http://monthlyreview.org/2013/04/01/crisis- theory- the- law-of- the- tendency-of- the-profit- rate- to- fall-and-marxs-studies- in- the-1870s

April 15, 2013

Crisis Theory, the Law of the Tendency of the Profit Rateto Fall, and Marxs Studies in the 1870s :: Monthly Review

Michael Heinrich more on Economics , Marxism & Socialism

Michael Heinrich teaches economics in Berlin and is the author of An Introduction to the ThreeVolumes of Karl Marxs Capital (Monthly Review Press, 2012) and The Science of Value: MarxsCritique of Political Economy Between Scientific Revolution and Classical Tradition (Brill,t ranslat ion forthcoming in 2014). This is an abridgment of an art icle which will appear in Marxand Crises of Capitalism: Interpretations and Interventions, Marcello Musto, ed. (PalgraveMacmillan, forthcoming in 2014). It is t ranslated from the German by Alex Locascio.The development of crisis theory within the Marxian tradit ion has been central to much of ourwork in the last several years. The view that the various fragmentary references to crisis theoryin the three volumes of Capital const itute a fully developed coherent structure, which onlyrequires diligent exegesis, is a view that has never seemed sensible to us.Recent research into the evolut ion of Marxs manuscripts in connect ion with the product ion ofthe Marx-Engels-Gesamtausgabe (MEGA), the historical-crit ical edit ion of the complete writ ingsof Karl Marx and Friedrich Engels, has conf irmed our understanding in a very excit ing way. It isnow clear that Marx never ceased to develop his thinking on the phenomena of crises incapitalism, and never ceased to discard earlier formulat ions; for example, at the end of his lifehe was focused on quest ions of credit and crisis. Monthly Review rarely presents its readerswith discussions of economic theory at a relat ively high degree of abstract ion; this, however, issuch an occasion. We trust that the authors exemplary clarity will permit ready access toreaders with any degree of interest in Marxs theory; for those who wish to become familiarwith the conceptual out line of Marxs work, we cannot do better than to recommend theauthors An Introduction to the Three Volumes of Karl Marxs Capital (Monthly Review Press,2012). The EditorsIn Marxs work, no f inal presentat ion of his theory of crisis can be found. Instead, there arevarious approaches to explain crises. In the twent ieth century, the start ing point for Marxistdebates on crisis theory was the third volume of Capital, the manuscript of which was writ ten in18641865. Later, at tent ion was directed towards the theoret ical considerat ions on crisis in theTheories of Surplus-Value, writ ten in the period between 1861 and 1863. Finally, the Grundrisseof 18571858 also came into view, which today plays a central role in the understanding ofMarxs crisis theory for numerous authors. Thus, start ing with Capital, the debate graduallyshif ted its at tent ion to earlier texts. With the Marx Engels Gesamtausgabe (MEGA), all of theeconomic texts writ ten by Marx between the late 1860s and the late 1870s are now available.Along with his let ters, these texts allow for an insight into the development of Marxstheoret ical considerat ions on crisis after 1865.Hope, Experience, and the Changing Analyt ical Framework of Marxs TheoryIn the f irst half of the nineteenth century, it became clear that periodic economic crises were aninevitable component of modern capitalism. In the Communist Manifesto, they were regarded asa threat to the economic existence of bourgeois society. Crises f irst took on a special politicalmeaning for Marx in 1850 when he at tempted a closer analysis of the failed revolut ions of18481849. He now regarded the crisis of 18471848 as the decisive process which led torevolut ion, f rom which he drew the conclusion: A new revolut ion is possible only inconsequence of a new crisis. It is, however, just as certain as this crisis.1

In the following years, Marx eagerly awaited a new deep crisis. It f inally came in 18571858: allcapitalist centers experienced a crisis. Whereas Marx acutely observed the crisis and analyzed itin numerous art icles for the New York Tribune, he also at tempted to work out his crit ique ofpolit ical economy, which he had planned for years.2 The result was the unt it led manuscriptwhich is known today as the Grundrisse.In the Grundrisse, the theory of crisis bears the stamp of the expected deluge that Marxwrote about in his let ters.3 In an early draf t for the structure of the manuscript , crises come atthe end of the presentat ion, af ter capital, the world market, and the state, where Marx fashionsa direct connect ion to the end of capitalism: Crises. Dissolut ion of the mode of product ion andform of society based upon exchange value.4In the so-called Fragment on Machines, one f inds an out line of a theory of capitalist collapse.With the increasing applicat ion of science and technology in the capitalist product ion process,the immediate labour performed by man himself is no longer important, but rather theappropriat ion of his own general product ive power, which leads Marx to a sweepingconclusion: As soon as labour in its immediate form has ceased to be the great source ofwealth, labour t ime ceases and must cease to be its measure, and therefore exchange value[must cease to be the measure] of use value. The surplus labour of the masses has ceased tobe the condit ion for the development of general wealth, just as the non-labour of the few hasceased to be the condit ion for the development of the general powers of the human head. Asa result , product ion based upon exchange value collapses.5These lines have of ten been quoted, but without regard for how insuff icient ly secure thecategorical foundat ions of the Grundrisse are. The dist inct ion between concrete and abstractlabor, which Marx refers to in Capital as crucial to an understanding of polit ical economy, isnot at all present in the Grundrisse.6 And in Capital, labor in the immediate form is also not thesource of wealth. The sources of material wealth are concrete, useful labor and nature. Thesocial substance of wealth or value in capitalism is abstract labor, whereby it does not matterwhether this abstract labor can be traced back to labor-power expended in the process ofproduct ion, or to the transfer of value of used means of product ion. If abstract labor remainsthe substance of value, then it is not clear why labor t ime can no longer be its intrinsic measure,and it s not clear why product ion based on exchange value should necessarily collapse. When,for example, Hardt and Negri argue that labor is no longer the measure of value, they do notreally refer to the value theory of Capital but to the unclear statements of the Grundrisse.7Marx indirect ly addresses this set of problems from the Grundrisse in the f irst volume ofCapital, when dealing with the concept of relat ive surplus-value: there Marx makes fun of thenot ion that the determinat ion of value by labor is called into quest ion by the fact that incapitalist product ion, the point is to reduce the labor t ime required for the product ion of anindividual commodityand that was the argument upon which the theory of collapse in theGrundrisse was based.8The crisis of 18571858 was over quickly. It did not lead, economically or polit ically, to theshaking up of condit ions that Marx had hoped for: the capitalist economy emergedstrengthened from the crisis, and revolut ionary movements did not arise anywhere. Thisexperience was integrated into Marxs theoret ical development: af ter 18571858, Marx nolonger argued in terms of a theory of f inal economic collapse, and he no longer made out adirect connect ion between crisis and revolut ion.Marxs hopes in the crisis were disappointed, but at least he had begun to formulate his crit iqueof polit ical economy. This project would grip him unt il the end of his life, and the theory of crisiswould play an important role within it . Although Marx had in no way f inished with the process ofresearch, he made numerous at tempts at an adequate presentat ion. Start ing in 1857, threecomprehensive economic manuscripts emerged: af ter the Grundrisse of 18571858, theManuscript of 18611863 (which contains the Theories of Surplus-Value) and the Manuscript of18631865 (which among other things contains the manuscript used by Engels as the

