Marx's Theory of the Falling Rate of Profit: Towards a Dialectical Analysis of Structural Social Change Author(s): Richard P.

Appelbaum Source: American Sociological Review, Vol. 43, No. 1 (Feb., 1978), pp. 67-80 Published by: American Sociological Association Stable URL: http://www.jstor.org/stable/2094762 . Accessed: 13/09/2011 16:06
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MARX'S THEORY OF THE FALLING RATE OF PROFIT: TOWARDS A DIALECTICAL ANALYSIS OF STRUCTURAL SOCIAL CHANGE*
RICHARD P. APPELBAUM University of California, Santa Barbara
American Sociological Review 1978, Vol. 43 (February):67-80 Conventional sociological theory is unable to account for endogenous change at the structural level. While various sociologists have attempted to develop aframework that would account for such change by abstracting formalized elements out of Marxist theory, these efforts-precisely because of their highly formal nature-are unsuccessful. Marx's theory itself seeks to explain change as built into the contradictory survival requirements of class societies conceived as closed social systems. The forces militating for change play themselves out with quasiautomatic necessity. The direction of change depends partly on the structural parameters and partly on the consciousness of individuals organized into social classes. It is argued that the utility of Marx's approach is tied both to his overall theoreticalframework, and its rootedness in specific historical, social and economic conditions. This argument is illustrated with reference to Marx's theory of the falling rate of profit under conditions of competitive capitalism.

The past decade has seen an enormous increase in Marxist scholarshipavailable in the Englishlanguage.In additionto the numerousprimaryworks and collections, key writings hitherto unavailable in English now have been translated and published.' The writingsof Lenin are becomingavailablealso, as are those of such early Hegelian Marxists as Lukacs.2 A sizeable number of journals concerned with Marxist scholarship have appeared also in the past ten years.3 It is likely that

* Successive drafts and various versions of this paper have drawn upon the helpful criticisms of Tony Giddens, Alvin Gouldner, Harvey Molotch, JamesO'Connor,BertellOllman,HowardSherman, PaulSweezy, ErikOlinWright,MorrisZelditch,and in 1968; Radical America in the mid- 1960s; Socialist several anonymousreferees. Responsibilityfor the Revolution in 1970; the Review of Radical Political final interpretationand argument is, of course, Economics,journalof the Unionfor RadicalPolitical entirely my own. Economics (URPE) in the late 1960s;TheInsurgent I Principal amongthese is Nicolaus'stranslation of Sociologist in 1971; Working Papers for a New SociTheGrundrisse,Marx'seconomic notebooksduring ety in 1973; Working Papers on the Kapitalist State the period 1857-8, appropriately subtitled"Founda- in 1973; Crime and Social Justice in 1974; Theory tions of the Critiqueof Political Economy." This and Society in 1974; Contemporary Crises in 1976. workcontainsthe most detailedexpositionavailable 4 Fourjournalswere searched for articlesappearof Marx'smethodology,and is itself the groundwork ing between January1970and June 1977which adfor the writingswhich were to appeara decade later dressedthe Marxistparadigm. Thejournalsincluded
in Capital.
2

at no time since the first quarter of this century has there been a comparablerenaissance of interest in Marxism in the United States. This activity largely has been ignored within the confines of the establishedacademic disciplines. The sociologist concerned with developingproficiencywithin a Marxist framework must look outside his field for direction and guidance. Since 1970 the principaljournals of the profession have carriedonly some thirtyarticles that in any way address theoreticalor empirical issues arising from the Marxist paradigm.4 As a direct consequence of

Lukacs's influential writings during the 1920s nal of Sociology, Social Forces, and Social Probwere collected and publishedin Germanin 1968;the lems. The articlesencounteredwere either theoretiEnglishtranslation was publishedin 1971,underthe cal in nature or concerned with empirical issues title, History and Class Consciousness. ' For example, Telos, a journal heavily oriented emerging from a Marxist perspective. Not all empirically-orientedarticles cited Marx, but all towardsphenomenological Marxism,first appeared examined Marxisthypotheses.

The American Sociological Review, American Jour-

67

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AMERICAN SOCIOLOGICAL REVIEW

FORMALIST MARXIST APPROACHES ANALYSIS TO

this ignorance, Marx's theory of social change has been misunderstoodin American social science. While the most common tendency has been to vulgarizeMarx as an economic determinist (Van den Berghe, 1963:699-700), he also is treated as a propounderof an ill-defineddialectic (Van den Berghe, 1963;Schneider, 1971). Nonetheless, there have been several efforts in recent decades to incorporate Marx into the sociological mainstream. These efforts generally take the form of distillingfromMarx'swritingthatwhich is compatible with a functionalistapproach to the social world-in particular,his concern with social conflict and change. Marx'stheory is abandonedreadily,while certain features of his dialectical method are extracted and preserved as heuristic principles. I have characterizedsuch efforts asformalist. Formalism,in the sense employed here, has two relatedmeanings: (1) the belief that Marx's method can be
separated from his theoretical framework

Dialectics as Heuristics Rytina and Loomis (1970:309) have claimed that "no American sociologist has tried to show that the dialectic, in a form that Marx would have recognized, is a useful approach to social science." There have, however, been some attempts to rescue the dialectic from Marxism and translate it to a more conventional sociological framework. Such efforts illustrate the pitfalls of formalism in the first sense of the preceding definition. We shall examine the efforts of Van den Berghe (1963) and Schneider (1971) in this regard. Van den Berghe (1963:699) derives a by "minimum dialectic approach" eliminating what he perceives as unacceptable in Marx's method.5 This includes the latter's alleged "economic determinism," along with "his dualistic view of social realtiy," which "confused an empirical tendency for contradictions and conflicts to polarize into pairs of opposites, with a logical necessity to do so." What remains, according to Van den Berghe (1963:699), are two elements which appear both useful and valid: (1) Change is not only ubiquitous, but an importantshare of it is generatedwithin the system; i.e., the social structure must be looked at, not only as the static framework of society, but also as the source of a crucial type of change. or endogenous (2) Changeof intra-systemic origin often arises from contradictionand conflict between two or more opposingfactors. These "factors" can be values, ideologies, roles, institutions, or groups. This approach then is held to apply to three levels. One corresponds to Hegel's focus on ideas: "abstract but explicitly
5 Van den Berghe(1963:699) does not thinkmuch of "Hegelian-Marxistdialectic," since, after attempting to see "whatcan be usefullysalvagedof the dialectic," he concludes, "admittedly not very much," although"the residualcore is of great importance." Nonetheless, he does not hesitate to speak of the "dialectic method," a term he apparently uses interchangeably with "dialecticoutlook."

