On Wed, 21 Jun 1995, Trond Andresen wrote:
> Tavis Barr says:
>
> > ..if there is no tendency of the profit rate to fall, why
> > has it been on a downward trend for the last 25 years or so?
>
> First: Are economists in agreement on this? I have economist
> acquaintances who say otherwise. Just asking.
(Hi Trond.)
Here's the Fed's data for non-financial assets, thanks to Doug Henwood.
It hasn't been corrected, for example, for capacity utilization, which
would indicate real productive investment rather than a cyclical upturn.
In any event, there's been a profit surge in the US under Clinton (which
you have probably read about in the business press) but if you look at
the last few years as a spike rather than a turnaround (viz. 1988) there
is a slow and erratic but persistent downward trend -- I think. But you
decide for yourself.
tangible profits profit rate effective
assets bef tax aft tax bef tax aft tax tax rate
1960 476.9 40.3 21.1 8.5% 4.4% 47.6%
1961 490.5 40.1 20.7 8.2% 4.2% 48.4%
1962 509.9 45.0 24.3 8.8% 4.8% 46.0%
1963 531.5 49.8 27.0 9.4% 5.1% 45.8%
1964 562.1 56.0 32.1 10.0% 5.7% 42.7%
1965 606.5 66.2 39.0 10.9% 6.4% 41.1%
1966 670.4 71.4 41.9 10.7% 6.3% 41.3%
1967 725.1 67.5 39.7 9.3% 5.5% 41.2%
1968 798.1 74.0 40.4 9.3% 5.1% 45.4%
1969 886.5 70.8 37.5 8.0% 4.2% 47.0%
1970 968.7 58.1 31.0 6.0% 3.2% 46.6%
1971 1,057.2 67.1 37.1 6.3% 3.5% 44.7%
1972 1,168.5 78.6 44.8 6.7% 3.8% 43.0%
1973 1,342.0 98.6 58.4 7.3% 4.4% 40.8%
1974 1,621.5 109.2 67.0 6.7% 4.1% 38.6%
1975 1,792.0 109.9 68.4 6.1% 3.8% 37.8%
1976 1,965.6 137.3 84.4 7.0% 4.3% 38.5%
1977 2,186.8 158.6 98.7 7.3% 4.5% 37.8%
1978 2,485.2 183.5 116.4 7.4% 4.7% 36.6%
1979 2,863.7 195.5 125.9 6.8% 4.4% 35.6%
1980 3,278.4 181.6 114.6 5.5% 3.5% 36.9%
1981 3,674.3 181.0 117.1 4.9% 3.2% 35.3%
1982 3,860.1 132.9 86.7 3.4% 2.2% 34.8%
1983 3,979.4 155.9 96.4 3.9% 2.4% 38.2%
1984 4,215.4 189.0 115.4 4.5% 2.7% 38.9%
1985 4,399.0 165.5 95.6 3.8% 2.2% 42.2%
1986 4,545.7 149.1 73.5 3.3% 1.6% 50.7%
1987 4,750.8 212.0 118.5 4.5% 2.5% 44.1%
1988 5,056.7 256.6 154.9 5.1% 3.1% 39.6%
1989 5,334.4 232.9 133.3 4.4% 2.5% 42.8%
1990 5,325.9 232.1 138.3 4.4% 2.6% 40.4%
1991 5,042.6 212.4 129.3 4.2% 2.6% 39.1%
1992 4,818.9 253.4 165.5 5.3% 3.4% 34.7%
1993 4,964.6 293.5 176.7 5.9% 3.6% 39.8%
1994 5,265.4 360.1 215.4 6.8% 4.1% 40.2%
> Secondly: If this rate really has been falling, it could perfectly well
> do so without being caused by mechanization/automation. Even a
> static economy (static in the sense of negligible technical change and
> productivity growth in the period considered) will experience long run
> financial crisis symptoms simply due to accumulation of assets. As long
> as all sorts of returns (from loans, bonds, stocks) are re-invested,
> aggregate net assets (mirrored by net debts) will grow, regardless of
> productivity growth and technical change. Sooner or later the net
> assets holders (and I am not only talking of the financial sector here,
> also any economic agent who holds dividend-giving assets - including
> firm owners who behave as rentiers towards their own firms) will have
> trouble upholding a return flow that is proportional to net assets.
