, and the number that conservatives are choosing to focus on. But as economist Ernie Tedeschi noted on Twitter this morning, Blahous’ report also shows that total U.S. health care spending would fall by about $2.05 trillion during that time period, even as all Americans would finally have insurance, because the plan would reduce payments to doctors and hospitals to Medicare rates (which are lower than what private insurance pays) while saving on prescription drug costs and administrative expenses.
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The Aspie Corner's picture

@gjohnsit If they did, they wouldn't be Libertarians anymore. They're the creationists of the political/economic world.

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Modern education is little more than toeing the line for the capitalist pigs.

Guerrilla Liberalism won't liberate the US or the world from the iron fist of capital.

@The Aspie Corner
wanted to prove that universal health care is too expensive, but still ended up showing we would save money.

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The Aspie Corner's picture

@gjohnsit And to some degree, right-wing folks admit Socialism is inevitable as well. Yet, these ratfuckers keep stalling for the sake of keeping up the shell game known as Capitalism going is needlessly killing the pale blue dot and everything on it.

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Modern education is little more than toeing the line for the capitalist pigs.

Guerrilla Liberalism won't liberate the US or the world from the iron fist of capital.

divineorder's picture

@The Aspie Corner @The Aspie Corner

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A truth of the nuclear age/climate change: we can no longer have endless war and survive on this planet. Oh sh*t.

Citizen Of Earth's picture

@divineorder
and there are lots of them, the worst ones to me are:
1) sellings off public lands to the oil-gas drillers and miners.
2) gutting environmental regulations that protect clean air and water.

Jesus loved the Poor. Trump loves the Stupid.

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Donnie The #ShitHole Douchebag. Fake Friend to the Working Class. Real Asshole.

JekyllnHyde's picture

@The Aspie Corner

In practice, however...

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A riddle wrapped in a mystery inside an enigma

@JekyllnHyde find that photo of the teabagger thanking the firecrew for saving his house while wearing a teabagger t-shirt that read: less taxes
+less gov't
=more freedom

The stupid burns hot sometimes.

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Ya got to be a Spirit, cain't be no Ghost. . .

Explain Bldg #7. . . still waiting. . .

If you’ve ever wondered whether you would have complied in 1930’s Germany,
Now you know. . .
sign at protest march

JekyllnHyde's picture

@Tall Bald and Ugly

... hope you like these two editorial cartoons reflecting hypocrisy by Teabaggers, a part of the electorate that not only relies on but also benefits from government programs.

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A riddle wrapped in a mystery inside an enigma

@JekyllnHyde fires a couple of years ago is where the image was taken.
SMDH when I first saw it.
Love all the cartoons you put up, btw. Every one accurate, and sad.

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Ya got to be a Spirit, cain't be no Ghost. . .

Explain Bldg #7. . . still waiting. . .

If you’ve ever wondered whether you would have complied in 1930’s Germany,
Now you know. . .
sign at protest march

divineorder's picture

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A truth of the nuclear age/climate change: we can no longer have endless war and survive on this planet. Oh sh*t.

Digging up those old economists. Evey one knows that when the capitalists own everything, they'll loan us the money to buy stuff. 0% down for the first 6 months! You can't beat that! And it's on sale, the more you spend the more you save!

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Citizen Of Earth's picture

Saw this article today.

His other concern is the end of the practice by central banks around the world of buying trillions of dollars of government bonds to shore up the economy after the 2008 crisis—known as “quantitative easing,” or QE. Dimon’s worry isn’t so much QE itself, but rather the lack of historical precedent for the current situation: “I don’t want to scare the public, but we’ve never had QE, we’ve never had the reversal… people can panic when things change.”
http://fortune.com/2018/07/31/jamie-dimon-economy-concerns/

I don't know how many trillions are locked up in QE, but I'm sure it is a ton. Hold on to your 401Ks. This will make for 'interesting' times ahead.

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Donnie The #ShitHole Douchebag. Fake Friend to the Working Class. Real Asshole.

The Aspie Corner's picture

@Citizen Of Earth no thanks to the fact that finding any work is flat out impossible. Only able-bodied with drivers' license need apply.

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Modern education is little more than toeing the line for the capitalist pigs.

Guerrilla Liberalism won't liberate the US or the world from the iron fist of capital.

ggersh's picture

@Citizen Of Earth We've reached the quad mark? the leap from tril to
quad, at the speed of light, the end must be near

hat tip to The Pre Beakerite

“Cliff Edge” Brexit Threatens $34 Trillion of Derivative Contracts: UK Regulator

wolfstreet.com

from the comments we have...

