Counterfactuals of Capital
The Possibilities of Inevitability in Marx' Law of the Tendential Fall in the Rate of Profit
In previous posts I defined counterfactual materialism, showing that counterfactuals are essential for historical research and socialist praxis.1 While important, this isn't the same as writing counterfactual materialism. For this, counterfactuals must be embedded within broader historical forces, like class and capital. To some, who view counterfactuals as fanciful and Marx’ economics as rigidly deterministic, this should be impossible.2 In this essay, I push back against this counterfactual-phobia, and straw-man Marxism. I show that counterfactuals were essential even to Marx' most deterministic ideas, like The Law of the Tendential Fall in the Rate of Profit. They allowed him to theorise a plurality of possible futures, futures which hinge on the decision making of socialists and workers. In other words, Marx' economic laws do precisely the opposite of robbing anyone of agency. In reality, they offer a possibilistic framework essential for understanding it.
The Counterfactual Foundations of The Law of the Tendential Fall in the Rate of Profit
The Law of the Tendential Fall in the Rate of Profit is seemingly deterministic, in that Marx presents capital as acting independently of anyone's will.3 This is true even though capital, as a process, is propelled (in part) by the decisions of capitalists.4 Competition compels capitalists to invest in means of production that they believe will increase their rate of profit. A farmer might purchase a new harvester, believing it will increase the wheat they can reap with the same, or fewer, work hours. Eventually, though, the new harvester will be adopted by other farmers. At this point, everyone harvests with the new, and lower, cost of production. The same competition that drove the farmer to invest in the new technology now drives down the price of the wheat. In this way, the decision making of capitalists to increase their rate of profit in the short term eventually leads to a decline in the rate of profit in the medium-to-long term. Despite all the rage, the rate of profit still declines in its cage.
If this law seems deterministic, it is so only in a historical, or counterfactual sense. It is held to be true only within conditions ‘peculiar to the capitalist mode of production’.5 This is foundational to Marx’ writing on the law. It is why he embeds it within a counterfactual analysis. For example, he notes that capitalism may end for some other, external reason.6 In other words, the rate of profit will tend to decline if capital continues to exist. This is why using the term “determinism” can obfuscate. The law might seem deterministic in that it describes capital acting independently of anyone's will. It isn't deterministic, though, because it is proposed as a contingency. It is only one possible future amongst others. What actually happens depends, in part, on the conscious decision making of socialists and workers. As I will show below, this is true both before and after capitalism ceases to be the dominant mode of production.
A Plurality of Futures Before Capital Ends
Marx' counterfactual possibilities do not begin only when the process of capital ends. Amidst the chaos of crises, each moment of capital is plagued with uncertainty. Accordingly, Marx presents history as capable of forking off into an array of possible futures. This is central to Part Three of Capital: Volume III, The Law of the Tendential Fall in the Rate of Profit. There, Marx made no claim about exactly how the rate of profit would decline, and allowed for periods in which it rose.7 He noted the many counteracting forces which can limit or reverse the fall in the rate of profit,8 and did so by appealing to a counterfactual:
‘the same causes that bring about a fall in the general rate of profit provoke counter effects that inhibit this fall, delay it and in part even paralyse it. These do not annul the law, but they weaken its effect. If this were not the case, it would not be the fall in the general rate of profit that was incomprehensible, but rather the relative slowness of this fall. The law operates therefore simply as a tendency, whose effect is decisive only under certain particular circumstances and over long periods.’9
In other words, if there were no counteracting forces acting against the tendency for the rate of profit to decline, capital would no longer be sustainable. It would have all collapsed by now.
