Autumn Book Club Choice - Adam Smith: The Wealth of Nations

Why do we keep on getting crises ? Production rises, the rate of profit falls. Capital pours into an apparently novel and exceptional way of boosting profit, dot.com - subprime - tulips ... Smith explains it partly.

Quote :

In consequence of better machinery, of greater dexterity, and of a more proper division and distribution of work, all of which are the natural effects of improvement, a much smaller quantity of labour becomes requisite for executing any particular piece of work; and though, in consequence of the flourishing circumstances of the society, the real price of labour should rise very considerably, yet the great diminution of the quantity will generally much more than compensate the greatest rise which can happen in the price.

In my view, it isn't possible to understand the present economic crisis without understanding that the rate of profit falls, and understanding how and why it happens.

Marx understood the implications of the fall in the rate of profit much better than Smith. They are nicely explained in this video, by Mr. Brendan McCooney:

The Fall in the Rate of Profit - 1


The Fall in the Rate of Profit - 2

Indeed. Adam Smith makes good points which have stood the test of time. He saw it all back in 1776 and given us an excellent manual with which we can guide society and the economy.

Actually, there was an Adam Smith on the pitch between Celbridge and Newbridge Sarsfields in the match today ar TG4. I was half expecting him to lob the ball in the net with his invisible hand!

Did you watch those videos Ard Taoiseach? They're worth watching although I'd say you must know it all off by heart.

So, as machines and systems improve the rate of profit falls and the price of labour rises - is that the overall accepted trajectory by all persuasions of economist?

cactus flower wrote:

In my view, it isn't possible to understand the present economic crisis without understanding that the rate of profit falls, and understanding how and why it happens.

Marx understood the implications of the fall in the rate of profit much better than Smith. They are nicely explained in this video, by Mr. Brendan McCooney:

No he didn't. Marx's doommongering of a large, dispossessed and seething mass under the thumb of a tiny elite never came to pass. The middle classes, professional sector and so on were completely missed by Marx and he failed to anticipate the massive improvements in working conditions of employees from the 19th century onwards.

Auditor #9 wrote:

Did you watch those videos Ard Taoiseach? They're worth watching although I'd say you must know it all off by heart.

I must do and see what they have to say.

Quote :

So, as machines and systems improve the rate of profit falls and the price of labour rises - is that the overall accepted trajectory by all persuasions of economist?

It's the overall accepted trajectory of sensible persuasions of economist.

So, it's probably generally the case then that more money gets created from Labour and by Labourers but they would be less and less inclined to invest this money as Capital because profit, in the long term, is generally falling?

What do they tend to do with their sponduliks then, according to economists? Spend it on the bottom rungs of Maslow's Hierarchy? i.e. homebuilding and basics? And then holidays and stuff like that?

Auditor #9 wrote:

So, it's probably generally the case then that more money gets created from Labour and by Labourers but they would be less and less inclined to invest this money as Capital because profit, in the long term, is generally falling?

Well they'd be less likely to invest in areas in which the rate of profit is falling. They would be more likely to invest in new areas created by technology in which fresh opportunities exist.

Quote :

What do they tend to do with their sponduliks then, according to economists? Spend it on the bottom rungs of Maslow's Hierarchy? i.e. homebuilding and basics? And then holidays and stuff like that?

Precisely. As the economy flourishes, burgeons and advances; incomes rise allowing people to spend more on goods and services and move up the Maslow's hierarchy of needs up towards beautiful self-actualisation!

Ard-Taoiseach wrote:

cactus flower wrote:

In my view, it isn't possible to understand the present economic crisis without understanding that the rate of profit falls, and understanding how and why it happens.

Marx understood the implications of the fall in the rate of profit much better than Smith. They are nicely explained in this video, by Mr. Brendan McCooney:

No he didn't. Marx's doommongering of a large, dispossessed and seething mass under the thumb of a tiny elite never came to pass. The middle classes, professional sector and so on were completely missed by Marx and he failed to anticipate the massive improvements in working conditions of employees from the 19th century onwards.

I used to think that too Ard Taoiseach but events have changed my mind. In capitalism, production periodically hits its head off a wall, so to speak, as profit declines and a collapse follows. Each time that has happened in a major crisis it has been enormously destructive, with protectionism and war not far behind. Marx was writing in the mid 19th century: what happened then is that the skilled artisan class declined into the working class, at starvation levels if you read about the weavers. There was a need for an educated layer to administer and manage, but this was not a big class outside the colonial countries. Countries like Britain, Germany and later the US extracted wealth from colonies that allowed them to pay a much bigger layer of not just middle class but also skilled working class people much more than was the case in the colonies. They were also able to use these resources to create a comfort zone for trade union leaders and socialist M.P.s that made them see their future as one of getting a bit more from capitalism.

The reason why Marx is being talked about everywhere now is that people can see the scale of this economic crisis is so great that there won't be resources there to sustain a well-off middle class. There are plenty of formerly middle class people in the US sleeping in cars and there were middle class people yesterday in food queues in Australia. Middle class elderly people will not be able to afford their medecines.

Over the last twenty years there has been a big dividing off process between a very small layer of very,very wealthy people and the rest.

I'm after watching that first video and what I'm getting from it is an argument for labour-intensive, unproductive and inefficient industry in the place of the current consensus.

Businesses have released enormous levels of growth, profit and economic advance through the application of technology and the elimination of labour from the production process.

The fact that unemployment rates, income levels and labour market participation rates have improved over time since the collection of these statistics demolishes the Marxist argument.

Ard-Taoiseach wrote:

I'm after watching that first video and what I'm getting from it is an argument for labour-intensive, unproductive and inefficient industry in the place of the current consensus.

Businesses have released enormous levels of growth, profit and economic advance through the application of technology and the elimination of labour from the production process.

The fact that unemployment rates, income levels and labour market participation rates have improved over time since the collection of these statistics demolishes the Marxist argument.

I don't think that is what it is saying Ard Taoiseach. It is trying to explain the processes through which value is created, accumulated and expanded in the form of money and commodities. It is just pointing out that there is an inevitable tendency for the rate of profit to fall, as businesses have to acquire more complex machinery and equipment to produce more goods, in competition with each other.

I found Smith's very clear explanation of how value is created very helpful in following this. Capitalism in its day was a very progressive system, and transformed the planet and society, but it has got more and more unstable.