Capitalism's Fatal Flaw, and the Way Forward: A 'Felicitous Flaw' in Marx’s Analysis of the Law of the Tendency of the Rate of Profit to Fall. Part 4.: Karl Seldon on Karl Marx Series. GLOBAL STRATEGIC HYPOTHESES.

A Felicitous

Flaw

in Marx’s

Analysis

of the Law

of the

Tendency

of the

Rate of Profit

to Fall.

Part 4.:

Karl Seldon on Karl Marx Series.

GLOBAL STRATEGIC HYPOTHESES.

Dear Reader,

It is my pleasure, and my honor, as an elected member of the Foundation Encyclopedia Dialectica [F.E.D.] General Council, and as a voting member of F.E.D., to share, with you, from time to time, as they are approved for public release by the F.E.D. General Council, Karl Seldon’s commentaries on the world-historic breakthrough work of Karl Marx.

This 4th text in this new long-running series is posted herewith, together with supporting text-images and diagrams [Some E.D. standard edits have been applied, in the version presented below, by the editors of the F.E.D. Special Council for the Encyclopedia, to the direct transcript of our co-founder’s discourse].

Seldon –

“We have long detected, but rarely written about, full-on, a ‘felicitous flaw’ in Marx’s analysis of the “Law of the Tendency of the Rate of Profit to Fall”, a "law" which deepens as capitalist development – as the historical development of the “capital-relation” as predominant human “social relation of production” – advances.”

“It is a ‘felicitous flaw’, because correcting it entails a deeper theory of the capitalist system’s immanent, self-induced demise, and one which better conforms to Marx’s own ‘historically generic’ theory of social evolution leading to social revolution – that it is due to the outgrowth of the “social forces of production” from the “social relations of production” which initially fostered those productive-forces’ growth.”

“Marx expressed this – ‘historically generic’ – theory of the causation of social evolution/revolution in a world-famous passage, as follows:

“At a certain stage of their development the material forces of production in society come into conflict with the existing relations of production, or – what is but a legal expression for the same thing – with the property relations within which they had been at work before. From forms of development of the forces of production these relations turn into their fetters. Then comes the period of social revolution.”

[Karl Marx, Preface to A Contribution to the Critique of Political Economy, 1859, reprinted in Basic Writings on Politics & Philosophy, Lewis Feuer, editor, Anchor, 1959, pp. 43-44. ].”

“This is because the rectification of this ‘felicitous flaw’ shows how the growth of societal-productive force, or of the productivity of machine-assisted labor, which the capitalist profit-motive itself immanently promotes, literally destroys accumulated capital-value.”

“It destroys especially the capital-value of the largest, most concentrated owners of industrial capital and of banking loan capital, threatening them with colossal bankruptcy’s and a total loss of their formerly formidable economic, hence political, hence social power, and thus brooks a violent reaction from those most-concentrated capital-owners – those who are the natural leaders of the capitalist ruling class.”

“Their reaction results in the turn from the ‘ascendence phase’ of the capitalist epoch, to its catastrophic ‘descendence phase’ – ever since ~1913, with the passage of the U.S. Federal Reserve and Federal Income Tax legislation, and with the precipitation, by the British Empire, of World War I, hoping to crush the rapid industrialization [productive-force growth] of Germany.”

“In summary, this rectification reveals that the capitalist system will die – in either the accession of humanity to the next higher stage of democracy, ‘Political-ECONOMIC DEMOCRACY’, or in ‘“the mutual ruin of the contending classes’” – due to a deep ‘intra-duality’ in its innermost nature: the conflict between capital as “self-expanding [capital-]value” versus capital as ‘self-contracting capital-value’, and how the balance of these opposite but inter-connected, ‘intergenerate’ movements shifts, dynamically, as the societal-reproductive force, and the accumulation of industrial fixed capital, and of bank loan capital to finance that growing fixed capital, also grows.”

“It shows how, with the accelerating growth of fixed-capital-based social productivity, this balance shifts, from a predominance of “self-expanding [capital-]value”, during the capitalist system’s ‘ascendence phase’, with its “Hundred Years Peace”, from ~1800 to ~1900, to the turning into the growing dominance of ‘self-contracting capital-value’ during the ~1870 to ~1890 “Great [techno-]Deflation”, and on to the institutional and global warfare response of the, thereby-become-‘descendence phase’ capitalist ruling class, in 1913 and 1914, and worsening ever since.”