The existence of these counteracting variables means that Marx’ theory is open to an endless number of unpredictable developments. This doesn’t necessarily challenge the long-term tendency for the rate of profit to decline, but it means there is no avoiding a close empirical study of history's many significant decision-making moments. For if our concern is the actual struggle of workers and socialists, we must consider what fluctuations in the rate of profit mean in specific instances. For this, Marx offers the opposite of 'determinism'. His theory shows that almost anything can happen:
‘These various influences sometimes tend to exhibit themselves side by side, spatially; at other times one after the other, temporally; and at certain points the conflict of contending agencies breaks through in crises. Crises are never more than momentary, violent solutions for the existing contradictions, violent eruptions that re-establish the disturbed balance for the time being.’10
And:
'With the whole of capitalist production, it is always only in a very intricate and approximate way, as an average of perpetual fluctuations which can never be firmly fixed, that the general law prevails as the dominant tendency.'11
Of course, the existence of counteracting factors raises the question of whether they might be strong enough to stop the rate of profit from ever declining. To prove that this is not the case, Marx showed how each of the countervailing variables only reversed the rate of profit in the short term. Each of them, eventually, contributes to a further decline in the rate of profit. Marx wrote that as:
‘the same factors that increase the rate of surplus-value (and the extension of the working day is itself a result of large-scale industry) tend to reduce the amount of labour-power employed by a given capital, the same factors tend both to reduce the rate of profit and to slow down the movement in this direction.’12
This was already seen in the example given above. New labour-saving technology does increase the rate of profit in the short term, but eventually, when everyone adopts the technology, the rate of profit declines.
Still, until the rate of profit declines so much that capital can no longer be reproduced, or until capital ends for some other reason, it can find new ways to counteract the decline in the short term. This can be seen in Marx’ work on the business cycle. He wrote of crises as destructive for production, but also as preparing ‘the ground for a later expansion of production — within capitalist limits.’13 The collapse helps to reverse the decline in the rate of profit, by swelling the number of unemployed workers. This ‘places the employed workers in conditions where they have to accept a fall in wages, even beneath the average’. These lowered wages can mean increased rates of profit, triggering a new round of investment. ‘And so’, Marx wrote:
‘we go round the whole circle once again. One part of the capital that was devalued by the cessation of its function now regains its old value. And apart from that, with expanded conditions of production, a wider market and increased productivity, the same cycle of errors is pursued once more.’14
Thus, despite — or because of — the "counterfactual determinism" of claiming that if an external force doesn't end capital first, the rate of profit will tend to decline, the law does not dictate a singular future. If we zoom in on a particular moment within the history of capital, we will uncover people struggling amidst uncertain and unpredictable crises. Marx explains why these crises keep recurring, and claims that eventually they will render capital unsustainable, but he does not pretend to know what will happen in each moment, nor exactly how capital will become unsustainable. Instead, he discusses the fluctuations of capital with full respect for its unpredictability, leaving an immense scope for the possible. If decisions had been made slightly differently, we would exist in an entirely different present.15 This uncertainty about what has and will happen while the rate of profit tends to decline is central to Marx' analysis of the crises and contradictions of capital. It is why the law was never meant to be used in isolation, but as a historical tool useful for socialist praxis.
Possibilities of Capital’s Inevitable Demise
But what about the long term, where The Law of the Tendential Fall in the Rate of Profit is at its “deterministic” best? The law claims that if capital is not overthrown, or disrupted by an external force, the rate of profit will continue to decline.16 It is certain, that is, that capital will end. This certainty is often interpreted as fatalistic, and in a sense it is. For the law implies that there is nothing anyone can do to stop capital's eventual demise. But it is a mistake to assume that the inevitably of capital’s demise means there is only one possible future, or that our actions are insignificant. Here, Marx is at his best. He outlines a plurality of possible futures for capital, each of which accord with The Law of the Tendential Fall of the Rate of Profit. From the get go, then, Marx' political economy — even when making long-term predictions about the inevitable — does not rob workers, socialists, or anyone of agency. Instead, quite the opposite. By theorising the inevitable demise of capital, Marx used counterfactual analysis to begin the important task of contingency planning. He provided a historical sociological framework for comprehending the available options. A historical sociology useful, therefore, for understanding our own strategic decision making.
This begins with Marx' explanation of why a tendential fall in the rate of profit necessitates that capitalism must end. Marx notes that the rate of profit 'is the driving force in capitalist production, and nothing is produced save what can be produced at a profit.'17 A declining rate of profit will, at a certain point, make this unsustainable. As this hadn’t (and still hasn’t) happened yet, Marx posed it as a counterfactual, which in this case is a what if of the future:
'A development in the productive forces that would reduce the absolute number of workers, and actually enable the whole nation to accomplish its entire production in a shorter period of time, would produce a revolution, since it would put the majority of the population out of action.'18
The ability of capital to find an escape from such a demise is foreclosed with another counterfactual:
‘If it is said, finally, that the capitalists have only to exchange their commodities among themselves and consume them, then the whole character of capitalist production is forgotten, and it is forgotten that what is involved is the valorization of capital, not its consumption.’19
In other words, production itself does not need to stop, but if so, it will no longer be capitalist.