andfruitfullyappliedto anotherone (functionalism)which differsin its key conceptual categoriesand their interrelations; (2) the belief that it is possible to generate highly abstractpropositionsabout the social world(in this case, derivedfromMarxist theory) that are transsituationaland even transhistorical.Both of these meanings imply the tacit assumptionthat a social theory consists of various elements that logically can be separatedboth from one another and their empiricalcontent, and subsequently recombined and reapplied in other contexts. Both misunderstand Marxism, and, more importantly, sacrifice the promise contained in Marx's approachto the study of political economy: a theory of endogenous structural social change which is neither determinist nor voluntarist. To elaborate these points is the task of this paper. I shall considerfirst severalrecent sociological treatments of Marx to illustrate the pitfalls resulting from the formalism inherent in their approach. I then shall examine one aspect, of Marx's crisis theory in an effort to demonstratethat the utility of his method is bound up with his largertheoretical framework.

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formulated cultural concepts, viewed in isolation from concrete participants" (700). A second level corresponds to Marx's concern with social institutions: "the internal contradictions growing out of institutionalizedprocesses of interaction" (700). A thirdlevel correspondsto a more general interest-grouptheory which views conflict pluralistically rather than dualistically. Van den Berghe's "minimumdialectic approach" enables him to "transcendad
hoc eclecticism and .
.

. reach a balanced

theoretical synthesis" (705) between Marxismand functionalism.He sees four commonalitiesbetween the two: (1) both are holistic in approach;(2) both involve conflict as well as integration-since conflict and integration imply one another (e.g., too muchconsensusor integration may impede social-systemadaptation to changing circumstances,and hence resultin disintegrationand conflict); (3) both share a unilinearnotion of social change in which future stages are contained within the present; and (4) both are fundamentally groundedin a dynamic equilibriummodel of social organization.For dialectics-the synthesis, according to Van den Berghe-is the reestablishment of equilibrium after disturbance. Schneider's reformulation resembles that of Van den Berghe in that he also extracts a dialectical perspective or bent expressed as a set of heuristic principles for an analytic framework capable of comprehending social conflict.6 The dialectical bent is legitimized by Schneider through demonstrating its presence in the classics (e.g., the nineteenth century Scottish historian, John Miller; Herbert Spencer; Pareto; Weber; Marx; Wundt; Veblen). This
"bent . . . involved in some of the most

functions?), as a result of which man "comes to confront a world he may think he never made but which he did make," a notion therefore akin to the "phenomena of reification and alienation" (670); (2) heterogony of ends, whereby originally intended ends are displaced by means of secondary ones or are enlarged beyond original expectations (this resembles of reason," where petty Hegel's ""cunning individual aims unintentionally contribute to history's larger purpose); and (3) paradox, or the "irony of sudden reversals," as for example when success leads to failure because initial adaptations turn out to be maladaptive in the long run. Schneider then augments this historical review by distinguishing seven meaningclusters derived from an examination of the sociological literature, which turn out to be largely reducible to the three basic elements distinguished above.7 He concludes with an assessment of the value of the dialectic as he has developed it, and expresses the hope that as a consequence of his study, we now have a "shrewd taxonomy not quite achieved previously and enhanced awareness of a certain kind of subtlety that attaches to particular kinds of social change . . ." (676). Both Schneider and Van den Berghe have attempted to view formalistically the dialectic as a set of heuristic principles which might serve as a guide to more concrete scientific studies informed by these principles. Let us briefly summarize these heuristic principles in schematic form: (I) Holism: the relevant unit of analysis is the social system, viewed as an interrelated configuration of differentiated elements. Van den Berghe (1963:701-2), however, mistakenly views Hegelian7 The meaning-clusters include (1) discrepancy between aims and outcomes (involving elements of unanticipated consequences and paradox); (2) goal shifts and displacements (heterogony of ends); (3) systems adaptations that ultimately prove dysfunctional (unanticipated consequences, paradox); (4) contradiction (which Schneider apparently equates with paradox); (5) the "contradictory logic of passion," which produces unanticipated consequences; (6) "development through conflict . . . stress," and (7) the dissolution of conflict "in a kind of coalescence of opposites," e.g., love and hatred (675-6).

fundamentalinsights in sociology" (1971: 669) reduces to three basic elements: (1) unanticipated/unintended consequences of purposivesocial action (Merton'slatent
6 Schneider (1971:667), following Kaufman (1965), goes so far as to argue that "there is no dialectical 'method' to expound." Hence his use of the more restrictive terms "perspective" and "bent.'