"Joan of Arc
Jul 24, 2018 at 11:38 am
$34 trillion seems like a big number until you realize that the total derivative universe world wide has an estimated notional value of over $1 quadrillion. That’s $1,000,000,000,000,000.

The only other human creation that outdoes that on the planet earth is the 5 gyres swirling in the 5 oceans composed mostly of discarded plastic each the size of the State of Texas with an average depth of 300 feet."

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I never knew that the term "Never Again" only pertained to
those born Jewish

"Antisemite used to be someone who didn't like Jews
now it's someone who Jews don't like"

Heard from Margaret Kimberley

Citizen Of Earth's picture

@ggersh
to swallow. They will have to distract us with something while we are force fed that debt via bailouts. When we see the mega-rich moving their belongings to their bug-out shelters in Paraquay, we'll know that time is up.

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Donnie The #ShitHole Douchebag. Fake Friend to the Working Class. Real Asshole.

k9disc's picture

I had to go back and read this piece by David Graber:

As someone who was eight years old at the time of the Apollo moon landing, I remember calculating that I would be thirty-nine in the magic year 2000 and wondering what the world would be like. Did I expect I would be living in such a world of wonders? Of course. Everyone did. Do I feel cheated now? It seemed unlikely that I’d live to see all the things I was reading about in science fiction, but it never occurred to me that I wouldn’t see any of them.

At the turn of the millennium, I was expecting an outpouring of reflections on why we had gotten the future of technology so wrong. Instead, just about all the authoritative voices—both Left and Right—began their reflections from the assumption that we do live in an unprecedented new technological utopia of one sort or another.

The common way of dealing with the uneasy sense that this might not be so is to brush it aside, to insist all the progress that could have happened has happened and to treat anything more as silly. “Oh, you mean all that Jetsons stuff?” I’m asked—as if to say, but that was just for children! Surely, as grown-ups, we understand The Jetsons offered as accurate a view of the future as The Flintstones offered of the Stone Age.

The disruption of creative ideas is required during the busts of the business cycle, I think, and we've lost that ability. All we're getting is promises and simulation of human beneficial tech while in reality totalitarian tools are the disruptive and creative ideas that make it to market.

Thanks for another thought provoking piece, and thanks for sending me back to that amazing Graber piece.

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“Tactics without strategy is the noise before defeat.” ~ Sun Tzu

Hawkfish's picture

@k9disc

They promised me flying cars but all I got was Facebook.

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We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

gulfgal98's picture

for the oligarchs. This is why we do not make things any more. For those at the top of the pyramid, it is all about the pie and how much of that pie they can grab before it all falls apart.

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Do I hear the sound of guillotines being constructed?

“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy

Hawkfish's picture

@gulfgal98

They rarely ask what the pie is made of. Most of them think it’s made of money - although some are worrying about that too:

Finally, the CEO of a brokerage house explained that he had nearly completed building his own underground bunker system and asked: “How do I maintain authority over my security force after the Event?”

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We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

Wink's picture

@Hawkfish

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the little things you can do are more valuable than the giant things you can't! - @thanatokephaloides. On Twitter @wink1radio. (-2.1) All about building progressive media.

Wink's picture

Besides...
@gulfgal98
manufacturing helps the poor. And gawd forbid we do that!!
They might catch up!

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the little things you can do are more valuable than the giant things you can't! - @thanatokephaloides. On Twitter @wink1radio. (-2.1) All about building progressive media.

gulfgal98's picture

@Wink is what they want. They use drugs, wars, and lack of medical care (among other things) to further depopulation. This is why the police are armed to the teeth and are never charged when they shoot an unarmed person, particularly if that person is black.

We are descending into a slave state and most people are clueless about it. They know that if we ever wake up and come together, it is all over for them.

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Do I hear the sound of guillotines being constructed?

“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy

Wink's picture

what's right under
@gulfgal98
our nose. Yet people ignore it, or would rather not believe their own eyes.
I feel like I'm in Nazi Germany watching the Jews get trotted off.
Am I (and we, of course) the only one seeing this??
Hey, Joe, are you seeing this?!
See what?

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the little things you can do are more valuable than the giant things you can't! - @thanatokephaloides. On Twitter @wink1radio. (-2.1) All about building progressive media.

Wink's picture

"Market Expansion" via perpetual war(s).
And Britain's in the 18th and 19th centuries.
Running out of land?? No problem! Just go forth and conquer new ones.

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the little things you can do are more valuable than the giant things you can't! - @thanatokephaloides. On Twitter @wink1radio. (-2.1) All about building progressive media.