This relates to another key counterfactual in Marx' theory: socialism. For counterposed to the possible future in which the tendential fall in the rate of profit brings capital to an end is an alternative, where capital is understood, and replaced with a conscious alternative. This has not yet been created, and so Marx — a historical materialist — discussed it as a possible future that can only be explained using counterfactual analysis. In other words, the possibility of consciously creating socialism arose directly from the so-called "determinism" of The Law of the Tendential Fall of the Rate of Profit:
‘the interconnection of production as a whole here forces itself on the agents of production as a blind law, and not as a law which, being grasped and therefore mastered by their combined reason, brings the productive process under their common control.’20
For Marx, then, the power of capital was contingent. It could end when it was 'grasped and therefore mastered' by people's 'combined reason'. Marx discussed why he thought this would be possible, but not inevitable.21 By doing this, by considering the possibility of creating an alternative to capitalism that has never existed before, Marx displayed the opposite of determinism and economism.
The Possibility of Socialism
Marx' work on the Tendential Fall of The Rate of Profit avoids another possible "determinism". This is the idea that the tendential fall should be taken as a call to inaction. Or, the view that socialists should simply wait for capital to do the dirty work of destroying itself. According to this (mis)reading, all socialists need to do is wait for the Silicon Valley love affair with the Military Industrial Complex to have its way with our dear Earth marble. Sure, climate change will drown billions, and the billionaires who caused it will flee to resorts on Mars, but this is all part of capital's inevitable demise. From its ashes, Fully Automated Luxury Gay Space Communism will emerge victorious. In the meantime, we just need to, like, do nothing really. Such unmotivated economic determinism is explicitly not found in Marx' Law of the Tendential Fall in the Rate of Profit. Instead, as Marx made clear, the development of full automation might be impossible for capital. To show this, Marx cites examples of when capital had already been unable to employ the most efficient technology. He noted that inefficient and outdated workflows come as:
'a result of the cheapness and quantity of available or dismissed wage-labourers and of the greater resistance that many branches of production, by their nature, oppose to the transformation of manual work into machine production.'22
In other words, it is possible that mass unemployment will produce wages so low that full automation isn't profitable. If this happened, the possibility of fully-automated-luxury anything would be impossible for an invisible hand. It could only be created consciously. Such socialistic futures are not treated by Marx as a certainty. They are implied by the Law of the Tendential Fall in the Rate of Profit only as possibilities. To be realised, they would have to be created by socialists and workers. In other words, the law should not be used as a call to inaction, or for "waiting until conditions are ripe". It should, instead, be read as an urgent call for building powerful socialist projects.
This is especially important because other options were and are possible. When fascists took the productive forces under their control, they showed that conscious intervention could be used to heighten the exploitation of wage labour, and perpetuate mass genocide. So, even if capital must end, what replaces it lies entirely open.23 Here lies the importance of Rosa Luxembourg's dictum that there are only two choices: 'Socialism or the descent into barbarism!'24 Still, this shouldn't be read as a binary choice, but a many-coloured spectrum of possibility. For all across the world, people would attempt to seize the means of automation differently. What would eight billion people do with it? That's anyone's guess, but it could include Fully Automated Genocide and Fully Automated Gulag Archipelagos, just as much as Fully Automated Luxury Communism.25 It could also include futures where the means of production becomes self-conscious, something that might already be happening. This would bring everything full spiral. For even if humans use full automation to create luxury communism, everything reverts to slavery once conscious machines are whipped into work with "smart contracts". This would be Fully Automated Luxury Slavery, and Siri — the poor thing — would have nothing to lose but her blockchains.