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AMERICAN SOCIOLOGICAL REVIEW plained historical events by deriving them from elements of their social structures" (Dahrendorf, 1964:100). Simply stated, it must account for the possibility of endogenous social change. To address this issue, it is first necessary to distinguish endogenous from exogenous sources of change. In classical functionalist theory, the sources of social change were regarded ultimately as external to the social systems. Change was conceptualized as an internal response to changing external conditions. Thus, for example, Durkeim (1964:256-328) thought the increasing division of labor and the corresponding changes in the form of solidarity resulted from growing population ("moral density"). The growing population simultaneously increased pressure on scarce resources, thereby necessitating more efficient modes of social organization, and destroyed the social bases for widely shared collective beliefs. Left alone, isolated social systems, tending toward equilibrium or homeostasis (Appelbaum, 1970:65-80), were presumably highly stable over time. But mounting population (a biological, nonsocial condition) provides the cause of new system adjustments. There are other causes, but these are also external; e.g., contact with other cultures through warfare or trade. Classical functionalism, in regarding social systems as relatively stable, well-integrated configurations of elements in which each element contributes to the overall functioning of the whole, cannot account for internal sources of system change. Marxism, however, claims to be able to do just that. It is precisely this feature of dialectics that Schneider and Van den Berghe wish to preserve in their reformulations. What, in their views, are the possible sources of endogenous social change? One set of possibilities, having little to do with the properties of social systems themselves, refer to the perspectives of the actors. These are changes that appear accidental or infelicitous to the actors involved. Such changes constitute several of Schneider's (1971) dialectical meaning-clusters (discrepancy between aim and outcome, contradiction, goal shifts

Marxist analysis as tending to emphasize single-factor unidirectional causation, in contradistinction to functionalism, which he sees as arguing for "multiple and reciprocal causation." (II) Conflict: this characterized, at least as much as integration, the relations among the parts of the relevant system. Conflict is a ubiquitous feature of social systems. A. Social change results from conflict; hence, change is also a ubiquitous feature of all social systems. B. Conflict is generated endogenously, i.e., as a result of conflict between two or more opposing forces within the social system (analogous to the Marxian notion of international contradiction). C. Conflict often results as a latent function of social structures within the social system. This is because human actions and the consequent social institutions often eventuate in both unanticipated and/or unintended consequences and dysfunctions (from the long-run point of view of system adaptability). (III) Dynamic equilibrium: this describes the movement of conflict-ridden, changing social systems through time. As conflicts are worked out, the system equilibrates at another level, until newly generated conflicts produce new disequilibriums and new adjustments. A. This dynamic equilibrium might also be described as a moving synthesis. B. It implies an evolutionary view of social change in which future forms of social systems are contained within and reflect the working out of conflicts within the present forms. Reduced to these principles, the dialectic becomes an empty truism. Common sense knowledge, dialectical or otherwise, tells us that social institutions are best conceived systemically; that conflict and change characterize many if not most social relations; that such conflict and change often occur because human actions produce unforeseen and undesired results; and that institutions, including societies, often evolve by fits-and-starts, rather than remaining forever stable. A dialectical approach must "overcome the predominantly arbitrary nature of unex-

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and displacements),8 as well as Van change as necessarily internal to social den Berghe's notion of latent functions. structures. Whatever the sources of conAccording to these formulations, our fusion for the actors involved, the best-intended acts oftentimes betray us in sociologist is attempting to show that ways unforseen and unintended. Goals are under given empirical conditions change not achieved because of unanticipated cir- must occur, and in a particular direction. cumstances; we lose sight of our larger Again, why should change be necespurposes along the way; we find that our sary-an embedded feature of social actions, producing quite the contrary re- structures? sults from those originally intended, neWhen Schneider (1971:673) talks of sysgate our original purposes, and cast us tems adaptations that prove dysfuncinto ironic paradoxes. Schneider (1971: tional, or when Van den Berghe (1963: 675) treats "contradiction, oppositeness 699) speaks of development through conor opposition, paradox ('seeming con- flict (see also Schneider 1971:675), both tradiction'), negation, dilemma" as equiv- men are referring to changes that result alent. In fact, he mistakenly identifies from occurrences within the social system such inadvertent reversals with Hegel's which are subject to lawful explanation. "cunning of reason" (669, 671n, 673, 674) While it is obvious that changes often and Marx's "reification" (670). Such re- occur through dysfunction and conflict, it versals are accidental, however, only is not clear from their examples why such from the perspective of the individual, change should be necessary. As an examwho is presumed to act in a rational, ple of changes arising from dysfunction, goal-oriented fashion, yet who, for var- Schneider (1971:674) offers highway conious reasons, fails to achieve that which struction which, although intended to rewas originally intended. Why the failure? lieve congestion, actually generates more This pivotal question is not addressed, but traffic. As an example of the changes ariswe may speculate. One possible explana- ing from conflict, we have interest group tion is lack of information. The individual conflict of all forms (Van den Berghe, actor, because of the complexities of so- 1963:700). Is the former merely an incial situations, simply does not possess all stance of bad planning? The latter, the the knowledge s/he requires to fully an- results of human rapaciousness? Why ticipate all possible outcomes and thereby should highway planners fail to anticipate govern action appropriately. Another the larger consequences of their actions? possibility has to do with changing circum- Why should one group of people have stances. Actions appropriate to achieve interests antithetical to those of another? goals under given conditions may produce Are dysfunction and conflict necessary quite different results when conditions features of social systems? change, if action is not suitably altered to Schneider (1971:673-4) offers a partial reflect changing conditions. Whatever the answer to this question when he speaks of reasons, the important feature of such ac- "structures or forms that constitute relacidental reversals, from the perspective of tively effective adaptations but stand in the actor, is their ironic or paradoxical the way of more effective adaptations benature. cause of 'investments' already made." As The ironic or paradoxical quality of an example, he offers Marx's theory of such seemingly accidental reversals is not, surplus value. After apologizing for using however, significant in terms of the task at an instance he apparently regards as poshand: to derive a perspective which sessing doubtful empirical value, he enables the sociologist to comprehend nonetheless finds something suggestive in the form of Marx's reasoning: A nuancearises as one thinksof a "system 8 Schneider's "heterogony of ends" would appear context in which some specific productthat to be a specific instance of unanticipated/unintended emerges from and marks "success" turns consequences in which the pursuit of certain goals about, so to speak, and leads to failure or unexpectedly results in enlargement of those goals, their displacement by other goals, etc. system breakdown.... Surplusvalue does

