Raya Dunayevskaya

The Decline in the Rate of Profi
and The Theory of Crises


Editor’s Note: This discussion by Raya Dunayevskaya of Marx’s critique of capitalist production consists of excerpts from the first draft of what became her first book, MARXISM AND FREEDOM – a manuscript entitled State-Capitalism and Marxism, written in 1947. The original can be found in THE RAYA DUNAYEVSKAYA COLLECTION, microfilm no. 472.
Proofed & corrected: Dawn Gaitis, 2006.

Volume III [of Capital], which deals with the phenomena of capitalism in their concrete movements, is the one which is preferred by present-day academic economists. These tell us that it is only from this vantage point, where Marx deals with prices and profits, that one can understand Volume I where he deals only in abstractions: value and surplus value. MARX’S POINT WAS THE EXACT OPPOSITE. He maintained that once you understand the law of surplus value, the law of profit would present no difficulty; if you reversed the process, you could understand neither the one nor the other.

It is true that Volume III is Marx’s nearest approximation to the real world. Commodities are seen to exchange not at value, but at prices of production, that is, cost of production plus average rate of profit. Furthermore, surplus value does not remain an abstract mass of congealed unpaid labor, but assumes the palpable shape of profit, interest and rent – all in the form of liquid capital. The merchant and his middleman’s profit and the financier and his transactions and credit manipulations all come to life. What, however, is lost sight of by those who think that this shows that in Volume III common sense has triumphed over the Hegelian mysticism of Volume I, is that none of the laws enunciated in the latter is abrogated in the former. The laws, modified in their actual operation, may not, through the intervention of counteracting tendencies, ever reach their ultimate limit, but none of these laws is controverted.

Surplus value remains a GIVEN magnitude, the congelation of so many unpaid hours of labor, which serves as the straitjacket of capitalists, which they cannot get out of by any market manipulations. All that competition can accomplish is to effect a general rate of profit, a sort of “capitalist communism” which assures that all capitals of given magnitudes receive corresponding shares of the total surplus value.

The transformation of the rate of surplus value into the rate of profit is merely the expression of the ratio of surplus value to total, instead of only to variable, capital. But this in no way changes the law of surplus value, which is that only living labor is creative of surplus value. Individual prices oscillate above or below value, but, in their totality, all prices are equal to all values. Monopoly also brings a modification into the operation of the average rate of profit, but that is not the dominant law of capitalist production.

The dominant law of capitalist production – and the heart of Volume III – is the Law of the Falling Tendency of the Rate of Profit. Marx considered the theory of the declining rate of profit the “PONS ASINI” of the whole of political economy, that which divides one theoretic system from another.

The constant revolutions in production and the constant expansion of constant capital necessitate, of course, an extension of the market. But the enlargement of the market in a capitalist nation has very precise limits. The consumption goods of a capitalist nation are limited by the luxuries of the capitalists and the necessities of the workers when paid at value. The market for consumption goods is just sufficient to allow the capitalist to continue his search for greater value. IT CANNOT BE LARGER.

This is the supreme manifestation of Marx’s simplifying assumption that the worker is paid at value. The innermost cause of crises, according to Marx, is that labor power IN THE PROCESS OF PRODUCTION AND NOT IN THE MARKET, creates a value greater than it itself is. The worker is a producer of overproduction. It cannot be otherwise in a value-producing society where the means of consumption, being but a moment in the reproduction of labor power, cannot be bigger than the needs of capital for labor power. This is the fatal defect of capitalist production. On the one hand, the capitalist must increase his market. On the other hand, it cannot be larger. This is what Marx calls THE GENERAL LAW OF CAPITALISM which cannot be overcome other than by the abrogation of the law of value.

The only “market” that enlarges beyond the limits of the working population paid at value is the capital market. But there too the constant technological revolutions make the time necessary to REPRODUCE a product tomorrow less than the time to PRODUCE it today. Hence there comes a time when all commodities, including labor power, are “overpaid.”

The crisis that follows is not caused by a shortage of “effective demand.” On the contrary, it is the crisis that causes a shortage of “effective demand.” The worker employed yesterday has become unemployed today. A crisis occurs not because there has been a scarcity of markets – the market is largest just before the crisis – but because FROM THE CAPITALIST VIEWPOINT there is occurring an unsatisfactory distribution of “income” between recipients of wages and those of surplus value or profits. The capitalist decreases his investments and the resulting stagnation of production appears as overproduction. Of course, there is a contradiction between production and consumption. Of course there is the “inability to sell.” But that “inability to sell” manifests itself as such BECAUSE OF THE FUNDAMENTAL ANTECEDENT DECLINE IN THE RATE OF PROFIT WHICH HAS NOTHING WHATEVER TO DO WITH THE INABILITY TO SELL. The decline in the rate of profit, which proves that capitalist production creates a barrier to its own further development, is what causes competition, not vice versa.

The law of the falling tendency of the rate of profit is the expression of the law of value under the most advanced conditions of capitalist production. Under these conditions the ever greater preponderance of dead over living labor brings about such a falling relation of surplus value to total capital that a day might come when, even if the capitalist could appropriate all 24 hours of labor of the EMPLOYED army, and the laborers lived on air, the capitalist could not get SUFFICIENT surplus value to run the mammoth capitalist machine on an ever-expanding scale. The general contradiction of capitalism thus reaffirms the three principal facts of capitalist production: (1) decline in the rate of profit, (2) deeper and deeper crises, and (3) a greater and greater unemployed army.

Today, when we see the fruition of the most abstract postulates of Marx – the concentration of capital in the hands of one single capitalist or one single capitalist corporation – we can see that the absolute limit of development of the law of centralization and concentration of capital has in no way been able to solve the problem of crises and the declining rate of profit. The given single capitalist society remains dominated by the law of value, the law of the world market, having its origin in technological revolutions no matter where they originate. Atomic energy may be the secret discovery of the United States. But Russia must follow suit or perish ...

One section of Theories of Surplus Value, entitled Accumulation of Capital and Crises ... is of particular pertinence to today’s discussion. ... Marx’s critique of Malthus, for example, is also the answer to the underconsumptionists of today.

“The only merit of Malthus,” wrote Marx in 1865, “is that he emphasized the uneven exchange between capital and labor. This merit is negated thanks to his confusion between the determination of value (VERWERTUNG) of money or commodity AS CAPITAL with the value (WERT) of the commodity as such ...

“The condition of overproduction is the general law of production of capital: production proceeds in accordance with the productive forces...and disregards the existing limits of the market, effective demand...besides, the mass of producers is limited and, because of the nature of capitalist production, must always remain limited ...”

In contrasting classical political economy with “vulgar” economics, Marx comes to conclusions which cannot be overestimated for our day. He contends that finance capital theorists are so far removed from the direct process of production, live so fully in the fetishistic realm of interest, that they have produced theories of money and credit which are nothing short of “a fiction without fantasy.”

The fact that this very important work has been wholly neglected in the United States by Marxists and non-Marxists alike does not lessen, but heightens, the interest in it by scholars and the public alike.


Last updated on 10 June 2017