foundat ion for his edit ion of the third volume of Capital). In the MEGA, where thesemanuscripts have been published in their ent irety, they are referred to as the three draf ts ofCapital. This widely used descript ion is problemat ic: it suggests a seamless cont inuity andconceals the shif ts in the theoret ical f ramework of Marxs analysis.One result of the Grundrisse was the six-book plan announced in the preface to A Contributionto the Critique of Political Economy (capital, landed property, wage-labor, the State, foreigntrade, the world market).9 Fundamental for the f irst book is the dist inct ion between capital ingeneral and the compet it ion of many capitals: everything that merely manifests at the level ofappearance in compet it ion was to be developed in the sect ion on capital in general,abstracted however f rom any observat ion of individual capitals or a part icular capital.10In the Manuscript of 18611863, where Marx at tempts to implement this concept, the theory ofcrisis is dealt with under new considerat ions. Crises are no longer an indicat ion of thedissolut ion of the capitalist mode of product ion, but are rather the constant and completelynormal accompaniment of this mode of product ion, which provide a forcible adjustment of allthe contradict ions. Correspondingly, the theory of crisis no longer const itutes the endpoint ofthe presentat ion. Rather, individual moments of crisis are to be dealt with at dif ferent levels ofthe presentat ion. Marx makes the programmatic declarat ion:The world t rade crises must be regarded as the real concentrat ion and forcible adjustment ofall the contradict ions of bourgeois economy. The individual factors, which are condensed inthese crises, must therefore emerge and must be described in each sphere of the bourgeoiseconomy and the further we advance in our examinat ion of the lat ter, the more aspects of thisconf lict must be traced on the one hand, and on the other hand it must be shown that its moreabstract forms are recurring and are contained in the more concrete forms.11However, Marx had a problem determining which moments of crisis are to be developed atwhich level. He st ill had not found the proper structure of the presentat ion. In the course of hiswork on the Manuscript of 18611863, Marx had to accept two dramat ic results: (1) the six-book plan was too comprehensive, he would not be able to carry it out completely. Marxannounced that he would restrict himself to the book on Capital, eventually he intended toget around to writ ing the book on the state, but all the rest had to be done by others on thebasis of the foundat ion that he would provide.12 (2) It would soon become clear, however, thatthe strict separat ion between capital in general and compet it ion could no longer bemaintained.13 For the book on capital that Marx now planned, the concept of capital ingeneral no longer played a role. Whereas from 1857 to 1863 in the manuscripts as well as inMarxs let ters, Marx of ten referred to capital in general when discussing the structure of theplanned work, this term no longer showed up anywhere af ter the summer of 1863.So we are not dealing with three draf ts for the f inal version of Capital, but rather with twodifferent projects: the plan followed between 1857 and 1863 for a six-book Critique of PoliticalEconomy, and af ter 1863, the four-book work on Capital (three theoret ical volumes and oneon the history of theory). The Grundrisse and the Manuscript of 18611863 are the two draf tsfor the book on capital f rom the original six-book Critique of Political Economy, whereas theManuscript of 18631865 is the f irst draf t for the three theoret ical volumes of the four-bookCapital. If we consider the Manuscript of 18631865, then it becomes clear not only that theconcept of capital in general is missing, but also that the structure of presentat ion does notanymore correspond to the opposit ion between capital in general and compet it ion. Instead, acentral role is played by the relat ionship between individual capital and the total social capital,which is dealt with at the dif ferent levels of abstract ion of the process of product ion, theprocess of circulat ion, and the process of capitalist product ion as a whole. The strictseparat ion of the presentat ion of capital, wage-labor, and landed property could also no longerbe maintained: in the newly conceptualized Capital, one f inds theoret ically fundamentalsect ions of the previously planned books on landed property and wage-labor. All that remainsare the special studies ment ioned in the text .14 So overall, Capital corresponds to the materialof the f irst three books of the earlier six-book plan, but within an altered theoret ical f ramework.