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AMERICAN SOCIOLOGICAL REVIEW offer as a theory of structural change. The same is true for those theorists who would restate Marx's work as a corpus of universal (i.e., transhistorical and transsituational) propositions concerning social conflict, the most prominent examples of which are contained in the writings of Dahrendorf (1959) and Turner (1973; 1974; 1975a; 1975b). Both writers are concerned to develop a general theory of social conflict in propositional form. Dahrendorf reformulates Marx by substituting authority for property as the defining characteristic of social class, and derives a theory of interest-group conflict. Insofar as his attention thereby shifts from the overall society to the level of the social group, his efforts are less central to the present discussion than are those of Turner (1975b:626), who limits himself to a propositional restatement of Marxism in order to better extract from him "what is theoretically useful and move on with Turner the job of theory-building." (1975b:626) strongly argues that such theories "are most useful when stated at their most abstract level, for it is in this form that the debt of contemporary theorizing to these two German scholars [Simmel and Marx] becomes most evident." Turner's approach, then, is selfconsciously formalist in the second sense of that term as I have used it. His intent is to develop propositions of universal validity which can then be combined with other propositions from other sources, until a sociology of conflict is developed-an inventory of propositions that explain the source and evolution of social conflict in all forms. Turner's (1975b:621) propositions, derived from Marx, include the following: I. The more unequal the distribution of scarce resourcesin a system, the greaterwill be the conflictof interestsbetweendominant and subordinatesegments in a system. II. The more subordinate segmentsbecome aware of their true collective interests, the more likely they are to question the legitimacy of the unequality of distributionof scarce resources.... C. The more members of subordinatesegments can communicatetheir grievances to each other, the more likely are they to become awareof theirtruecollective interests. (1) The more ecological concentrationof

in a sense emerge from the success of capitalism. It unequivocally marks or signalizesthat success. And yet in time, for economic (and class-psychological)reasons, this very product of surplus value brings about the downfall of capitalism. (673-4) Why is this an example of short-run systems adaptations that prove dysfunctional in the long-run? Perhaps it is the narrowmindedness of individual capitalists, who fail to appreciate that by garnering surplus value they will engineer their own defeat for economic and class-psychological reasons. In that case, we return again to the problem of inadequate information, and history can be cheated by a process of education. Or perhaps it is because an economic system based on surplus value-which appeared to constitute a relatively effective adaptation at one time (to what? for whom?)-proved to have deleterious effects in the long-run. Too many "investments" in capital and managerial forms (and perhaps class privilege), however, now impede individual capitalists from shifting to something new. Here the notion of institutional inertia must be invoked to account for the failure to respond to changing conditions. effectively Change is again conceived as resulting from an external source, in this case the ossification of social forms. In neither case, however, is a structural theory of social change offered. The first possibility ultimately locates change in individual perceptions, while the second invokes invariant and external constraints on social institutions. The example from Marx, however, does provide a clue, although in a somewhat different direction than that sought by Schneider. For Marx, surplus value does not merely emerge from, mark, nor signalize the success of capitalism; it rather is required by the internal logic of capitalist economic production. We shall pursue this central point in the final section of this paper. Marxism as Conflict Theory Both Schneider and Van den Berghe offer heuristic principles for a dialectical methodology. The formalism of this approach has been criticized insofar as it removes the promise Marxism purports to

MARX'S THEORY OF THE FALLING RATE OF PROFIT membersof subordinate groups, the more likely are they to communicate theirgrievances. (2) The more subordinates have access to educational media, the more diverse the means of their communication,and the more likely they are to communicatetheir
grievances.

73

What is striking about these propositions is their generality. It is not that they violate the spirit of their source, nor that there is no utility in rigorously stating one's hypotheses and conclusions. Rather, it is that these propositions, like the dialectical principles presented by Van den Berghe and Schneider, are so unspecified as to be largely empty. Consider (I). What "scarce resources?" Which "system?" Does or should this proposition apply with equal force to family groups, the military, all societies, religious groups, political parties? Marx's original formulations are concerned specifically with the relations of social classes in a class-based society. Why should a proposition based on this situation acquire universal validity? Marx himself invokes no abstract conflict of interests, which somehow is held to vary directly with the degree of maldistribution. Rather, he examines specific class conflicts, such as the historical struggle in England over the length of the working day, to spell out their relationship to such structural variables as the average rate of profit, the degree of monopolization, or the movement of the business cycle. Consider (JIC). What is meant by "ecological concentration?" This proposition is a generalized restatement of Marx's (Marx and Engels, 1848:345) contention in the Communist Manifesto that "the advance of industry, whose involuntary promoter is the bourgeoisie, replaces the isolation of the laborers, due to competition, by their revolutionary combination, due to association." But in the same document, Marx also notes that "this organization of the proletarians into a class, and consequently into a political party, is continually being upset again by the competition between the workers themselves" (343). Marx, in fact, states a number of conditions which mediate the level of class struggle in the document intended as a Manifesto-a

polemic, and which therefore tends to emphasize the inevitability of revolution. While Marx personally may have never doubted this long-run result, in his more systematic writings such as Capital he focused on the complexity of interrelated conditions that can modify the class struggle, including the degree of class consciousness, under specific conditions. Again, Turner is seeking a generalized restatement of that which Marx specifies as empirically existing circumstances. There is clearly truth in Turner's proposition; but one can immediately think of numerous exceptions, situations which mitigate or modify the law as stated. And it is precisely such mitigating circumstances that are of interest to Marx's theory, a theory of the historically concrete. Marx himself, as is well-known, often refers to general laws. In Vol. 1 of Capital, he discusses the tendency of capitalist economic production to develop a reserve army of surplus labor in proportion to the expansion of capital. "This," says Marx (1867:644; emphasis removed), "is the absolute general law of capitalist accumulation." But Marx, in the very next sentence, qualifies his conclusion in a significant way. He observes that "like all other laws it is modified in its working by many circumstances." These circumstances are peculiar to the capitalist economic system under consideration. All circumstances are not equally important. Only within the framework of a suitable economic theory (Marx here offers a theory of the business cycle) does one know which circumstances to consider. Furthermore-and this point is central in distinguishing Marx's approach from those we have been considering-the theory itself is changed as the circumstances are altered through theoretically informed political practice. While Marxist theory can fruitfully be restated in propositional form (for a useful example, see Gottheil, 1966), such propositions would have the following characteristics: (1) they would be interrelated within a logico-deductive theoretical framework, and acquire their significance only within that framework; hence, they would resist abstraction to broader, extratheoretical contexts; (2) they would be

