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This appears in the September 2013 issue of Socialist Voice, published by the Communist Party of Ireland

WITHIN INTERNATIONAL Marxism at present there are two main theories of economic crisis. One views crisis in terms of a law of the falling rate of profit, which is found in Capital, volume 3. The rival theory is associated with the Monthly Review school, which is strongly influenced by the economist Michael Kalecki.

Unlike the supporters of the falling rate of profit theory of crisis, the Monthly Review school see the issue of monopoly and monetarily effective demand at the root of its explanation of capitalist crisis and stagnation. In a recent Monthly Review article, “Marx, Kalecki, and socialist strategy,” John Bellamy Foster argues that the views of Kalecki are fully compatible with Marx.

It is no surprise that debate in this area has taken off, in the light of the continued global crisis of capitalism.

However, the debate has recently taken a heightened form following a controversial article by Michael Heinrich in a recent issue of Monthly Review. Heinrich is an exponent of what is known as the “new German reading of Marx,” which interprets the theory of value that Marx presents in Capital. His “new reading” of Marx dominates the study of Marx in German universities.

Because of limitations of space, the arguments advanced by Heinrich will be outlined for readers of Socialist Voice in this issue. In following issues the counter-arguments put forward by defenders of the falling rate of profit will be advanced, in the hope that this will enable readers to stay ahead of contemporary debates in Marxian crisis theory. The description of this debate, unfortunately, requires some understanding of basic Marxist theories on surplus value and the organic composition of capital.

Heinrich attempts to demonstrate that Marx’s understanding of crisis was never finished, and that there is no one definitive Marxist theory of crisis. Thus Marx moved from a highly simplistic, causal understanding of crisis with subsequent revolution in the 1850s to one that did not directly rely on notions of a “final economic collapse.”

Heinrich acknowledges that the most extensive consideration of crisis in Capital resides with the tendency of the falling rate of profit thesis: Marx, while not the first to elaborate this idea, did claim to be the first to have discovered a coherent explanation for it.

Heinrich identifies what he claims are a range of problems with this thesis. Firstly, it is seen to be empirically irrefutable and consequently not genuinely scientific. For example, because of the counteracting tendencies, if one points to a fall in the rate of profit in the past, this does not constitute proof, as the law applies to future development. Conversely, if the rate of profit rose in the past, this is not a refutation, as the law does not require a permanent fall but merely a “tendential” one, which can occur in the future. Marx is said to assume that a fall in the rate of profit in the long run will outweigh all counteracting factors, but no reason is given for this logic, Heinrich argues.

A second problem with the falling rate of profit thesis identified by Heinrich relates to the value composition of capital:


If the value composition of capital grows but also the rate of surplus value, then both the numerator and the dominator increase. Where Marx claims a fall in the rate of profit, he must demonstrate that in the long run the denominator grows faster than the numerator. There is, according to Heinrich, no evidence for such a comparison in the speed of growth.

Marx’s efforts to substantiate the thesis revolved around the idea that a fall in the rate of profit could occur in the case of increasing surplus value. If the number of workers continues to decrease, then at some point the surplus value they create will decline, regardless of the rate of surplus value produced. For example, 24 workers each yielding 2 hours of surplus labour yield a total of 48 hours of surplus labour. However, say an increase in productivity occurs and only 2 workers are needed; these 2 can yield only 48 hours of surplus labour if each works for 24 hours and does not receive a wage. But, as Marx put it,

since the same influences which raise the rate of surplus-value (even a lengthening of the working-time is a result of large-scale industry) tend to decrease the labour-power employed by a certain capital, it follows that they also tend to reduce the rate of profit and to retard this reduction.

For Heinrich, however, “we cannot exclude the possibility that the capital used to employ the two workers is smaller than that required to employ twenty-four.” Heinrich says that the numerator (surplus value) in the rate-of-profit formula may well fall, because the variable capital that creates value has shrunk, but so will variable capital in the denominator. Constant capital may have increased because of mechanisation, but the rate of profit falls only if the increase in constant capital is greater than the fall in variable capital in the denominator. It depends on “whichever of the two quantities changes more rapidly—and we do not know that.”

Heinrich argues in the second half of his paper that Marx had further thoughts on crisis theory and seemed to appreciate the difficulties with his earlier thesis. He notes how Marx points out a fundamental contradiction between the tendency towards an unlimited production of surplus value and the tendency towards a limited realisation of it.

Marx is not advocating an under-consumptionist theory, according to Heinrich, as he also includes the “drive to expand capital” in society’s power of consumption. However, the limitations on the drive for accumulation are not further developed by Marx: to do that, Heinrich claims, it would have been necessary to include the credit system in these observations. For Heinrich a systematic treatment of crisis theory cannot therefore follow immediately from the “law of the tendency of the rate of profit to fall” but only after the categories of interest-bearing capital and credit have been developed. As Heinrich maintains

The theoretical position for crisis theory suggested by Engels’s editorship is definitely wrong, but this suggestion has been extremely influential: many Marxist approaches to crisis theory completely disregard credit relationships and consider the root causes of crisis to be phenomena that have nothing to do with money and credit.

The critical response to Heinrich’s work among international Marxian economists will be considered in the next issue of Socialist Voice.

■ See: Michael Heinrich, “Crisis theory, the law of the tendency of the profit rate to fall, and Marx’s studies in the 1870s,” Monthly Review, vol. 64, no. 11 (April 2013). [NC]

Download this issue of Socialist Voice as a pdf

SV 2013 No 105



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