The planned presentat ion of the history of theory had also been altered: a history of economictheory in its ent irety replaces the history of individual categories intended for the old book oncapital. Here as well, the originally planned separat ion cannot be maintained.The first draft for this new Capital is the Manuscript of 18631865. The f irst print ing of the f irstvolume of Capital f rom 18661867, the Manuscript II for book II of Capital f rom 18681870,15as well as the smaller manuscripts for book II and book III created in the same t ime period16: allof these const itute a second draft (18661871) of Capital. The manuscripts writ ten betweenthe end of 1871 and 1881 including the second German edit ion of the f irst volume of Capitalf rom 18721873 (which exhibits considerable changes from the f irst edit ion) and the Frenchedit ion of 18721875 (which contains further changes) const itute a third draf t of Capital. Soinstead of three draf ts and the f inal Capital, we have two dif ferent projects with a total of f ivedraf ts.17The Evolut ion of Marxs Economic Writ ings Since 1857

I. The Critique of Political Economy, in Six Books (18571863)First Draf t Grundrisse 18571858Second Draft A Contribution to the Critique of Political Economy, 1859

Manuscript of 18611863

II. Capital, in Four Books (18631881)First Draf t Manuscript of 18631865Second Draft Capital, Vol. I, f irst edit ion (1867)

Manuscript II for Book II (18681870)Manuscripts for Books II and III (18671871)

Third Draft Capital, Vol. I, second edit ion (18721873)Capital, Vol. I, French translat ion (18721875)Manuscripts for Book III (18741878)Manuscripts for Book II (18771881)

The Law of the Tendency of the Rate of Prof it to Falland its Failure (1865)The most extensive considerat ions of crisis in the Capital manuscripts can be found inconnect ion with the presentat ion of the Law of the tendency of the rate of prof it to fall in themanuscripts for the third book from 18641865. Since this law plays such an important role inmany debates on crisis theory, it will be discussed before coming to the actual theory of crisis.The idea that the social average rate of prof it declines over the long term was considered anempirically conf irmed fact since the eighteenth century. Adam Smith and David Ricardo bothattempted to demonstrate that the observed fall in the rate of prof it was not simply atemporary phenomenon, but rather a result of the inner laws of the development of capitalism.Adam Smith at tempted to explain the fall in the rate of prof it as a result of compet it ion: in acountry with abundant capital, the compet it ion between owners of capital would exert

downward pressure on prof it .18 This argument is not very plausible. An individual capitalist , inorder to improve his compet it ive posit ion, can lower the price of his commodity and be sat isf iedwith a smaller prof it . However, if the majority of capitalists act in this way, then the market priceof numerous commodit ies would decline and therefore also the costs for each enterprise,which in turn would increase prof it .David Ricardo had already crit icized Smiths arguments for the fall in the rate of prof it .19Ricardo proceeded from the assumption that, disregarding a few except ions, the general rateof prof it could only fall if wages increased. Since an increase in the size of the populat ionnecessitates more means of subsistence, Ricardo assumed that farmland of increasingly worsequality would have to be cult ivated, which would lead to a rise in the price of grain. Since wagesmust cover the costs of reproduct ion of the labor force, wages would rise with the rise in theprice of means of subsistence, which would cause a decrease in prof its. Capitalists would notprof it f rom the rising price of grain: on the worst land, product ion prices are high; on better land,the costs of product ion thus saved would f low as ground rent to landowners.20Marx opposed this with the argument that even in agriculture increases in product ivity arepossible, so that the price of grain can fall as well as rise. The possibility of agriculturalincreases in product ivity was not so readily apparent to Ricardo as to Marx: the lat ter was acontemporary of Justus von Liebig, whose discoveries in the f ield of chemistry revolut ionizedagricultural product ion.21 Marx was not the f irst to assert a long-term fall in the rate of prof it asa result of the inner laws of capitalism. However, he did claim to be the f irst to have discovereda coherent explanat ion for this law.22At the end of the manuscript for the third book, Marx characterizes the object of hispresentat ion as the internal organizat ion of the capitalist mode of product ion, its idealaverage, as it were.23 With regard to the presentat ion of this ideal average, part icular,temporary moments should be disregarded, in favor only of that which is typical of a developedcapitalism. In the preface to the f irst volume of Capital writ ten two years later, Marx alsoemphasizes that his intent is not the analysis of a single country or a part icular epoch ofcapitalist development, but rather the laws themselves that form the basis of thisdevelopment.24 Accordingly, with regard to his arguments for the law of the rate of prof it , Marxdoes not assume any part icular form of market or condit ions of compet it ion, but rather solelythe form of development of the forces of product ion typical of capitalism, the increasingdeployment of machinery. If the law he derives at this level of abstract ion is correct , then itmust be valid for all developed capitalist economies.Marx discusses the law of the rate of prof it in two steps: f irst , he illustrates why there is atendent ial fall in the rate of prof it at all.25 Subsequent ly, he discusses a series of factors thatcounteract this tendency and which even transform it into a temporary rise in the rate of prof it ,so that the fall in the rate of prof it only exists as a tendency.26 Since these counteract ingfactors are more-or-less prominent in individual countries at dif ferent t imes, dif ferent t rends inthe rate of prof it arise. However, in the long term, according to Marxs thesis, the rate of prof itmust fall.With this law, Marx formulates a very far-reaching existent ial proposit ion, which cannot beempirically proven nor refuted. The law claims that a fall in the rate of prof it results in the long-term from the capitalist mode of development of the forces of product ion. If the rate of prof ithas fallen in the past, this does not const itute a proofsince the law purports to apply tofuture development, and the mere fact of a fall in the rate of prof it in the past says nothingabout the future. If the rate of prof it has risen in the past, then this is also not a refutat ion,since the law does not require a permanent fall, but rather merely a tendent ial fall, which canst ill occur in the future. Even if the law cannot be empirically verif ied, the argumentat iveconclusiveness of Marxs reasoning can be discussed.Here, two points have to be dist inguished. The first point concerns the relat ionship betweenthe law as such and the counteract ing factors. Marx assumes that the fall in the rate of