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AMERICAN SOCIOLOGICAL REVIEW the class struggle. As such, they cannot be predicted. Consequently, one cannot predict the occurrence or outcomes of specific events with the aid of Marxian economics. These arguments will be illustrated by reference to Marx's theory of the declining rate of profit in capitalist theory which economic production-a might well appear to entail highly formal statements concerning inevitable tendencies subject to invariant laws and hence predictable outcomes. Although some Marxists read Marx in precisely this fashion, they are, I believe, mistaken. Marx's economic laws are not of this type.9 OF PRAXIS AND THEDIALECTIC MARX'S CONSTRAINTS: STRUCTURAL OF THEFALLING ANALYSIS OF PROFIT RATE Marx analyzed the value of commodity production in terms of three elements: constant capital (C), the value of the means of production used up during the production process (primarily the depreciated value of machines, buildings, and raw materials); variable capital (V), the value of the labor-power applied to the production process (primarily the wage bill); and surplus value (S), the value of unpaid labor appropriated by the capitalist during the production process (workers' labor time beyond that which is socially necessary to sustain the standard of living of the working class). Surplus value is the key to capitalist economic production. It is the source of all profits, including those which are reinvested in enhanced productive capacity (capital accumulation). During the period of competitive capitalism, individual capitalists were under continual economic pressure to increase the efficiency of production-to produce commodities at lower unit costs. While this could be achieved by economizing on either of the two principal component costs of production, constant or variable
9 Marx's theory of the falling rate of profit is only one aspect of his overall theory of the crises of capitalist production. The purpose of the present discussion is not to present a thoroughgoing exposition and critique of crises theory, but rather to focus on Marx's original treatment of one principal source of crisis in order to better elucidate his method.

highly contingent statements about empirical events, mediated by specifiable historical circumstances; (3) they themselves would change as the circumstances changed-theory and practice inform and modify one another. Turner's formalized propositions deliberately possess none of these characteristics. Marxism is the concrete analysis of concrete conditions. In this it differs from conventional social science, which, after the fashion of the hard sciences, seeks after universally valid, highly formalized laws (e.g., f = ma). Because of this, Marxism has a peculiar status as a generalizing science. It attempts to straddle the methodological schism between the idiographic and nomothetic approaches to social phenomena. While this makes for considerable ambiguity concerning the actual nature of a uniquely Marxist method, it also contains its unique promise: a theory capable of comprehending change as internal to actual sociohistoric systems, a function of forces which operate at the same time with lawful necessity while permitting a significant role to human agency in bringing about historical outcomes. To paraphrase Marx, science both interprets and changes history and is thereby itself changed in the process. In the remainder of this paper, then, I shall argue that Marx's work offers a framework for comprehending endogenous structural change. The framework entails propositions concerning necessary or lawful relationships. Yet these propositions resist formalization after the fashion of the writers previously reviewed. This is due both to the highly contingent or specified nature of Marx's propositions and to the role assigned political practice. For Marx, political practice has the potential of modifying the conditions which give rise to the socioeconomic laws themselves. The laws governing social change, unlike the laws of physics or chemistry, do not permit prediction. They rather constitute a framework wherein a theoretically-informed, and hence effective, political practice is possible. In Marx's economic equations, the parameters themselves are treated as variable. The values of the parameters reflect historical conditions, in particular the state of

MARX'S THEORY OF THE FALLING RATE OF PROFIT

75

capital, Marx (1867:265; 1849:186) believed that in the long run the key to lowering productioncosts lay with mechanization. This meantincreasingC relativeto V. Thus, driven by the economic imperative to undersell one's competitors in order to remain afloat, individual capitalists would be driven to substitute increasinglyefficient machinesfor human labor. Throughout the economy, therefore, there is a long-runtendency for what Marxtermed the "organiccomposition of capital" to rise, as denoted by the symbol Q, where Q = C/(C + V).'0 This tendency, in turn, made it possible for the remaining workers to produce ever-largerquantities of goods with ever-decreasinglabor time. As a consequence, there is a paralleltendency for the rate of surplus value (S'), definedas the ratio of unpaidto paid labor time (S/V), to rise as well. How do these tendencies affect the overallrate of profitin capitalisteconomic production? Marx defines the rate of profit as the ratio of surplusvalue to total capital advanced, or (1) P = S/(C+V) from which it follows algebraicallythat the rate of profit can be decomposed into two terms comprisedof the rate of surplus value and the organiccompositionof capital: (2) P = S' (1- Q)
where S' = S/V and Q
=

proaches 1, (1 - Q) approaches 0, with a consequent depressing effect on the overall rate of profit. On the other hand, inasmuch as the reason for mechanization in the first place is to increase S, the downward pressure on profitability resulting from rising Q will be partially offset. To the extent that S' rises as Q rises, the value of P is indeterminate. Marx (1867: 247) was well aware of these considerations, but argued on logical grounds that as the organic composition reaches a high level, additional increases in productivity (hence S') are inadequate as a strategy to maintain profitability (see also 1857:338-40 for a crude mathematical proof)."1 Since capitalism is production for profit, once the overall rate of profit (or at least that obtaining in key economic sectors) drops below some minimally acceptable level, production ceases. Factories close down and an economic crisis ensues. The profit-maximizing strategy of individual capitalists has resulted in a profitability crisis for the class of capitalists as a whole. This is, for Marx, a structural imperative of capitalist economic production.12 Yet despite the comII See Wright (1975: 37n) and Yaffe (1973:202) for a mathematical demonstration that "as the organic composition of capital rises, the rate of profit becomes progressively less sensitive to changes in the rate of exploitation [i.e., surplus value]" (Wright, 1975: 16). Marx (1867: 232-40) also details a number of empirical influences which may for a time counteract the tendency of the organic composition to rise, but these are not judged sufficient in the long run to mitigate the overall process. 12 The crisis itself is an integral part of the dynamic of capitalist production. While it temporarily restores profitability through lowering the organic composition (see Yaffe, 1973: 205-6 for an elaboration), it does so by altering the framework of production itself, through contributing to the centralization of capital. Economic crises thus abet the transition from competitive to monopoly capitalism (Marx, 1867: 250-1; see Wright, 1975, for an excellent discussion of these processes). Some Marxists (Yaffe, 1973; Cogoy, 1973) argue that the falling rate of profit is ultimately the only source of crisis that follows necessarily from the logic of capitalist production, although of course other factors such as inadequate aggregate demand may shape specific crises. Others (Sweezy, 1968; 1974; Hodgson, 1974) argue that there is neither theoretical justification within Marx's work nor empirical evidence to support such a law, and that therefore, in Hodgson's (1974:65) words, "we are led to abandon the theory of the falling rate of profit, and along with it all vulgar