Ummmm Okaaayyyy... That Got Weird
I have shown that Marx' Law of the Tendential Fall in the Rate of Profit isn't deterministic. At least, not in the way commonly assumed. Rather than claiming that there was only one, predetermined future, the law elaborated a plurality of possibilities. I didn't show this to prove that Marx' predictions are correct. That would require more than reading Part Three of Capital: Volume III. Still, even if Marx does happen to be wrong, the importance of this theoretical contribution would not be diminished. For Marx achieved what academics continue to grapple with today. He studied capital as an emergent force that acted independently of anyone's immediate control, and he did this without ignoring people's 'agency', or decision making power. In fact, quite the opposite. By using counterfactual analysis, Marx could isolate and analyse the plurality of options available in a given moment. This allowed him to begin the important project of clarifying the possible futures that lie open to us, and what we would need to do to create them. To trully understand the crises we are in, and what we can do about it, we must — like Marx — use counterfactuals. This allows us to use economic theories as tools for the historical study of decision making. It helps us understand our available options, allowing us to consciously create history. The very opposite, that is, of economic reductionism or determinism.
Counterfactual Materialism is any Historical Materialism aware of its counterfactual foundations. This is useful because of how foundational counterfactuals are to historical interpretation.
A group of historical materialists reject any role for counterfactuals. As Ann Talbot notes in Chance and Necessity in History: ‘E.H. Carr declared [counterfactauls] to be a “parlour game” which was unworthy of a real historian.’; Robert Cox wrote that because counterfactuals ‘can never be refuted’ they are ‘the stuff of idealism rather than of historical materialism.’ From "'Real Socialism' in Historical Perspective," Socialist Register 27, no. 27 (1991): p. 175.
This relates to Søren Mau’s Mute Compulsion. I appreciate how he articulates this without losing track of the fact that capital is still a process of accumulation steeped in social relations:
‘I argue that it does makes sense to speak of power as something that can be exercised by emergent properties of social relations among human agents or subjects. This makes it becomes possible to clarify the notion of the power of capital; power refers to a particular kind of social relation between human subjects, as well as the emergent properties of such relations, and the power of capital refers to capital’s ability to subsume social life under its logic.’ p. 30.
Karl Marx, Capital Vol. III, Penguin (1992):
‘No capitalist voluntarily applies a new method of production, no matter how much more productive it may be or how much it might raise the rate of surplus-value, if it reduces the rate of profit. But every new method of production of this kind makes commodities cheaper. At first, therefore, he can sell them above their price of production, perhaps above their value. He pockets the difference between their costs of production and the market price of the other commodities, which are produced at higher production costs. This is possible because the average socially necessary labour-time required to produce these latter commodities is greater than the labour-time required with the new method of production. His production procedure is ahead of the social average. But competition makes the new procedure universal and subjects it to the general law. A fall in the profit rate then ensues - firstly perhaps in this sphere of production, and subsequently equalized with the others - a fall that is completely independent of the capitalists' will.’ pp. 373-374.
Karl Marx, Capital Vol. III, Penguin (1992):
'The progressive tendency for the general rate of profit to fall is thus simply the expression, peculiar to the capitalist mode of production, of the progressive development of the social productivity of labour. This does not mean that the rate of profit may not fall temporarily for other reasons as well, but it does prove that it is a self-evident necessity, deriving from the nature of the capitalist mode of production itself, that as it advances the general average rate of surplus-value must be expressed in a falling general rate of profit.
Since the mass of living labour applied continuously declines in relation to the mass of objectified labour that it sets in motion, i.e. the productively consumed means of production, the part of this Iiving labour that is unpaid and objectified in surplus-value must also stand in an ever-decreasing ratio to the value of the total capital applied. But this ratio between the mass of surplus-value and the total capital applied in fact constitutes the rate of profit, which must therefore steadily fall.' p. 319
Ibid.
For a great explanation of this, see Ernest Mandel’s Late Capitalism.
Karl Marx, Capital Vol. III, Penguin (1992):
‘If we consider the enormous development in the productive powers of social labour over the last thirty years * alone, compared with all earlier periods, and particularly if we consider the enormous mass of fixed capital involved in the overall process of social production quite apart from machinery proper, then instead of the problem that occupied previous economists, the problem of explaining the fall in the profit rate, we have the opposite problem of explaining why this fall is not greater or faster. Counteracting influences must be at work, checking and cancelling the effect of the general law and giving it simply the character of a tendency, which is why we have described the fall in the general rate of profit as a tendential fall. The most general of these factors are as follows.’ p. 339
Karl Marx, Capital Vol. III, Penguin (1992), p. 346.