prof it , derived as a law, in the long term outweighs all counteract ing factors. Yet Marx does notof fer a reason for this.The second point concerns the law as such: does Marx actually manage conclusively to provethe law as such? This sect ion will be concerned solely with this point : it can be shown thatMarx does not succeed in providing such a proof. The law of the tendency of the rate of prof itto fall does not f irst fall apart in the face of the counteract ing factors; it already falls apartbecause the law as such cannot be substant iated.27In order to argue for the fall in the rate of prof it , Marx init ially presupposes a constant rate ofsurplus-value and considers in a numerical example a rising value composit ion of capital, whichthen necessarily leads to a fall in the rate of prof it . Not explicit ly, but in principal Marx uses inthis observat ion an expression of the rate of prof it that he obtains f rom the f irst equat ion:(1) by dividing the numerator and denominator by v:(2) If , as Marx init ially assumes, the numerator s/v remains constant whilethe denominator (c/v) + 1 grows, because c/v grows, then it is clear thatthe value of the ent ire f ract ion falls. However, the numerator does notremain constant. The value composit ion of capital increases because ofthe product ion of relat ive surplus-value, that is to say in the case of an increase in the rate ofsurplus-value. Contrary to a widespread not ion, the increase in the rate of surplus-value as aresult of an increase in product ivity is not one of the counteract ing factors, but is rather oneof the condit ions under which the law as such is supposed to be derived, the increase in coccurring precisely in the course of the product ion of relat ive surplus-value, which leads to anincreasing rate of surplus-value.28 For that reason, short ly af ter the introductory example Marxemphasizes that the rate of prof it also falls in the case of a rising rate of surplus-value. Thequest ion, however, is whether this can be conclusively argued.If not only the value-composit ion of capital grows, but also the rate of surplus-value, then inthe above fract ion, both the numerator and denominator increase. When Marx claims a fall inthe rate of prof it , then he must demonstrate that in the long term the denominator growsfaster than the numerator. Yet there is no evidence whatsoever for such a comparison in thespeed of growth. Marx circles around this problem in the text more than he actually delivers anysubstant iat ion. His uncertainty becomes clear every t ime he asserts that the law has beenproven, only to once again begin with an argument for it . These at tempts at substant iat ion restupon the not ion that not only does the rate of surplus-value increase, but also that the numberof workers employed by a capital of a given size decreases.In the notes f rom which Engels constructed the f if teenth chapter of the third volume, Marxappears f inally to be able to prove a fall in the rate of prof it even in the case of an increasingrate of surplus-value with the following argument: if the number of workers cont inues todecrease, then at some point the surplus-value they create will also declineregardless of howmuch the rate of surplus-value may rise. This can be easily seen using a numerical example:twenty-four workers, each of whom yield two hours of surplus-labor, yield a total of forty-eighthours of surplus-labor. However, if as a result of a strong increase in product ivity, only twoworkers are necessary for product ion, then these two workers can only yield forty-eight hoursof surplus-labor, if each works for twenty-four hours and does not receive a wage. Marx thusconcludes that the compensat ion of the reduced number of workers by a rise in the level ofexploitat ion of labour has certain limits, that cannot be overstepped; this can certainly checkthe fall in the prof it rate, but it cannot cancel it out .29However, this conclusion is only correct if the capital (c + v) necessary to employ the two

