From Okishio to Marx through dialectics.

Author:Carchedi, Guglielmo
  1. Introduction

    Marx's law of the tendential fall in the profit rate (from now on, 'the law') is a topic of huge theoretical and practical importance within Marxism. It concerns nothing less than a theory of crises (even though it is only a preliminary to such a theory). It also provides the basis for a Marxist critique not only of neoliberalism but also of Keynesian anti-crises policies. (1) It has wide and deep ramifications in all practical issues of economic policy. No wonder Marx attached to it the greatest importance and no wonder it has been subjected to severe and negative assessments by Marx's critics. The recent debate on the law has centred upon its internal (in)consistency. Broadly speaking, for the critics, productivity-enhancing technologies cause an increase in the average rate of profit, and this is inconsistent with Marx's stance that technological innovations cause (tendentially) a fall in the rate of profit. The critics can hold a view different from that of Marx because Marx's own premises (the production and realisation of value within a temporal perspective) are substituted for by different premises (the production of use values within an atemporal perspective). But from a value/temporal perspective, the average rate of profit can, and indeed must, fall.

    Obviously, the logical (in)consistency issue is of cardinal importance. However, this is not the only question. The other one is whether the law is (in)determinate, i.e. whether the falling movement is an inevitable and recurrent tendency or not. A complete assessment of the law should consider this aspect as well. Thus the scope of the present debate is too narrow. This is its first drawback. Second, while the assessment of the law's internal (in)consistency requires only formal logic, that of the (in)determinateness requires a dialectical logic (which incorporates the principles of formal logic, but not formal logic itself, due to the latter's class content (2)). Exclusive focus on internal consistency in terms of formal logic has diverted attention from the (in)determinateness question, and thus from the need to develop a dialectical approach of which temporalism is an essential, but not the only, aspect. This is the second drawback of the debate. The aim of this article is to reinvigorate the debate by addressing both of these two limiting factors in their interrelation.

  2. Technological innovations and the law

    Let us first briefly sum up Marx's argument. His reasoning is remarkably simple but powerful: that technological innovations make it possible to introduce more efficient means of production. The innovators' physical productivity increases, i.e. they produce a greater output (of use values) per unit of capital invested. The total labour incorporated in a unit of product declines. At the same time, technological innovations usually replace people with means of production, for example machines. Labour power is expelled from the production process. The organic composition of capital, i.e. the share of constant capital per unit of capital relative to that of variable capital, rises. The new labour and surplus labour per unit of capital falls. Given that Marx's work is based on the assumption that only living labour produces value and surplus value, this greater physical output embodies a smaller surplus value. The average rate of profit falls, ceteris paribus. As Marx writes, 'The value of a commodity is determined by the total labour-time of past and living labour incorporated in it. The increase in labour productivity consists precisely in that the share of living labour is reduced while that of past labour is increased, but in such a way that the total quantity of labour incorporated in that commodity declines' (1967) [1894]: 260-261). It follows that 'The rate of profit does not fall because labour becomes less productive, but because it becomes more productive' (ibid: 240). This is precisely what is questioned by the critics.

    It is this contradictory outcome, an increasing output of use values incorporating a decreasing quantity of (surplus) value, that is the ultimate cause of crises: 'periodical crises ... arise from the circumstance that now this and now that portion of the labouring population becomes redundant under its old mode of employment' (ibid: 264). In other words, ultimately crises are the consequence of labour-reducing but productivity-increasing technological innovations. Therefore, 'the ultimate reason for all real crises [as opposed to financial and speculative crises--G.C.] always remains the poverty and restricted consumption of the masses [due to the expulsion of labour as a consequence of labour-decreasing and productivity-increasing technologies--G.C.] as opposed to the drive of capitalist production to develop the productive forces [the productivity of labour through those technologies--G.C.] as though the absolute consuming power of society [rather than the poverty and restricted consumption of the masses--G.C.] constituted their limit' (ibid: 484). But as we shall see, Marx qualifies the law by ascribing to it a tendential nature, i.e. by considering factors which temporarily hamper the fall in the average rate of profit (the counter-tendencies).

