The principal thesis is presented in a quote from Chris Harman:
Marx’s basic line of argument was simple enough. Each individual capitalist can increase his (or occasionally her) own competitiveness through increasing the productivity of his workers. ... As a consequence, there will be a downward pressure on the ratio of profit to investment – the rate of profit.Then follows a couple thousand words of very dense argument before we finally arrive at Mr. Proyect's conclusion:
Heinrich is correct, I suppose, to point to deficiencies in this approach but does not do enough to acknowledge that Marx understood how the system could continue going forward mercilessly and relentlessly to maintain profits. A look at the recent fires in Bangladesh should be sufficient to make that case.So somehow, we start with an assertion about the declining rate of profit, and end up with fires in Bangladesh maintaining or improving profits for global capitalism! In between is a rabbinical exegesis on ancient texts, beginning with Marx's Kapital, and including many commentaries thereon. Methinks these gentlemen have gotten so involved in their argument that they've lost contact with reality.
Indeed, the only reference to any actual data in the article are the Bangladeshi disasters. More than 1,100 people were killed in the factory collapse on April 24th. It is a pity for the global economy that the death toll didn't exceed 2,000--or even 10,000! For that matter, if the recession goes on much longer, we should probably just nuke Dhaka--millions of Bengali casualties should send the Dow over 30,000.
Mr. Proyect will surely accuse me of taking him out of context, and I'll plead guilty. I honestly do not understand the logic that connects the initial premise with the conclusion, but even absent my exaggeration the conclusion is just absurd. Poverty is not good for capitalism.
Part of the argument appears to claim that capitalists make more money by trading with poor countries than trading with rich ones. This is given a technical term--unequal exchange--and supposedly underlies the phenomenon of imperialism. The argument claims (as best I can determine) that the poorer the country, the more lucrative the trade. By this measure, trading with Bangladesh or Paraguay will be more profitable than commerce with, say, Canada or Japan. Then why, oh Marxist sages, is Canada our largest trading partner?
Marxists generally believe that wanton destruction spurs economic growth. There is a fascinating (and completely wrong) article by Bruce Pardoll in this month's Socialist Action (SA). Pardoll writes
To begin with, World War II never touched American shores. War production eliminated the Great Depression and spurred the greatest decade of U.S. economic growth (5.9%) of the 20th century. By the end of the war average white workers, almost 30% of whom were unionized, saved fully 25% of their gross wages. The U.S. was now by far the #1 economy in the world! Except for the neutral nations, Europe lay in ruins. The stage was set for the U.S. to dominate the world economy.Flattening Europe and killing millions of people resulted in the prosperity of the 1950s--that's what I learned when I was in the Socialist Workers Party. But Pardoll's assertion that "war spending" got us out of the Great Depression is absurd. Quite the contrary--war spending led to rationing of many essential consumer goods, and impoverished much of American society. Building bombs adds no economic value and doesn't make anybody richer. Construction of the Interstate Highway System, mostly designed and ready to go by 1938, didn't get built until 1954 because of the war. Many non-Marxists think that, had it not been for the war, the 1950s boom would have happened in the 1940s.
Unlike Michael Heinrich, Mr. Pardoll takes the declining rate of profit as good coin. He cites the following data:
Gross profit rates in the U.S. were 20.8% between 1959-69; 17.9% from 1969-79; 15% from 1979-90; 11% from 1991-2000 (during the ballyhooed Clinton years); and 8.3% in 2001. After-tax profit rates were 6% in 2000, 5% in 2005, an upward spike to 6.75% in 2007 (due in large part to rapidly growing real estate and derivative sales profits in the first half of the year), and then back down again to 5.9% in 2008.It sounds dire, awful, no-good, terrible--doesn't it? Fortunately for the world economy, these figures are mostly irrelevant, and then mostly good news. What I believe Pardoll refers to as declining rates of profit are more commonly called operating margins (he cites no source for his data, so I don't know what it refers to). And I think there is a general consensus that operating margins are going down--that just means that we're all getting richer. Companies like Walmart and Amazon actively work to reduce their operating margins to a minimum. For them, small margins result in lower prices, large sales volumes, and significant profits. What's there not to like?
I think Mr. Pardoll (and probably also Mr. Harman and Mr. Proyect) is confusing operating margins with return on investment. Now this is an easy mistake for Marxists to make because they don't consider capital to be a factor of production. Marxists arbitrarily ascribe all value to labor. They claim that capital is just stored labor. Well--maybe. But then an egg is just a stored chicken, and one can argue indefinitely which came first. However capital first arose, it now generates value on it's own.
So capitalists earn money by extracting value from capital--not from labor. And this value, usually known as profit, is also called the return on investment. Other measures include the price/earnings ratio, or yield. There is no direct connection between operating margins and profit. There is no long term trend indicating declining returns on investment--nor can there be since the value of capital will decline in proportion to the profitability. The true measure of the health of the world economy is when profits are high. Pardoll, Proyect, and the Heinrich controversy mostly just miss the boat.
So Marxists bamboozle themselves into believing absolutely impossible things. Unlike, say, Milton Friedman, Marxist economics is the enemy of clarity. They depend on convoluted, complex texts to hide the obvious. At some level Mr. Proyect (who, unlike his correspondents, is a competent writer) understands this. He expresses justified reluctance getting involved in the whole debate, saying
For me, wading into the Michael Heinrich controversy is a little like eating my spinach—it is good for me in the sense that it forces me to engage with an important aspect of Marxology.Unfortunately, I think Mr. Proyect is wasting his time--from my brief perusal, Mr. Heinrich writes nonsense and is not worth the investment.