workers is of an amount at least as great as that required to employ twenty-four workersbefore. Marx had merely demonstrated that in equat ion (1), the value of the numeratordecreases. If a decline in the value of the ent ire f ract ion is to result f rom the decrease in thevalue of the numerator, then the denominator must at least remain constant. If the value of thedenominator also decreases, then we would have the problem that numerator anddenominator decrease, and it then becomes a quest ion as to which decreases faster. However,we cannot exclude the possibility that the capital used to employ the two workers is smallerthan that required to employ twenty-four. Why? Only wages for two workers have to be paid,instead of for twenty-four. Since an enormous increase in product ivity has occurred (instead oftwenty-four, only two workers are necessary), we can assume a considerable increase inproduct ivity in the consumer goods industry, so that the value of labor-power also decreases.So the sum of wages for the two workers is not only one-twelf th that of the twenty-fourworkers, it is in fact much smaller. However, on the other hand the constant capital used upalso increases. But for the denominator c + v to at least remain the same, it is not enough that cincreases; c must also increase at least by the same amount that v decreases. Yet we do notknow how much c increases, and for that reason, we do not know whether the denominatorincreases, and we therefore also do not know whether the rate of prof it (the value of ourfract ion) decreases. So nothing has been proven.Here, a fundamental problem is made abundant ly clear: regardless of how we express the rateof prof it , it is always a relat ion between two quant it ies. The direction of movement for thesetwo quant it ies (or parts of these two quant it ies) is known. That, however, is not suf f icient ; thepoint is, which of the two quantities changes more rapidlyand we do not know that. For thatreason, at the general level at which Marx argues, nothing can be said concerning long-termtendencies of the rate of prof it .30 There is an addit ional problem, which cannot however bediscussed here in any detail. The growth of c, f rom which the decline in the rate of prof itsupposedly results, is not completely unlimited. In the second part of the f if teenth chapter ofthe f irst volume of Capital, Marx argues that the addit ional applicat ion of constant capitalencounters its own limits in the reduct ion of variable capital. If this is consistent ly taken intoconsiderat ion, this presents a further argument against the law as such.31Crisis Theory Without the Tendency of the Rate of Prof it to FallSince many Marxists regarded the law of the tendency of the rate of prof it to fall as thefoundat ion of Marxs theory of crisis, they vehement ly defended it against every crit ique. Theassumption that Marx intended to base his theory of crisis upon this law, however, is primarily aconsequence of Engelss editorship of the third volume of Capital. Marxs manuscript of 1865,which was the foundat ion of Engelss edit ion, is barely divided into subsect ions. It only hasseven chapters, f rom which Engels made seven parts. In Marxs manuscript , the third chapter onthe fall in the rate of prof it is not divided into any subsect ions. Its division into three separatechapters was done by Engels. The f irst two chapters on the law as such and thecounteract ing factors closely follow Marxs argumentat ion, but the manuscript then f lows outinto a sea of notes and constant ly interrupted thoughts. Engels heavily revised this material toconstruct the third chapter on the law: he condensed it with abridgments, he maderearrangements, and divided it into four subsect ions. This created the impression of an alreadylargely completed theory of crisis. And since Engels gave the whole thing the chapter t it leDevelopment of the Laws Internal Contradict ions, he createdon the part of readers whodid not know that this chapter t it le did not at all originate with Marxthe expectat ion that thistheory of crisis was a consequence of the law.32If we turn to Marxs text without any such preconceived not ions, then it quickly becomes clearthat Marxs considerat ions do not yield any unif ied theory of crisis, but contain rather disparatethoughts on crisis theory.33 The most general formulat ion of capitalisms tendency to crisis iscompletely independent of the law of the tendent ial fall in the rate of prof it ; rather, its start ingpoint is the immediate purpose of capitalist product ion, surplus-value or rather prof it . Here, afundamental problem becomes apparent:

The condit ions for immediate exploitat ion and for the realizat ion of that exploitat ion are notident ical. Not only are they separate in t ime and space, they are also separate in theory. Theformer is restricted only by the societys product ive forces, the lat ter by the proportionalitybetween the different branches of production and by the societys power of consumption. Andthis is determined neither by the absolute power of product ion nor by the absolute power ofconsumption but rather by the power of consumption within a given framework of antagonisticconditions of distribution, which reduce the consumption of the vast majority of society to aminimum level, only capable of varying within more or less narrow limits. It is further restricted bythe drive for accumulat ion, the drive to expand capital and produce surplus-value on a largerscale. The market, therefore, must be cont inually extended [] the more product ivitydevelops, the more it comes into conf lict with the narrow basis on which the relat ions ofconsumption rest . It is in no way a contradict ion, on this contradictory basis, that excess capitalcoexists with a growing surplus populat ion.34 [italics added]Here, Marx points out a fundamental contradict ion between the tendency towards an unlimitedproduct ion of surplus-value, and the tendency toward a limited realizat ion of it , based upon theantagonist ic condit ions of distribut ion. Marx is not advocat ing an underconsumptionist theoryhere, which only takes up capitalisms limitat ions upon the possibility for consumption by wage-laborers, since he also includes the drive to expand capital in societys power ofconsumption.35 It is not only the consumer demand of the working class, but also theinvestments of businesses that determine the relat ionship between product ion andconsumption. However, the limitat ions upon the drive for accumulat ion are here not furthersubstant iated by Marx. To do that, it would have been necessary to include the credit system inthese observat ions. On the one hand, the credit system plays a role here, which Marx workedout in the manuscripts for book II. The realizat ion of surplus-value in an amount of moneybeyond the capital advanced as c + v is ult imately made possible by the credit system.36 Onthe other hand, that which was already clear to Marx in the Grundrisse must also besystemat ically assimilated: in a general crisis of overproduct ion the contradict ion is notbetween the dif ferent kinds of product ive capital, but between industrial and loan capital;between capital as it is direct ly involved in the product ion process and capital as it appears asmoney independent ly (relativement) outside that process.37So a systemat ic t reatment of crisis theory cannot therefore follow immediately f rom the law ofthe tendency of the rate of prof it to fall, but only after the categories of interest-bearingcapital and credit have been developed. The theoret ical posit ion for crisis theory suggested byEngelss editorship is def initely wrong, but this suggest ion has been extremely inf luent ial: manyMarxist approaches to crisis theory completely disregard credit relat ionships and consider theroot causes of crisis to be phenomena that have nothing to do with money and credit .Since Marxs theory of credit remained fragmentary in the manuscript of 1865, and Marx nolonger explicit ly took up the quest ion of the relat ionship between product ion and credit in hisapproach to crisis theory, his theory of crisis is not just incomplete in a quantitative sense (tothe extent that a part is missing); rather, it is incomplete in a systematic sense. As the followingsect ion demonstrates, this was abundant ly clear to Marxin contrast to many later Marxists.Marxs Research Program in the 1870sThe debates on the tendent ial fall in the rate of prof it and crisis theory conducted inconnect ion with volume III of Capital are based upon a text that Marx wrote in 18641865. Inaccordance with the classif icat ion introduced in the f irst part of this art icle, this text belongs tothe f irst draf t of Capital. However, Marx did not stop there. The second draf t (18661871)brought progress in the development of book II; on the themes of book III, only shortermanuscripts emerged. However, already an expansion of the t reatment of the credit systemcan be observed. In the Manuscript of 18631865, credit was to be merely a subsidiary pointwithin the sect ion on interest-bearing capital. However, in a let ter to Engels f rom April 30, 1868,in which Marx explains the structure of book III, the t reatment of credit is already on an equalfoot ing with interest-bearing capital. On November 14, 1868, Marx writes to Engels that he will