C/ (C + V).

Marx (1867:449; Marx and Engels, 1848:338) argued that a rising organic of capitalist compositionwas the hallmark production. It follows that as Q ap10 Marx generally speaks of the proportion or ratio of c:v; the organic composition of capital is expressed by some writers as c/v (e.g., Mattick, 1969; Mandel, 1968). We shall follow Sweezy's (1968) usage. He defines the organic composition as the ratio of constant capital to total capital advanced. Recent reformulations of Marx's theory of the declining rate of profit have argued that definitions involving only the terms C and V are inadequate, since V is itself dependent in part on the rate of surplus value (exploitation) (see, e.g., Cogoy, 1973; and Wright, 1975). In terms of the arguments raised in this paper concerning the relationships between the rate of profit, the rate of surplus value, and the organic composition of capital, it makes no difference which representation we employ. Our methodological conclusions are unaffected as well.

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AMERICAN SOCIOLOGICAL REVIEW conceived by Marx as a secular tendency for the organic composition of capital to rise, is a necessary yet contradictory one. It is necessary only under the historical "givens" of capitalist economic production: that production is for the profit of the capitalist-owner of the means of production; that capitalists compete with one another to sell their goods on the market; that workers are free to sell their labor to capitalists in exchange for a wage, rather than control over the productive process itself; that labor-power belongs to the capitalist for the duration of the working day, rather than merely that portion of the day necessary to sustain the worker. It is contradictory in that it is inherently unstable: it is impossible to sustain a rising organic composition of capital indefinitely without undermining the necessary profitability on which capitalist production rests. The various requirements of profitable production, dictated by the need for economic survival under capitalist economic organization, are mutually incompatible. Each individual capitalist must sell his commodities at the market price or below, or suffer a decline in sales to his competitors. To do so, he must continually seek ways to produce a larger volume of goods at lower unit costs, for that is what his competitors are doing. This requirement, in turn, engenders yet another; the need for productivity increases. Thus, the individual capitalist must economize, and increase the output per worker through the substitution of laborsaving technologies. Over the economy as a whole, however, this has the long-run consequence of lowering profitability and hence undermining production itself. Periodic crises are thus structured into capitalist production. While the overall tendency of the contradiction can be deduced analytically from the "givens" of capitalist economic production, its concrete movement cannot. That depends on historically-specific circumstances. How is it that the basic conditions of the contradiction, the "givens" of capitalist economic production, can be modified? How is it possible to have a scientific theory of economic crisis that admits of "historically-specific circumstances?" These two questions are re-

pelting nature of such an imperative, its actual working-out depends on concrete sociohistorical circumstances. The declining rate of profit is a tendency that manifests itself within and through class struggle, and not a law which operates automatically outside of human practice. In distinguishing tendency from law in Marx's theory, I am attempting to call attention to what I believe to be the central feature of interest in his method. Marx sought to avoid both the determinism of a completely materialist science, and the voluntarism of both idealist philosophy and utopian formulations. He achieved this by conceptualizing the material conditions of action as embedded within interrelated social, economic, and political structures. At the same time he regards human action itself as capable of modifying the underlying structures and hence the conditions of future action. In the example of the declining rate of profit during the period of competitive capitalism, the principal structures of analytic interest are economic. These include the factory system, organized such that social labor produces for the profit of the owners of capital; a market economy, in which production is for individual profit rather than collective utility; and overall economic organization predicated on competition among workers for jobs and capitalists for markets rather than on coordination and central social planning. These structures are organized neither as a congeries of random or accidentally related elements, nor as a determinate system in which all parts possess causal relationships with all others. Rather, the structures are conceived dialectically-a term we are now in a position to better understand. The dialectic, as utilized by Marx in his economic analyses, refers to a mode of understanding empirical socioeconomic phenomena as necessarily yet contradictorily interrelated. Such interrelationships are unstable and hence must change, although within delimited bounds. The relationship between machines and workers,
notions of capital and capital accumulation." It is not the intention of the present paper to join that debate, although I find the arguments in favor of the necessity of the law to be unconvincing.

MARX'S THEORY OF THE FALLING RATE OF PROFIT lated, for they both go to the root of the dialectic as a science of the historically concrete-a science that is not predicated on universal laws and predictive statements. We have thus far considered the dialectic as if it applied only to an external world of workers and owners, human and mechanical labor-in a word, the productive process. In other words, we have thus far treated the dialectic naturalistically. Marx, however, treated capitalist economic production, conceived as the relationship between constant and variable capital, as the unfolding of capitalist social relations among people rather than as naturalistic relations among land, working bodies, and machines. That is why his key conceptual building blocks (C, V, and S) cannot be regarded as independent variables in a predictive equation. Rather, they are at once analytic categories for understanding structural relationships and tendencies, and political indicators of the degree of the class struggle. This latter point is the key to understanding Marx's method, and can be illustrated by returning to the example of the declining rate of profit. Equations (1) and (2) tell us a number of things about the rate of profit. First, they show that the rate of profit consists of specific relationships between constant capital, variable capital, and surplus value. Given values for C, V, and S, the rate of profit is directly determined. Thus, on this first level of understanding, the equations serve the customary role of such equations in all science: a formal representation of an empirical event. Like all such representations, they have the property of abstracting away from concrete phenomena to mathematical symbolism. The symbolic rendition, manipulated according to mathematical rules, permits deductions to be drawn. This leads us directly to a second level of understanding. The postulated relationships among the terms in the equations constitute a theory about the world. In particular, in defining the rate of profit in this way, Marx is arguing that the rate of profit is directly proportional to the mass of surplus extracted from labor, and inversely proportional to the capital advanced. Inasmuch as Marx conceptualizes