“Since 1914, and since another World War, aiming to destroy both Germany and Russia as rising industrial [productive-force-growth] powers, humanity has suffered the rise of the ‘Rocke-Nazi’, capitalist-anticapitalist, human-antihumanist, “people are pollution” – ‘humanocidal’ – ruling class faction, now seeking to reverse the historic growth of the “social forces of production”, by de-industrializing both the [once-]advanced industrial nations of the “Global North”, and the newly-industrializing “BRICS”, etc., nations of the “Global South”, so as to destroy the growing productive forces, globally, at their very heart – the majority-class human population itself – via their planned “95%” global “ecological” extermination of the human species.”

“This ‘descendence-phase’, and formerly- ‘uncontestedly’-ruling, ruling class faction is now under concerted, withering attack, globally, by the emergent, restorationist, pro-re-industrialization “Trump Faction” of the capitalist ruling class, in a vicious, worldwide, no-holds-barred global class war.”

“Now, to the nature of the flaw in Marx’s Theory of capitalist-system Rate-of-Profit-Dynamics, and to the correction of that flaw.”

“Marx’s account of “The Law of the Tendency of the Rate of Profit to Fall”, e.g., in «Das Kapital», volume III, Part III, Chapters XIII to XV, suffers from a, highly uncharacteristic for Marx, one-sidedness on his part, as we shall see in more detail below.”

“Marx’s account of the productive-force-growth-induced devaluation of [especially fixed-]capital-value captures only one side of that process and its consequences. Marx notes how the shrinkage in the capital-value-invested denominator of his deeply-analytical, core profit-rate ratio, s’/(c+v), tends to raise the magnitude of that profit-rate ratio as a whole – true, IF the net (’) surplus-value (s’) numerator of that ratio remains unchanged – does not itself also decline in value sufficiently, as also a consequence of productive force growth in the context of World Market competition.”

“But Marx neglects to mention, or to consider, the impact of productive-force-growth-induced fixed-capital devaluation on that (s’) numerator, due to the enforced write-off of the amount of each fixed-capital, competition-caused loss of capital-value; its subtraction from the profit-source numerator.”

To his credit, Marx explicitly recognizes that a more concrete expression of the core, abstract profit-rate of the capitalist system includes the component of the as-yet-undepreciated capital-value of the fixed capital “stock” used in production, not just the “constant capital” component of the flow of capital-value due to the “wear and tear depreciation” of that fixed capital –

“The rate of profit must be calculated by measuring the mass of produced and realized surplus-value not only in relation to the consumed portion of capital reappearing in the commodities [KS: i.e., the “wear-and-tear depreciation” part, c_d, of “constant capital”:

c = c_d + c_m+ c_a], but also to this plus that portion of unconsumed but applied capital which continues to operate in production.” [Marx, Capital, vol. III, New World Paperbacks, 1967, p. 229]

– i.e., the part of fixed-capital value still remaining after each production-period must be included in the invested capital used denominator, implying that, more concretely, the rate of profit should be measured, not just as s’/(c + v), but, instead, as s’/(f + c + v).”

“But, for the largest ownership-concentrations of industrial fixed capital, when a competitor, e.g., an upstart innovator in the domestic market of that concentrated capital [Preston Tucker and John DeLorean come to mind], or an upstart in a newly industrializing nation, starting with much lower wages, no legacy of obsolescent fixed capital, and the latest in industrial fixed capital technology [the Japanese auto industry comes to mind] – maybe less costly to purchase, maybe also less costly to operate – than the older vintage of fixed capital owned by that ownership-concentrated capitalist, starts to undersell and/or out-design for competing products on that legacy capitalist’s domestic market, and/or on the world market, the resulting write-off, and scrapping, of that capitalist’s therefore-obsolete fixed capital plant and machinery, and the cost of replacing it with the same fixed capital wielded by the upstart, can drive that legacy capitalist’s enterprise into deep unprofitability, or even into wholesale bankruptcy, especially if episodes of such technological obsolescence depreciation of that capitalist’s fixed capital recur regularly, or, more likely, with increasing frequency, as profit-motivated technological innovation accelerates worldwide, especially in the upstart industrializing [productive-forces-growing] nations, such as Germany, Italy, Russia, and Japan once were, and such as China, Brazil, India, South Africa, Vietnam, and others still, are.”

“Marx is, of course, right, that, after the book-value devaluation [and the write-off subtraction, against net profits, in the accounting period in which recognition of the fixed capital ‘techno-depreciation’ is forced], the profit rate of that concentrated-ownership capitalist may rise – if that capitalist’s company can survive the drop in profit caused at the time of the productive-force-growth-caused fixed-capital devaluation.”