use the chapter on credit for an actual denunciat ion of this swindle and of commercialmorals.38 This init ially means a comprehensive illustrat ion, however, it is foreseeable that thisillustrat ion requires a more far-reaching theoret ical advance. Marx already seems to haveadjusted to the need for such a deepening: in 1868 and 1869, comprehensive excerpts oncredit , the money market, and crises emerge.39The most important changes occurred as Marx was working on the third draf t (18711881).Presumably, Marx was plagued by considerable doubts concerning the law of the rate of prof it .Already in the Manuscript of 18631865, Marx was not completely convinced with hisexplanat ion, as is made clear by the repeated at tempts at formulat ing a just if icat ion. Thesedoubts were probably amplif ied in the course of the 1870s. In 1875, a comprehensivemanuscript emerges which was f irst published under the t it le Mathematical Treatment of theRate of Surplus-Value and Profit Rate.40 Here, under various boundary condit ions and withmany numerical examples, Marx at tempts mathematically to grasp the relat ionship between therate of surplus-value and the rate of prof it . The intent is to demonstrate the laws of themovement of the rate of prof it , whereby it quickly becomes apparent that in principle all sortsof movement are possible.41 Several t imes, Marx makes note of possibilit ies for the rate ofprof it to increase, although the value-composit ion of capital was increasing. In the case of arenewed composit ion of book III, all of these considerat ions would have had to f ind their wayinto a revision of the chapter on the Law of the Tendency of the Rate of Prof it to Fall. Aconsistent regard for them should have led to the abandonment of the law. Marx also hints atthis in a handwrit ten note he made in his copy of the second edit ion of volume I, which nolonger f its the tendent ial fall and which Engels incorporated as a footnote in the third andfourth edit ions: Note here for working out later: if the extension is only quant itat ive, then for agreater and a smaller capital in the same branch of business the prof its are as the magnitudesof the capitals advanced. If the quant itat ive extension induces a qualitat ive change, then therate of prof it on the larger capital rises at the same t ime.42Understood in context , the qualitat ive extension refers to a rising value-composit ion ofcapital. Marx proceeds here f rom the assumption of a rising rate of prof it accompanying a risingvalue-composit ion of capital, which is diametrically opposed to the argument of the law of therate of prof it in the Manuscript of 18631865.43Changes were also planned in other areas. It is widely known that since 1870, Marx engaged inan intense study of landed-property relat ions in Russia, and even learned Russian in order toread the corresponding literature.44 Marx also had a great interest in the United States, whichwas developing at an immensely rapid pace. An interview with John Swinton from 1878indicates that Marx was planning on present ing the credit system by means of the condit ions inthe United States, which would have led to a complete revision of the sect ion on interest andcredit .45 At the same t ime, England would therefore have no longer been the locus classicusof the capitalist mode of product ion, as Marx refers to it in the preface to the f irst volume ofCapital.With regard to crisis theory, Marx is increasingly convinced that inquiry basically has not comefar enough for him to proceed to an appropriate presentat ion of the real movement that hespeaks of in the postface of the second edit ion of volume I.46 In a let ter to Engels f rom May31, 1873, Marx wonders whether it would be possible to determine mathematically the principallaws governing crises.47 Such a possibility would assume that crises proceed with enormousregularity. The fact that Marx raises the quest ion of mathematical determinat ion shows that heis not yet clear about the extent of this regularity. In a let ter to Danielson from April 10, 1879,Marx f inally writes that he cannot complete the second volume (which was to encompassBooks II and III): before the present English industrial crisis had reached its climax. Thephenomena are this t ime singular, in many respects dif ferent f rom what they were in thepast. It is therefore necessary to watch the present course of things unt il their maturitybefore you can consume them product ively, I mean theoretically.48So Marx is st ill in the middle of the process of research and theory-building that must come

before the presentation. In fact , at the end of the 1870s, Marx was confronted with a new typeof crisis: a stagnat ion last ing for years, which is dist inguished sharply f rom the rapid,conjunctural up and down movement which he had hitherto known. In this context , Marxsat tent ion is drawn to the now internat ionally important role of the nat ional banks, which have aconsiderable inf luence upon the course of the crisis.49 The observat ions reported by Marxmake clear that a systemat ic t reatment of crisis theory is not possible on the immediate basisof the law of the tendent ial fall in the rate of prof it (as suggested by Engelss edit ion of thethird volume of Capital), but rather only after a presentat ion of interest-bearing capital andcredit . However, if the nat ional banks play such an important role, then it is very doubtfulwhether the credit system can be categorically presented while excluding an analysis of thestate. The same holds for the world market. It was already clear to Marx in the Manuscript of18631865 that the world market was the very basis and living atmosphere of the capitalistmode of product ion, but he st ill was of the opinion that he had to init ially abstract f romrelat ions on the world market.50 It is quest ionable, however, whether or to what extent thepresentat ion of the shapings of the total process (Gestaltungen des Gesamtprozesses)envisioned by Marx for book III is at all possible in abstract ion f rom the state and the worldmarket.51 If , however, this is in fact not possible, then the construct ion of Capital as a whole iscalled into quest ion.In light of these considerat ions and extensions, a mere revision of the previously exist ingmanuscripts was no longer a realist ic possibility for Marx. The variety of new results, thegeographical expansion of perspect ive (United States and Russia), the new f ields of researchthat have to be integratedall of this necessitates a fundamental revision of the hithertoexist ing manuscripts, a fact that is clearly recognized by Marx.52 In a let ter to Ferdinand DomelaNieuwenhuis f rom June 27, 1880, Marx wrote that certain economic phenomena are, at thisprecise moment, entering upon a new phase of development and hence call for f reshappraisal.53 A year-and-a-half later, Marx was thinking about a complete revision of the f irstvolume of Capital. On December 13, 1881, he wrote to Danielson that the publisher hadannounced to him that soon a third German edit ion of the f irst volume would be necessary.Marx would agree to a small print run with a few minor changes, but then for a fourth edit ion hewould change the book in the way I should have done at present under dif ferentcircumstances.54 Alas, a version of Capital integrat ing the insights and quest ions gained in the1870s remained unwrit ten.Notes

