A Sketch of a Revision to Orthodoxy

Dynamics beyond class struggle in historical materialism

One of the troubles of Marxism is that it is a theoretical project vast in scope and text. From the start of the Communist Manifesto to Volume 3 of Capital we get thousands of pages of political and economic analysis. And this doesn't even include what was left unwritten, the full theoretical explanation of class and the state. Because of this unfinished state of Marxist theory, the work of revising earlier pieces of the canon based on later breakthroughs is also incomplete. What's worse, most revising, that is revisionism, is done not on the basis of theoretical refinement, but on simple empirical observations which may be more historically contingent, see the first revisionism crisis and third worldism for example. Thus a full investigation on the consequences and meaning of these later developments gets lost.

One of these breakthroughs, which I believe is both extremely important and under appreciated, is the Kalecki profit equation, which distilled the scientific insight of much of Marx's work in volumes 2 and 3 of Capital. You still see today the guffaws and knowing glances whenever a Marxist-Leninist or Maoist brings up the well trodden formulas and slogans of yesteryears: “fascism is capitalism in decay”, “communism is Soviet power and the electrification of the whole country”. For a while, I'd say associated with the post-structural turn which indeed originated with many thinkers disillusioned with official communist parties, the notion of such simple formulas themselves was treated with contempt. But formulas and equations allow us to think much more concretely than complexified theories which can mean anything or nothing. It's for this reason that I am totally for the return of the formulas, such as the Merger formula which has made a comeback with the rise of neo-kautskyism: “socialism is the merger of socialist intellectuals with the working class”.

I will attempt to begin a draft sketch here of necessary revisions to Marxist orthodoxy, based on a series of formulas which form the basis of Marxist orthodoxy itself. The economic formulas are ones that I've been studying for some time now, first to understand their basic properties as mathematical formula, and then to understand the implications for a scientific study of society and history. Over time, as I simplified the equations and their dynamics to their most basic forms, it became clear that there was a fundamental dynamic which was not adequately addressed by either orthodox Marxism as it exists now, nor bourgeois political economy and social science.

Marxism, borrowing from the class analysis of the classical political economists and that of the ancients, began with one simple formula: “The history of all hitherto existing societies is the history of class struggles.” This conflict was later formalized by Marx's explanation of surplus controlled by the ruling class ultimately being derived from exploitation of the working class. Class struggle is founded on this basic material fact, which echoes through the rest of society, that the ruling class wishes to exploit, and the working class doesn't wish to be exploited. Capital Volume One was one of a series of projects which attempted to explain the economy in terms of the income to each class in society, following after and critiquing Smith and Ricardo. But what's notable is that, though hardly as much in the spotlight as the theory of exploitation, there was one other key relationship which determined the income between the social classes: the relationship between investment and depreciation.

To simplify this discussion, I'll introduce the elementary form of the Kalecki profit equation here, as well as the flow/stock equation for the capital stock:

Profit = Capitalist Consumption + Investment

Capital Stock = Investment - Depreciation

Since depreciation is determined by a schedule of old investment aging out of use, this shows that capitalists, when deciding how much of surplus to consume, also decide today's investment levels and tomorrows depreciation levels. Keynes independently came to similar conclusions without using the categories of class analysis by showing that Investment = Income - Consumption.

To put this in context, let's bring in a few more equations.

Marx helpfully provides the categories of variable capital, constant capital, and surplus to break down total value into, such that we can say:

Value = Variable Capital + Constant Capital + Surplus

This equation, I claim, is directly equivalent to modern equations used to describe national income. Such that we can say, analogously:

Income = Wages + Depreciation + Profit

In addition, it's useful to understand the exact relationship between depreciation and profit accounts through the following equations.

Gross Investment = Depreciation + Net Investment

Such that, when we combine Kalecki's equation for profit into this tripartite equation for income, the investment which is equal to profit when added to capitalist consumption is net investment, since otherwise we would need to include depreciation within profit. To understand why, consider that in a situation with negative net investment you can use the depreciation account to fund capitalist consumption, i.e. like a landlord who doesn't spend anything on repairing a building and uses all of the rent collected on his personal consumption.

With this additional information, we can rewrite the Income or Value equation as:

Income = wages + depreciation + (capitalist consumption + net investment)

Now we return to the rate of exploitation for a moment. Marx typically writes the formula for the rate of exploitation as S/V, however he also compared this to another common formulation, which is Surplus/Total Value. Marx favors the first formulation over the latter, not for a specific technical reason, but because the former makes it appear as if the total value is being divided up between the classes according to their efforts in creating the total value. This is the perspective typical of bourgeois political economy¹. Indeed, Marx affirms that it's possible to derive one formula from the other, showing that this rejection is one driven less by scientific investigation and more by ideological differentiation. For the purposes of this essay, however, it will be more useful to employ an intermediate formulation, that of S/(S+V) to describe the rate of exploitation. This is the mirror image of the rate of investment formula, of I/(S+C), which, as I’ve shown elsewhere, will converge to C/(S+C) when the investment rate is stable over time².