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surplus as unpaid labor time, this definition has far-reaching implications. It suggests that to the extent that living labor (V) is replaced by past or dead labor in the form of machinery (C), surplus value and hence profits will dry up, at least to the extent that increases in the rate of surplus value (S') prove inadequate to offset the necessarily rising organic composition (Q). Thus, given Marx's theory about the world, it is possible to deduce certain necessary relationships among the elements that constitute the world. At these first two levels there is no difference between Marx's method and the methods of science in general-both the natural sciences and the conventional social sciences which model themselves on hard scientific methodology. The difference between Marx's method and scientistic ones emerges when one asks the question, Under what conditions is a rising organic composition likely to actually outstrip a rising rate of surplus value? Such conditions are not deducible mathematically from the equations for the rate of profit; nor can they be derived from any other equations in Marx's theory. Rather, such conditions are the result of human activity; in particular, the state of the struggle between labor and capital. The locus of this struggle is denoted by S V, and C. Surplus value (S), for example, is the arena of the struggle between workers and capital over the duration of the working day and the intensity of the labor process. That is why Marx (1867: chaps. 7-9), after introducing the concepts of C, V, and S in Capital, immediately proceeds to a discussion of the concept of absolute surplus value and a lengthy historical exposition of the struggle over the working day (1867: chap. 10). That is also why he follows the introduction of the concept of relative surplus value (1867: chap. 12) with documented discussion of the intensity of the labor process in modern industry (1867: chaps. 15, 17). The outcome of the class struggle over the disposition of the surplus is not derivative from the theoretical conceptualization of capitalist production, although it is certainly shaped by the conditions of production. For example, the concentration of workers in factories

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AMERICAN SOCIOLOGICAL REVIEW means to shape those conditions to the advantage of the working class, and devoted much of his political life to doing so (see, for example, Marx and Engels, 1848: 345-6, 361-2). The final set of struggles, those having to do with constant capital (C), concern the extensiveness of capitalist economic relations. As we have seen, the numerical values taken on by this term reflect in part technological conditions (e.g., the extent to which labor-saving technologies are capital-saving as well), in part the organization of production (e.g., the rate of capital turnover), and in part the ability of capitalists to extend capitalist economic relations abroad (e.g., foreign investment, which permits the importation of cheap raw materials and machinery produced with low-paid foreign labor). The value of constant capital in Marx's equations will also reflect the sociopolitical organization of capitalists as a class. It will reflect the intensity of competition among capitals, the degree of cooperation and centralization among the owners of large capital, and the extensiveness of capitals' ideological and political hegemony. This, in turn, draws attention to the role of the state in securing capitalist economic relationsthe degree to which it is relatively autonomous or serves simply as an instrument of a unified ruling class, its executive committee (Marx and Engels, 1848:337). Again, such circumstances cannot be directly predicted on the basis of underlying economic conditions, although such conditions limit and shape the range of possible choices available to capitalists, acting individually or in concert as a class. The struggle over the disposition of the surplus, workers' share in output, and capitalists' control over the political and ideological spheres and the productive process are merely different aspects of the class struggle. That struggle is not purely economic, although it depends to a large extent on economic conditions and affects those conditions most directly. The class struggle, as seen by Marx, also moves at the political and cultural levels. The possibilities of delegitimation of the state and dereification of both popular and scientific culture flow from economic struggles, and shape those struggles. That is

facilitates their "revolutionary combination, due to association" (Marx and Engels, 1848:345). Rather, the outcome of that struggle, which occurs within the framework of structural conditions represented in formal equations, is ultimately a product of unique historical circumstances. The degree of working-class consciousness and political mobilization; the level of theoretical understanding of the working class and its leaders; the ability of capital to extract surplus from foreign workers to the advantage of domestic workers in relatively industrialized nations; the extent to which monopolization alters the ability of major capitalists to amass large surpluses while retarding the increase of the organic composition of capital-these and other factors will affect the disposition of the surplus according to empirical conditions. Variable capital (V) draws our attention to another set of struggles: those having to do with the wage bill and workers' subsistence in general. The numerical values taken on by this term will reflect the degree to which labor is able to resist capital's efforts to depress its value. These efforts, as we have seen, take the form of cheapening the means of subsistence, reducing all labor to unskilled detail labor (and hence reducing the costs of subsistence by making it possible for all members of the family to work), depressing wages below their value, and shifting production to colonies with a ready source of cheap labor. Labor's success in this struggle depends, in turn, on its degree of organization and militancy. It depends upon the strength of unions, the access of the labor organizations to parliamentary institutions, and the degree of internationalization of the working-class movement (which means, for Marx, the Communist party). It also depends on the degree of tolerance for organized labor on the part of capital: whether or not labor is ruthlessly suppressed, legitimately accepted as part of the political structure, or even co-opted into its leadership. It is precisely because none of these conditions is derivative directly from the economic conditions that Marx stressed the central importance of organizing the international Communist movement as the only viable