1. Karl Marx and Frederick Engels, Collected Works (London: Lawrence and Wishart , 1975),vol. 10, 135 (henceforth MECW).

2. These observat ions can be found in his Book on Crisis, a collect ion of materials aboutthe crisis ordered according to countries. The Book on Crisis will be published in Karl Marxand Friedrich Engels, Gesamtausgabe (MEGA) (Berlin: Dietz-Verlag, later Akademie-Verlag, 1975), II/14 (henceforth MEGA; the MEGA is divided in four sect ions: the Romannumber stands for the sect ion, and the Arabic number for the volume in this sect ion.)

3. See Marx to Engels, Dec 8, 1857, MECW, vol. 40, 217.4. MECW, vol. 28, 195.5. MECW, vol. 29, 91.6. Karl Marx, Capital, vol. 1 (London: Penguin, 1976), 132.7. Michael Hardt and Antonio Negri, Empire (Cambridge, MA: Harvard University Press,

2000).8. Marx, Capital, vol. 1, 437. A more detailed crit ique of Marxs arguments in the machine

fragment can be found in Michael Heinrich, The Fragment on Machines: A MarxianMisconcept ion in the Grundrisse and its Overcoming in Capital, in Riccardo Bellof iore,

Guido Starosta, and Peter D. Thomas, eds., In Marxs Laboratory: Critical Interpretations ofthe Grundrisse (Leiden: Brill Academic Press, 2013).

9. MECW, vol. 29, 261.10. Cf. MECW, vol. 28, 236, 341; MECW, vol. 29, 11415.11. MECW, vol. 32, 140.12. See his let ter to Kugelmann, December 28, 1862, MECW, vol. 41, 435.13. The double requirement posed by Marx with regard to capital in general, of present ing

a specif ic content (everything that appears in compet it ion) at a certain level ofabstract ion (abstracted from individual capitals and the part icularit ies of capital) proved tobe unfeasible. The presentat ion of the process of capitalist reproduct ion as a whole andthe const itut ion of the social average rate of prof it is not possible at this level ofabstract ion; the dist inct ion between part icular sectors of social product ion and thecompet it ion of individual capitals are required. However the process of capitalistreproduct ion as a whole and the average rate of prof it have to be developed beforeinterest-bearing capital can be presented, and the lat ter has to be presented before thereal movement of compet it ion can be dealt with (for a more extensive discussion of thispoint , see Michael Heinrich, Die Wissenschaft vom Wert. Die Marxsche Kritik derpolitischen konomie zwischen wissenschaftlicher Revolution und klassischer Tradition[The Science of Value: Marxs Critique of Political Economy Between Scientific Revolutionand Classical Tradition], 5th edit ion (Mnster: Westflisches Dampfboot, 2011); anEnglish t ranslat ion will be published by Brill in 2014.

14. cf . Marx, Capital, vol. 1, 683; Karl Marx, Capital , vol. 3 (London: Penguin, 1981), 751.15. Included in MEGA, II/11.16. MEGA, II/4,3.17. For a more detailed account on this point , see Michael Heinrich, Reconstruct ion or

Deconstruct ion? Methodological Controversies about Value and Capital, and NewInsights f rom the Crit ical Edit ion, in Riccardo Bellof iore and Roberto Fineschi, eds., Re-reading Marx: New Perspectives After the Critical Edition (Houndmills: Palgrave Macmillan,2009), 7198.

18. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, in TheGlasgow Edition of the Works and the Correspondence of Adam Smith (Oxford: OxfordUniversity Press 1976),111. Originally published 1776.

19. David Ricardo, On the Principles of Political Economy and Taxation, in Piero Sraf fa, ed.,The Works and Correspondence of David Ricardo, vol.1 (Cambridge: Cambridge UniversityPress, 1951), 289300. Originally published 1823.

20. Ibid, 110127.21. Marx subjected Ricardos theory of ground rent to an extensive crit ique in numerous

passages of the Theories of Surplus-Value, see MECW, vol. 31, 457-551. A crit ique ofRicardos explanat ion of the falling prof it rate can be found in MECW, vol. 32, 72-103.

22. Marx, Capital, vol. 3, 31920.23. Ibid, 970.24. Marx,Capital, vol. 1, 91.25. Marx,Capital, vol. 3, Chapter 13.26. Ibid, Chapter 14.