But here there's also something odd. Marx says that this formulation, of Surplus Value/Variable Capital is equivalent to the formula Surplus-Labor/Necessary-Labor. Now, if that's the case, in which of these two categories (Surplus-Labor or Necessary Labor), or perhaps a phantom third, does constant capital lie? At some points Marx does refer to Constant Capital specifically as Dead Labor, and the constant expansion of Dead Labor over the living is given as the intrinsic logic of Capital. When we arrive at Volume 2, where the economy is divided clearly into two departments, one which produces the means of production and the other the means of consumption, this odd omission remains despite the fact that it is clear that a large portion of the social working day is taken up by the production of constant capital, that which is excluded from the living labor of S and V.³

Marx made it plain through his schema of two departments and his critique of Smith for making no distinction between constant capital and variable capital, that constant capital, and therefore also depreciation and investment, could not be consumed. And yet, Marx did not fully develop this point, that the investment of the capitalist class presented a trade off against consumption, that the investment rate was as much of a free historical variable as the rate of exploitation.

Instead, Marx bases his argument regarding falling profit rates on assumptions of capitalist competition forcing increased investment. Indeed, this logic, of competition forcing capitalists to embody the logic of capital, thereby expanding the forces of production, socializing it, and applying science and technology to its upmost, is identical to the logic Marx cites at the end of Volume 1 of Capital. It's conceivable, but extremely unlikely, for a radical divergence in costs between the two departments to lead to a disruption of this correlation, between falling profit rates and the development of the logic of capital. Indeed, the story of neoliberalism is the story of attempting to destroy the logic of capital to undermine the tendency for the rate of profit to fall, something that only makes sense in the context of this correlation. But this is exactly the problem: the logic of capital failed. If the accounting logic of Kalecki and Keynes wasn't enough, neoliberalism gave historical proof that the investment rate, even on a secular level, was not mechanistically determined as a variable in such a way that it could be bracketed out.

Between Kalecki, Keynes and Marx, only Kalecki stressed the importance of past decisions, of previous levels of investment and depreciation, as well as past profit levels, as the primary determination of investment⁴. For Marx, the main determination of investment was the technical requirements forced upon businesses by competition, and for Keynes, the primary determination was the marginal propensity to consume. But even Kalecki, in retrospect of the many decades that have transpired since his writing, underestimated the importance of this discovery, and the underlying relationship between investment decisions and the existing capital stock.

To see what I mean, let us review the basics. It is possible to model a capitalist economy through time with the following variables: total labor power employed, the rate of exploitation, the rate of investment, and the general depreciation rate. This is the approach I took in my simulations⁵ of the rate of profit.

A simple overview:

C = Depreciation

V = (Total labor employed - Depreciation) * (1 - Rate of Exploitation)

S = (Total labor employed - Depreciation) * (Rate of Exploitation)

Where depreciation is determined by a depreciation schedule filled with previous investment decisions:

Depreciation = (Sum of Previous Investment - Sum of Previous Depreciation) * Depreciation Rate

[Gross] Investment = (S + C) * Investment Rate

Whereas the rate of exploitation, S/(S+V), regulates the relationship between V and S, the rate of investment, I/(S+C), given a constant depreciation rate, regulates the relationship between C and S.

Since investment necessarily comes from surplus perhaps it makes sense to relate C more to surplus labor than necessary labor. But from another perspective, the use values that C represents are also necessary for any given production of use values, they are technically necessary for producing a certain output.

It's at this point I'd like to bring in another formula, although not a mathematical one this time. This formula, distilled by Althusser, states that “A mode of production is the unity of the productive forces with the relations of production.” It's a formula I've been thinking about a lot recently, as I believe it may provide us a way to cleanly represent this dichotomy. The rate of exploitation can be said to describe the internal dynamics of the relations of production, those relations between employee and employer, whereas the investment rate can be said to describe the internal dynamics of the forces of production. It is the unity of these two dynamics which creates the whole system, its rise and fall, its mundane operation, its infrastructure, physical or otherwise.

What has not been grasped previously, whether by Marxists or bourgeois economists, is that, just like how the rate of exploitation is the mathematical formulation that lies behind class struggle, the investment rate too lies behind a struggle, and one that cannot be made identical to the class struggle. This is the struggle internal to the surplus, not of man against man, but of man against machine, of the social classes against the forces of production.

