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John Passant

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Economics – Marx in a minute

Could it be that low profit rates are causing the problems of the economy? Not too much Government. Not too little Government. Not over-regulation. Not under-regulation. Not over-consumption. Not under-consumption. Not too many people.  Not greed.

Low profit rates. 

If so the way production is organised under capitalism is the real issue. 

Capitalists invest more and more in machinery and other capital at a rate faster than they invest in labour. Competition forces them to do this as they search for ever more ‘efficient’ and cheaper ways to ‘beat’ their competitors and make more profits.

Profit is what is left over after accounting for the costs of capital and labour. So for capitalists the rate of profit (the return on investment) is this profit amount divided by the cost of capital and labour.

Yet since labour is the source of new value, this means that profit rates will have a tendency to fall.

So for individual capitalists, while getting ahead through better productive processes than their rivals can be profitable in the short term, for the system as a whole the result is disastrous. 


There are countervailing tendencies like destroying the value of capital, (often called write downs, not to mention idle factories), stronger companies taking over weaker ones in fire sales, lengthening the working day, cutting wages, increasing productivity, and cheapening the cost of necessities for workers.

But there are limits to these countervailing tendencies. For example you can’t force workers to work 24 hours a day or generally force wages below their replenishing value. Workers have to eat to be able to come to work.

And creative destruction – the fall in the value of assets leading to mergers and acquisitions on terms very favourable to the stronger, or wars to destroy actual assets – is a brutal and life destroying way to restore profit rates.

If profit rates globally are low (as they appear to be) the system grinds to a halt. The bosses don’t invest because it is not profitable.

Or they chase high risk high profit schemes like sub-prime loans and come a cropper. These schemes fail because the rate of return from them cannot be divorced for long from the low general profit rate in the productive sector of society.

The financial crisis for example has highlighted the low profit rates in the real economy and helped to further drag them down. The bosses and their Governments have responded according to script  – panic, panic and more panic. And the long slide into deep recession world wide begins.

The response of capitalists to low profit rates is all too clear. Attack workers living standards. Let the market rip (or manage the process through State intervention) to destroy capital across the globe and with it jobs and lives. All so that profit rates can climb up again and the whole crazy process can begin again.

Why not organise production democratically through the workplace to satisfy human need?



Comment from STT
Time March 2, 2009 at 2:07 pm

‘organise production democratically through the workplace to satisfy human need’

So we’re back to voting on how many pairs of undies to produce. Great idea. Way better than allowing people to express their preferences for individual goods and services through a market. I especially like the way that it would drive innovation and efficiency.

Comment from John
Time March 2, 2009 at 5:42 pm

Thanks STT

The world wide increase in food prices last year wiped out many of the gains the market made in reducing poverty.

Perhaps 1 billion people are now starving and another 2 billion undernourished.

The reason? They can’t afford food. You describe this as “allowing people to express their preferences for individual goods and services through a market.”

Yes, let people starve because they can’t afford food or enough food. Perfectly rational.

In the US, the number of homeless is likely to hit 10 or 11 million this year. There are 18 million unoccupied dwellings there. A rational society would solve the problem by letting homeless people live in empty dwellings. But in our society because there is no profit in doing so, people live on the streets. 11 million of them perhaps in the US alone. Another example of market failure.

Wall Street is a good example of market success too, isn’t it?

Rather than voting on which colour undies to produce (you do seem to have a fetish with underwear) workers councils would be dealing with high priorities – like adequately feeding, housing and clothing the world, rather than making a profit.

I am guessing the workers in the clothes factory will determine in an instant that we only need one colour of underpants (or singlets – white seems to be the main colour already) and so save production costs.

by the way, there is enough food in the world to feed everyone adequately. The market has failed.

Maybe it’s time for an alternative world in which production occurs democratically to satisfy human need.

Comment from STT
Time March 3, 2009 at 10:46 am


What makes you think that workers will decide to feed, house and clothe the world? And more to the point, what makes you think that they would be able to? Why are farmers going to work to produce extra crops for hungry foreigners when all you can offer them in return is the expropriation of their farm by the workers council (or ‘Soviet’) and a pair of standard issue Trabant-pants.

In your world, there would be no incentive for effort (because everybody gets what they ‘need’ and extra effort would be expropriated by the collective). There would be no incentive for individuals to save and invest (because private ownership of capital would not be allowed). There would be no incentive to maintain your house (because if you trash it, the Soviet will arbirtarily take over somebody else’s ’empty’ house and give it to you).

No incentives, no choice. The figure of 1 bilion people going hungry would look like a utopia after a few years of that.


PS Undies are important. It is important to me that I have choice. It is important that my significant other has a drawer full of frilly, skimpy, multi-coloured little things to dress up in. A single colour of undies would not make the world a better place.

Comment from Brett
Time March 5, 2009 at 1:36 pm


You need to understand that in the Marxist world, your choices come a long second to the “democratically decided human needs”. Under Marxism, choice, innovation and incentives all disappear. You’d be stuck wearing long johns which would cost more to produce than they would sell for, paying taxes far higher than you are now to subsidise loss making companies, all in the name of “democratically satisfying human need”.


“The reason? They can’t afford food. You describe this as “allowing people to express their preferences for individual goods and services through a market.””

This is pure ideology speaking. You haven’t considered the case of war (which has for example, made food incredibly scarce within large chunks of Africa), political issues (e.g. Mugabe and his effect on Zimbabwe – the former “bread basket” of Africa) and a whole host of other issues.

Take these issues out and then you can start talking about markets. For many of the worlds poor, availability of food comes in a long way before we can even start talking about money or markets.