27. Simon Clarke, like many others, accentuates that Marxs prof it law has to be seen notin isolat ion but in a wider theoret ical context as part of the complex analysis of seculartendencies of capitalist accumulat ion. See Marxs Theory of Crisis (London: Macmillan,1994), 208. Nevertheless in Chapter 13 of Capital, vol. 3, Marx begins with a discussion ofthe prof it law in such isolat ion. Marx knows very well that before putt ing an issue in awider context , f irst we have to provide arguments for it . However when the basicarguments already prove to be wrong, they will not become correct by putt ing them in awider context . Therefore the prof it law will be discussed in the same abstract context inwhich it was introduced by Marx in Chapter 13.

28. In the case of the counteract ing factors, the f irst point dealt with by Marx is theincrease in the rate of exploitat ionbut not as a result of the deployment of machinery,but rather as a result of the prolongat ion of the working day and the intensif icat ion oflabor. So in the case of the counteract ing factors, we are dealing with an addit ionalincrease of the rate of surplus-value.

29. Marx, Capital, vol. 3, 356.30. The many proofs of the law that can be found in the literature, either rest upon logical

errors, similar to those just demonstrated in the case of Marx, or upon absurdassumptions, such as the precondit ion that v = 0, as in the work of Andrew Kliman,Reclaiming Marxs Capital: A Refutation of the Myth of Inconsistency (Lanham: Lexington,2007).

31. This problem is discussed, as well as the various at tempts at rescuing Marxs law, inHeinrich, Die Wissenschaft vom Wert.

32. Of course Engelss intent ion was not to deceive the reader. He wanted, as heemphasized, to create a readable edit ion. In doing so, he made certain editorial decisionswhich were not recognizable as editorial decisions to the reader, but which considerablyinf luenced the readers understanding of the text . For more on this, see Michael Heinrich,Engels Edit ion and Marxs Original Manuscript , Science & Society 60, no. 4, (Winter1996/97): 45266; and Jrgen Jungnickel and Carl-Erich Vollgraf , Marx in Marxs Words?,International Journal of Political Economy 32, no. 1 (Spring 2002): 3578.

33. The various approaches are dealt with more extensively in Heinrich, Die Wissenschaftvom Wert.; see also An Introduction to the Three Volumes of Karl Marxs Capital (New York:Monthly Review Press, 2012)

34. Marx, Capital, vol. 3, 35253.35. Although sometimes formulat ions can be found that could be understood as

underconsumptionist ; see Marx, Capital, vol. 3, 615.36. At the level of abstract ion of book II, where the category of interest-bearing capital has

not yet been developed, Marx can only explain this addit ional amount of money with theanachronist ic assumption of addit ional money reserves of the capitalists.

37. MECW, vol. 28, 340.38. MECW, vol. 43, 160.39. They will be published in MEGA IV/19.40. MEGA II/14.41. MEGA II/14, 128.42. Marx,Capital, vol. 1, 781.43. On the basis of this note, Shalom Groll and Zeev Orzech already supposed that Marx

doubted his own law of the rate of prof it . In light of the manuscripts f rom the 1870s that

have been published in the meant ime, this supposit ion has gained considerableplausibility. See their Technical Progress and Value in Marxs Theory of the Decline in theRate of Prof it : an Exeget ical Approach, History of Political Economy 19, no. 4 (1987): 604.

44. See, among other things, his let ter to Kugelmann from June 27, 1870, MECW, vol. 43,528. In connect ion with his study of Russian landed-property relat ions, as well as furtherethnological studies, Marx also f inally t ranscends the Eurocentrism that one f inds in hiswrit ings on India f rom the 1850s. See Kevin B. Anderson, Marx at the Margins: OnNationalism, Ethnicity, and Non-Western Societies (Chicago: University of Chicago Press,2010), and Kolja Lindner, Marx Eurocentrism: Postcolonial Studies and Marx Scholarship,Radical Philosophy 161 (2010): 2741.

45. See MECW, vol. 24, 58385. It is noteworthy, however, that Marx apparent ly was notfamiliar with the book Lombard Street: A Description of the Money Market (1873) by WalterBagehotthe publisher of The Economist, which Marx read regularly. This book isregarded today as the f irst formulat ion of the principles of a money market managed by acentral bank.

46. Marx, Capital, vol, 1, 102.47. MECW, vol. 44, 504.48. MECW, vol. 45, 354, accentuat ion by Marx.49. See ibid, as well as the let ter to Danielson from September 12, 1880, MECW, vol. 46, 31.50. Marx, Capital, vol. 3, 205.51. Marx used this t it le for book III af ter 186465. He also used it in the preface to the f irst

edit ion of volume I when announcing the future volumes. Engels changed this to Thetotal process of capitalist product ion. This dif ference between the announcement ofbook III in the preface of book I (stressing shapings) and the t it le of book III in the edit ionof Engels (stressing product ion) is not very clear in the English t ranslat ion.

52. These were not just limited to the already ment ioned landed property, credit , and crisis.The excerpts f rom the 1870s also dealt with physiology, geology, and the history oftechnology. They not only show the broad areas of interest to Marx, they are also ofdirect relevance to Capital: Marxs earlier engagement with technological quest ions, whichwere at the foundat ion of the f irst volume published in 1867, were no longer suf f icient inlight of the state of technical progress that in the meant ime had considerably changednot just product ion, but also communicat ion.

53. MECW, vol. 46, 16.54. MECW, vol. 46,161. The unfortunate circumstances ment ioned here refer to Marxs

poor health and the death of his wife Jenny on December 2, 1881.

Crisis Theory, the Law of the Tendency of the Profit Rate to Fall, and Marxs Studies in the 1870s :: Monthly Review