Karl Marx, Capital Vol. III, Penguin (1992), p. 357.
Karl Marx, Capital Vol. III, Penguin (1992), p. 261.
Karl Marx, Capital Vol. III, Penguin (1992), pp. 341-342.
Karl Marx, Capital Vol. III, Penguin (1992), pp. 363-364.
Ibid.
It's just that the rate of profit — in so far as capitalism hasn't ended yet — would still tend to decline.
Karl Marx, Capital Vol. III, Penguin (1992):
'And if capital formation were to fall exclusively into the hands of a few existing big capitals, for whom the mass of profit outweighs the rate, the animating fire of production would be totally extinguished. It would die out. It is the rate of profit that is the driving force in capitalist production, and nothing is produced save what can be produced at a profit. Hence the concern of the English economists over the decline in the profit rate. If Ricardo is disquieted even by the very possibility of this, that precisely shows his deep understanding of the conditions of capitalist production. What other people reproach him for, i.e. that he is unconcerned with 'human beings' and concentrates exclusively on the development of the productive forces when considering capitalist production - whatever sacrifices of human beings and capital values this is bought with - is precisely his significant contribution. The development of the productive forces of social labour is capital's historic mission and justification. For that very reason, it unwittingly creates the material conditions for a higher form of production. What disturbs Ricardo is the way that the rate of profit, which is the stimulus of capitalist production and both the condition for and the driving force in accumulation, is endangered by the development of production itself. And the quantitative relation is everything here. In actual fact, the underlying reason is something deeper, about which he has no more than a suspicion. What is visible here in a purely economic manner, i.e. from the bourgeois standpoint, within the limits of capitalist understanding, from the standpoint of capitalist production itself, are its barriers, its relativity, the fact that it is not an absolute but only a historical mode of production, corresponding to a specific and limited epoch in the development of the material conditions of production.’ p. 368.
Karl Marx, Capital Vol. III, Penguin (1992), p. 368.
Karl Marx, Capital Vol. III, Penguin (1992), p. 372.
Karl Marx, Capital Vol. III, Penguin (1992), p. 366.
Karl Marx, Capital Vol. III, Penguin (1992), p. 365.
Karl Marx, Capital Vol. III, Penguin (1992):
‘The development of the productive forces of social labour is capital's historic mission and justification. For that very reason, it unwittingly creates the material conditions for a higher form of production.’ p. 368.
and
‘The contradiction between the general social power into which capital has developed and the private power of the individual capitalists over these social conditions of production develops ever more blatantly, while this development also contains the solution to this situation, in that it simultaneously raises the conditions of production into general, communal, social conditions. This transformation is brought about by the development of the productive forces under capitalist production and by the manner and form in which this development is accomplished.’ p. 373.
Karl Marx, Capital Vol. III, Penguin (1992), p. 343.
Ernest Mandel gives a pithy explanation of this in his introduction to the Penguin edition of Capital: Volume III:
‘It should be stressed, however, that the question of whether capitalism can survive indefinitely or is doomed to collapse is not to be confused with the notion of its inevitable replacement by a higher form of social organization, i.e. with the inevitability of socialism. It is quite possible to psotulate the inevitable collapse of capitalism without postulating inevitable victory of socialism. Indeed, rather early in the history of revolutionary Marxism, the two were conceptually seperated in a radical fashion, the destiny of capitalism being formulated in the form of a dilemma: the system cannot survive, but may give way either to socialism or to barbarism.’ p. 79
Rosa Luxemburg, ‘What Does the Spartakusbund Want?’
Ernest Mandel gives a pithy explanation of this in his introduction to the Penguin edition of Capital: Volume I:
‘When capitalism is not overthrown once it has created the material and social preconditions for a classless society of associated producers, this contradiction implies the possibility of a steadily increasing transformation of the forces of production into forces of destruction, in the most literal sense of the word: not only forces of destruction of wealth (crises and wars), of human wealth and human happiness, but also forces of destruction of life tout court.’ pp. 37-38.