    The law can be challenged on empirical grounds with the argument that the movement in the average rate of profit is determined by factors other than an increase in the organic composition of capital. This, the empirical verification of the law is not the focus of this paper. (3) Rather, the focus will be on the theoretical aspects of the law and on the two major critiques moved against it. First, some critics submit that, contrary to Marx, new technologies must raise rather than lower the average rate of profit. This is the Okishian line. This critique will be assessed in Section 3. Second, some other critics hold that the law's movement is indeterminate. For example, Fine and Harris (1976: 160) hold that the law cannot predict 'actual falls in the rate of profit'. Also, 'there is in principle no reason why the initial tendency should be dominant over the counteracting ones' (Reuten, 2004: 168). And finally, 'there is no unidirectional, or teleological direction, whether up or down' in the rate of profit's movement (Cultenberg, 1994: 86). This critique will be dealt with in Section 4. (4)

  3. Okishio and the law

    The most influential representative of the thesis that new technologies cannot but increase the average rate of profit is undoubtedly Okishio (1961). This author argues that capitalists introduce new techniques not when they raise the productivity of labour but when they decrease the costs of production (op. cit: 86). If real wages are held constant, the average rate of profit must rise, contrary to Marx. (5) This is the Okishio theorem.

    The Okishio theorem has been criticised on a number of grounds. For example, some authors have shown that technological innovations can reduce the average rate of profit by relaxing the assumption of constant real wages (Laibman, 1982: 100; Foley, 1986: 139). This modifies Okishio's initial assumptions. Alberro and Persky (1981) have argued that the average rate of profit can fall if old technologies are scrapped prematurely as a consequence of the new technologies. Again, this is not Okishio's assumption. Shaikh (1978) questions Marx's hypothesis that new techniques are introduced because they raise the innovators' rate of profit. Rather, competition forces innovators to knowingly introduce new techniques even if they lower the innovators' rate of profit. Again, this is a modification of Marx's own assumptions which, moreover, is based on a computational mistake. (6) These works are neither internal critiques of Okishio nor internal critiques of Marx. Thus they fall outside the scope of this section, whose aim is to assess whether the Okishio theorem is internally consistent and consistent with Marx's internal logic.

    Let us then consider Okishio's 'cost criterion'. It is defined as

    (1) [summation][a.sub.kj][q.sub.j] + [[tau].sub.k]

    where [a.sub.kj] denotes the amount of the j th commodity directly necessary to produce a unit of the k th commodity, [q.sub.j] denotes the ratio of the price of the j th commodity ([p.sub.j]) to the wage rate (w), and [[tau].sub.k] denotes the amount of labour directly necessary to produce a unit of the k th commodity.

    Notice that the quantities of the inputs multiplied by their prices are a cost, and that the labour necessary to produce the k th commodity ([[tau].sub.k]) is also a cost. Okishio's perspective, thus, is that of the capitalists for whom both the labour contained in the commodities' inputs and the new labour added are exclusively a cost. Implicitly, labour is seen exclusively as a cost. Clearly, if costs are reduced, profits must rise. But in Marx's work, labour is a cost for the individual capitalists (when they purchase it as labour power), but is also and above all the only value-creating factor. Less living labour might mean lower costs and thus higher profits for the capitalists introducing labour-decreasing and productivity-increasing technologies (from now on, 'LPT') but it means also less new value and surplus value produced by them and thus, exclusively on this account, a lower average rate of profit. The technological innovators do indeed realise a higher rate of profit but, if they have produced less (surplus) value, ceteris paribus their higher profit rate can be realised only at the expense of, i.e. by appropriating the value produced by, the other producers who have not yet introduced those LPT. The greater combined output must be sold for a lower unit price. The innovators, by selling their greater output for the same unit price as that of the technological laggards (whose output per unit of capital invested is lower), i.e. for an average of the two prices, realise a greater (surplus) value at the cost of the laggards. (7)

    Two conclusions follow...

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