December 29, 2015
In the first part of this double post, I dealt with whether Marx had a coherent theory of crises or not. I reckoned that Marx’s theory was based on his law of the tendency of the rate of profit to fall and that this law was realistic and coherent. I also argued that Marx did not dispense with this law in his later works that some have claimed and it remains the best and most compelling theory of regular and recurrent economic crises in capitalism. In this second part, I shall provide some empirical evidence from modern capitalist economies to support this view. This completes what is really just a short essay on Marxist economic crisis theory – as I see it – with much left out.
Does Marx’s law fit the facts?
Some Marxist critics of Marx’s law of profitability reckon that the law cannot be empirically proven or refuted because official statistics cannot be used to show Marx’s law in operation. But there are plenty of studies by Marxist economists that show otherwise. The key tests of the validity of the law in modern capitalist economies would be to show whether 1) the rate of profit falls over time as the organic composition of capital rises; 2) the rate of profit rises when the organic composition falls or when the rate of surplus value rises faster than the organic composition of capital; 3) the rate of profit rises, if there is sharp fall in the organic composition of capital as in a slump. These would be the empirical tests and there is plenty of empirical evidence for the US and world economy to show that the answer is yes to all these questions. (más…)