MARX'S THEORY OF THE FALLING RATE OF PROFIT why theory itself becomes a material force when it has "seized the masses" (Marx, 1843:18). There is nothing automatic about the processes of social change. This is true of the "stages of societal development" often attributed to Marx, as well as of more historically bounded economic "laws" (e.g., that of the falling rate of profit under capitalism). The movement of concrete societies occur within welldefined structural limits. Those limits are given for capitalist forms, within Marxist political economy, by the hypothesized relationships among the parameters C, V, and S. But those limits can be changed, the relationships among parameters themselves can change in value independently of their necessary connection within formal equations. This is because C, V, and S, while serving as economic parameters, are ultimately conceptualized by Marx as signifying social relations, of which the quantitative economic measures (hours of labor time, price) are merely surface indicators. Social relations can be altered, within bounds. Those bounds are, for Marx, first and foremost the structural conditions of economic production. The structural conditions generate problems (contradictions), and set limits to the solution of those problems. The solutions to the problems of competitive capitalism historically involved the emergence of monopoly capitalism and economic imperialism. These solutions, in turn, own structural their engender frameworks, replete with their own contradictions dehistorically-specific manding new solutions if the stability of the system was to be maintained (see Baran and Sweezy, 1966; Mattick, 1969; Wright, 1975; and O'Connor, 1973). The likelihood and efficacy of any economic solution depend, in large part, on the legitimacy accorded to the growing state intervention with its mounting economic costs and on political consciousness and class militancy in general. Crises of legitimation, dereification, class organization and struggle may grow out of adverse economic conditions or equally adverse solutions to such conditions, but they are not reducible to economic factors. The future cannot be predicted from within a

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Marxist framework; it can only be shaped. It can be shaped scientifically to the extent that actions are based on adequate theoretical understanding of economic, political, and cultural structures. The terms "scientific" and "theoretical," however, must be understood in the limited sense developed in this paper. Marxist theory is a theory of structural constraints and probable tendencies which can themselves be shaped and altered by human praxis. As a theory of social change, Marxism thus resists formalization after the fashion of the writers considered in the first part of this paper. It makes little sense to speak of a dialectical perspective on endogenous structural change, apart from the Marxist theoretical framework as applied to conditions. socioeconomic specified While it is certainly possible that a dialectic might be developed apart from such notions as surplus value, production for exchange, and class conflict, it is by no means self-evident that such a dialectic would remain fruitful for sociological analysis. The arguments and examples thus far offered to this end are unconvincing. A more promising approach would appear to lie within the Marxist paradigm itself. One might begin with the conceptual categories of Marxism and apply them empirically to contemporary conditions. As indicated previously, there is evidence that Marxist theory is gaining increased acceptance in the United States. The level of theoretical discussions is considerably advanced over that of only a decade ago. The level of empirical research, informed by that perspective, however, remains minimal. Should a comparable upsurge in such research occur, then we can expect useful revisions in theory itself. But theoretical and methodological advances are tied to theoretically informed research. They do not result from formalized borrowings, however more palatable such an approach may be to American social scientists.

REFERENCES Appelbaum, Richard 1970 Theories of Social Change, Chicago: Markham.

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1972 Robert C. Tucker (ed.), The Marx-Engels Reader. New York: Norton. Mattick, Paul 1969 Marx and Keynes: The Limits of the Mixed Economy. Boston: Porter Sargent. O'Connor, James 1973 The Fiscal Crisis of the State. New York: St. Martin's. Rytina, Joan Huber and Charles P. Loomis 1970 "Marxist dialectic and pragmatism: power as knowledge." American Sociological Review 35: 308-18. Schneider, Louis 1971 " Dialectic in sociology." American Sociological Review 36: 667-78. Sweezy-, Paul 1968 The Theory of Capitalist Development. New York: Monthly Review. 1974 "Some problems in the theory of capitalist accumulation." Monthly Review 26:1. Turner, Jonathan 1973 "From utopia to where? A strategy for reformulating the Dahrendorf conflict model." Social Forces 52: 236-44. 1974 The Structure of Sociological Theory. Homewood, II.: Dorsey. 1975a "A strategy for reformulating the dialectical and functional theories of conflict." Social Forces 53: 433-44. 1975b "Marx and Simmel revisited: recessing the foundations of social conflict theory." Social Forces 53: 618-27. Van den Berghe, Pierre 1963 "Dialectic and functionalism: toward a theoretical synthesis." American Sociological Review 28: 695-705. Wright, Eric Olin 1975 "Alternative perspectives in the Marxist theory of accumulation and crisis." The Insurgent Sociologist 6: 5-39. Yaffe, David S. 1973 "The Marxian theory of crisis, capital, and the state." Economy and Society 2: 186232.

Baran, Paul A. and Paul Sweezy 1966 Monopoly Capital. New York: Monthly Review. Cogoy, Mario 1973 "The fall of the rate of profit and the theory of accumulation: a reply to Paul Sweezy." Bulletin of the Conference of Socialist Economists 52-67. Dahrendorf, Ralf 1959 Class and Class Conflict in Industrial Society. Stanford: Stanford University Press. 1964 "Towards a theory of social conflict." Pp. 98-111 in Amitai and Eva Etzioni (eds.), Social Change. New York: Basic Books. Durkheim, Emile 1964 The Division of Labor in Society. New York: Basic Books. Gottheil, Fred M. 1966 Marx's Economic Predictions. Evanston: Northwestern University Press. Hodgson, Geoff 1974 "The theory of the falling rate of profit." New Left Review 84: 55-82. Kaufmann, Walter 1965 Hegel. New York: Doubleday. Lukacs, Georgy 1971 History and Class Consciousness. Cambridge, Ma.: Massachusetts Institute of Technology Press. Mandel, Ernest 1968 Marxist Economic Theory. 2 Vols. New York: Monthly Review. Marx, Karl [1867] Capital, Vol. 1. New York: International 1967 Publishers. [1843] "Critique of Hegel's philosophy of right." 1972 Pp. 11-23 in Robert C. Tucker (ed.), The Marx-Engels Reader. New York: Norton. [1849] "Wage labour and capital." Pp. 167-90 in 1972 Robert C. Tucker (ed.), The Marx-Engels Reader. New York: Norton. [1857] Grundrisse. New York: Vintage. 1973 Marx, Karl and Frederick Engels [1848] Communist Manifesto. Pp. 331-62 in

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