“As Marx also rightly points out, if that devaluation leads to the bankruptcy and liquidation of that company, an opportunist capitalist can buy, e.g., at auction, the fixed-capital and other assets of that, dissolved, business for the proverbial “pennies of the dollar”, and thus enjoy an – albeit transient – even-higher profit-rate, even if that “carpet-bagger” uses the obsolescent fixed capital, given its now so much lower, liquidation-auction, “fire-sale” purchase-cost.”

“However, as fixed-capital value grows and rapidly accumulates, as the very expression of productive force growth, and as profit-incented rates of fixed-capital technical innovation also accelerate, recurring accounting periods with ‘technodepreciation-induced’ – i.e., with productive-force-growth-induced – losses can aggregate to a secular fall in the general rate of profit on capital.”

“Moreover, the profit-shrinking effects of such ‘techno-devaluation’ of fixed capital are not confined to the single accounting period in which the capital-value-vanishing is recognized in the accounting books.”

“This is because, as another consequence of the accelerating growth of the social-reproductive force, and the corresponding accelerating growth of the physical mass, and, to a lesser extent, of the capital “value-mass”, of the fixed capital component of industrial productive capital, self-financing of fixed capital purchases, by an individual capital, from out of its own profits, becomes less and less of a viable option, especially for the largest, most ownership-concentrated capitalist firms. Bank loans are increasingly needed for such massive fixed-capital purchases.”

“This means that, when a portion the fixed capital of such firms becomes competitively obsolete, ‘techno-devalued’, and has to be scrapped, or sold for its “net realizable value”, e.g., as scrap metal, etc., and if this occurs before the bank loan used for its purchase has been paid-off – “amortized” – in full, then the profit-numerator-shrinking impacts of that ‘techno-devaluation’ will continue, accounting-period-after-accounting-period, often for many years.”

“This is because the ‘self-contracting capital-value’-afflicted capitalist must continue to pay “debt-service” – e.g., monthly or quarterly principal-plus-interest payments – to the bank(s) who provided the loans to purchase that fixed capital plant and equipment, even though, having been scrapped, it is no longer earning any revenue with which to help pay that debt-service.”

“Still more, that capitalist, to return to competitiveness, will have had to take out additional bank loans, to finance the purchase of newer, competitive, not-yet-obsolescent, replacement fixed capital plant and equipment, that also require ongoing, recurring payments of debt-service.”

“So, compared to the upstart competitors, that forced his old fixed-capital’s value-contraction, who typically have only one bank loan each on their books, used to purchase their new, out-competing fixed capital, the legacy capitalist will have two loans to pay on, whose continuing debt-service payments will subtract from, and reduce, his/her profit numerator: a decided, ongoing competitive disadvantage for the legacy capitalist, no matter how vast his capital-holdings had been, and no matter how politically and socially powerful he used to be. Worse still for that legacy-capitalist, every future episode of such competitive devaluation and scrapping of her/his fixed capital will force the taking out of a new loan, to fund the purchase of the new fixed-capital required to stay in business, further deepening the competitive disadvantage of that legacy-capitalist with every such productive-force-growth-induced fixed-capital devaluation.”

“If the banks’ loans’ debt-service is not paid back to those banks – if the ‘technodepreciation-aggrieved’ capitalists go into default on these loans – then the loaning banks can force those “non-performing” capitalist firms into bankruptcy & liquidation.”

“When accelerating technodepreciation leads, on a continuing basis, to many such “non-performing bank loans”, the ‘‘‘profit-rates’’’ of banks making industrial fixed capital loans – their interest income – will also decline.”

“If the “non-performing loans” composition of those banks’ loan-capital portfolios exceeds a certain threshold, then those banks’ capital becomes “impaired” – i.e., those banks become “insolvent” – and they may be forced by banking regulators, e.g., by the U.S. OCC, into bankruptcy and “fire-sale” liquidation.”

“We have attempted to capture both the denominator and the numerator impacts of productive-force-growth-induced capital-value contraction on industrial-capitalists’, “surface-of-society” [Marx], “return-on-investment” [“ROI”] profit-rate metrics, due to the self-accelerating growth of the “social forces of production” that the capitalist, money-profits-obsessed system itself incentivizes, as follows –”

For more information regarding these Seldonian insights, and to read and/or download, free of charge, PDFs and/or JPGs of Foundation books, other texts, and images, please see:

www.dialectics.info

and

https://independent.academia.edu/KarlSeldon

For partially pictographical, ‘poster-ized’ visualizations of many of these Seldonian insights -- specimens of ‘dialectical art’ – as well as dialectically-illustrated books published by the F.E.D. Press, see –