Academic journal article World Review of Political Economy

From the Crisis of Surplus Value to the Crisis of the Euro

Academic journal article World Review of Political Economy

From the Crisis of Surplus Value to the Crisis of the Euro

Article excerpt

Abstract: The financial crisis that erupted in 2007 and the subsequent crisis of the euro have received enormous attention both in the media and in specialized journals. One of the features of the recent literature is that the relation between Marx's law of the tendential fall in the rate of profit and the earthquake that has stricken the euro zone has been, with a few exceptions, overlooked. The basic reason for this failure is that it has become almost a matter of common sense to regard Marx's law as internally inconsistent and empirically disproved. What follows submits empirical material supporting the validity of the law. It then proceeds to sketch the basic lines of Marx's analysis of crises. Finally, it relates this analysis to the present financial turmoil and to the euro crisis.

Key words: falling profitability; financial crises; euro crisis; competitive devaluation


In Marx's theory, technological innovations increase efficiency, i.e. the effect on output of science and technology as incorporated in the means of production.1 Efficiency is measured by the number of laborers working with a certain quantity of means of production (or assets).2 This is the Labor/Assets (L/A) curve, the dotted line in Figure 1. It shows that the laborers working with means of production worth $1 million (deflated figures) dropped from 75 in 1947 to 6 in 2010.

Efficiency is the basic determinant of productivity, i.e. output per laborer. This is the broken line in Figure 1. It shows that output per laborer climbs from $30 million in 1947 to $235 million in 2010. Productivity rises relatively moderately from the end of World War II to the middle of the 1980s. But it jumps from then to the present. This great increase, however, is deceitful. In fact, output per laborer depends upon not only efficiency but also the rate of exploitation. Figure 1 shows the movement in the rate of exploitation. This is the continuous line. It falls up to 1986 and rises since then. Thus, between 1947 and 1986, falling rates of exploitation dampen the effect of rising efficiency on productivity. From 1986 onwards, rising exploitation rates overstate that effect.

The replacement of labor by means of production causes average profitability to fall. The reason is as follows. If only labor produces value (a point substantiated below), the more efficient capitalists replace labor with more efficient means of production and thus generate less (surplus) value. The average rate of profit (ARP) falls. But their own rate of profit rises. In fact, due to their higher productivity, they produce a greater output (use values) per unit of capital invested than the laggard capitalists do. By selling a higher output at the same price as that of the lower output of the low-productivity capitalists, they appropriate a share of the latter's surplus value. Their rate of profit rises while that of the laggards falls. As more and more capitalists introduce the new technologies, increasingly less labor is employed and less surplus value relative to the capital invested is generated. Many go bankrupt while a few prosper. This movement is summarized by the fall of ARP. Generalized bankruptcies and unemployment, i.e. the crisis, follow.3

The reverse of L/A is the A/L ratio. If L is expressed in wages rather than in labor units, we obtain the organic composition of capital, the ratio of constant capital (invested in means of production) to variable capital (invested in labor power). In Figure 2, C and V are constant capital and variable capital respectively and C/V is the organic composition. This is the way Marx relates the rising efficiency (the substitution of labor power by means of production) to profitability.

Three conclusions follow from Figures 1 and 2. First, since the end of World War II, the trends of the ARP on the one hand and those of the organic composition, efficiency, and productivity on the other move in opposite directions. This confirms Marx's theory that the ARP falls because the organic composition rises. …

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