I thought that was the main point of my post. Certainly my Cobb Douglas
example was based on mechanization _without_ technical change and showed
secularly falling profits for the reasons you showed above. The
question is then, is technical advance a counteracting factor? The
answer is, maybe. It depends on whether the percentage productivity gain
is higher than the increase in the capital output ratio.
However, there is an additional factor that this viewpoint ignores, and
that is whether or not technical change intensifies competition. What I
tried to indicate with the Cournot example is that, with a large enough
demand elasticity, the answer is yes. Therefore, the change in
productivity versus the change in capital/output has to be examined _at the
relevant before and after prices and quantities_ -- which Okishio ignores.
> Thirdly: Imagine a future class society with 5% of the workforce in
> manufacturing, and where physical production is undertaken 90% by
> robots and automated processes with the workers as overseers and
> maintenance personnel. Since this is a class society the workforce will
> be dependent on selling their labour power to capitalists on the
> market. This extremely productive society will therefore employ the
> majority of workers in a huge service sector, which to a great degree
> is employed with catering to the needs of the capitalist class. This
> service sector will - being a service sector - have a lower organic
> composition of capital than industry, and therefore give good
> possibilities for exploitiation of employees. The capitalists will
> exploit those service workers as hard as possible, and accumulate as
> today. If returns to capitalists in the automated industrial sector
> are lower than in the service sector, the industrial sector will
> shrink. But this will increase prices for products from this sector
> until profitability there is comparable to that of the service sector.
Trond, I think this idea actually completely contradicts your "Second"
idea. The question is: Once the company management in a service-sector firm
gets the profits, what does it do with them? It would be much better off
ploughing them back and reinvesting them in the firm with a higher
marginal return then investing them in the low-profit "manufacturing" sector.
Then you have profit-rate equalization and we're back to the scenario of
decline.
> And back to my second point: To the degree one observes a some-decades
> long path towards stagnation and crisis in capitalism (a "long
> wave"), this is explained by accumulation due to compound returns, not
> by increased organic composition.
What's the difference? In other words, where are these returns invested,
if not in productive capital, increasing the organic composition? Of
course, some are invested in speculation, but you really have to suppose
that _all_ of them are in order to differentiate these two concepts.
That's far from obvious.
> Futhermore to the third point above: If I am right here, any marxist
> who believes that socialism and then communism is inevitable in the
> long run because capitalism is doomed due to a profit rate tending
> towards zero because of automation/mechanization, must be in error.
> Capitalism can continue indefinitely as long as one class has the power
> to coerce the majority to work for them by control over their means of
> living.
Of course. I don't think anybody said that. The important point is that
lower profit rates put serious constraints on the flexibility of the
system. There is systematic evidence for this in the labor market
(showing that wages are strongly correlated with profit rates), but I
think much more serious anecdotal evidence recently: The degree to which
firms will move to get lower wages, lower tax rates, looser enviro
regulations, etc. This in turn makes the weaknesses of capitalism more
blatantly visible. This in turn makes revolution more possible -- but
certainly not inevitable.
> Incidently I _do_ believe that socialism and some sort of "asymptote"
> towards communism is bound to come in the long run. But this belief is
> based on the relentless and gradual increase in average workforce
> education level and the communication technologies that the capitalists
> themselves need in the global competitiveness rat race. In this sense
> they are themselves bringing forth the tools that will mean their
> future demise. But this is another discussion.
I basically agree with you, with some qualifications about the
"education" thing. I think this is another, less explored aspect of
capitalism creating the means of production necessary for socialism. But
it _is_ another discussion.
Cheers,
Tavis