As Marx, Kalecki and Keynes all make abundantly clear, what is invested cannot be consumed. Keynes, still trapped in the psychologizing neo-classical framework, assumed that this meant that investment was determined by consumption choices rather than consumption budgets determined by the requirements for investment. These investment requirements, if there is strong competition, will follow the path laid out by Marx, of an ever increasing tendency for the investment rate to grow and with it the capital stock and the falling rate of profit. If, on the contrary, the controllers of surplus have monopoly or oligopoly over production, or there is a general political coalition among the ruling class which prohibits this escalating competition, the investment rate will be either stable or falling. Indeed, this is something of a contradiction in Marx's predictions, for the tendency for the falling rate of profit, and consolidation of industry leading to monopoly capital, while two sides of the same coin, eventually undermine one another. Left to their own devices, the ruling class will not allow itself to be liquidated, whether by the market dynamics of competition or anything else. Monopoly capital, should it have the political power to do so, will assert itself to prevent the liquidation of the whole capitalist class and thereby hold off its ultimate death knell.

Hence, the story of the 20th century is the emergence of state capitalism as Marx predicted, but then its premature abortion whenever this state capitalism actually threatened to undermine the capitalist class. And this transition, everywhere it was to be found, between state capitalism and neoliberalism, was accompanied by a change from a rising investment rate to a falling or static investment rate.⁶

Most left wing historians have focused only on the class struggle dimensions of this transition, as well as other historical conjunctions, and indeed there is plenty fruitful analysis there. However, the attempts to articulate the relationship between class struggle and the development of the productive forces is under theorized, and indeed cannot be fully theorized until the dynamics of the productive forces are given their theoretical autonomy. Some, such as the unequal exchange theorists, posit that high wages and a low rate of exploitation are fundamentally necessary for development of the productive forces, even though the ur-example of industrialization, Britain, doesn't follow this pattern, and neither does post-Deng China. Others, such as communization theorists, suggest that the development of the productive forces always leads to immiseration and greater exploitation. Between these two extremes, other approaches include dismissing the relevancy of productive forces to historical materialism, and focusing exclusively on the relations of production such as Maoists and communist degrowthers, as well as others who do the opposite, collapse class struggle only to the development of the productive forces, such as Dengists and MAGA Communists. In contrast, I propose that we can think of class struggle and the “machine struggle” as happening across two different axes. Class struggle would be measured by the rate of exploitation, and machine struggle would be measured by the rate of investment.

I created this graphic built on the typical political alignment chart to illustrate this, as there is some truth to the notion that the level of exploitation relates to the left vs right political axis, and the level of investment does relate to the authority/state centralization axis. High investment levels require both the existence of surplus, but also a disciplining force on that surplus, which, whether administered via a market or other means, requires some strong authority.

The examples listed above are taken from the real world, and likely lay towards the center of the graph. Each farthest most tip represents something of an ideal type. In the top left tip we find high communism as Marx described it. In the top right tip we get some sort of techno-fascism like that associated with Nick Land or the Matrix movies. In the bottom left is a pure primitivism. And in the bottom right is a regime characterized by minimal accumulation but maximum domination, a world of chattel slavery that only produces consumption goods and services, perhaps the world approximated by the fantasies of an arch reactionary Nietzschean such as Costin Alamariu. There may be even more extremes possible if we relax the constraint that these theoretical societies must be reproducible (i.e. require that workers have goods required for bare biological subsistence), and these extremes may indeed have historical examples, such as pure pillaging or hypothetical examples, a rogue AI paving the world over to make paperclips.

This framework also allows us to analyze how societies move across these quadrants over time. To take the example of capitalism in Britain, it went from the lower right, to the upper right, to the upper left, and then back to the lower right. While I haven't completed a study of other major empires, I'd suspect that they follow a similar trajectory.

Some might object that the growth of the productive forces, and thus the growth of the rate of investment, does not actually entail any real cut to consumption, after all, assuming that investment is put to good use it should entail an increase in the real output of society. However, class societies, in their basic structure, put a wrinkle into this neat story. If there is a ruling class, a class which, separate from general society, controls the surplus, then there will be natural limits to this logic of increasing investment to increase personal consumption. In pre-capitalist societies without general commodity markets, investment was done to create boutique production processes for personal consumption of the investor, hence Feudal lords invested in their own estate for their own personal consumption, such as paying for the tools required by their personally employed artisans. The monopolistic nature of guilds also discouraged more investment than was absolutely necessary to maintain the craft. While there was no such contradiction between investment and consumption for the Feudal lord, who was only choosing between different types of consumption at different costs, there was a contradiction for society as a whole, for there was little incentive to invest in order to boost the productivity of the process of production: peasants gained nothing from exceeding production expectations because their surplus was confiscated by the Feudal lords anyway. Capitalism ostensibly solved this problem by allowing the owners of capital to monetize their investments such that productivity gains could be translated into temporary competitive advantage on the general commodity market, the proceeds of which they could then exchange for any consumption goods they desired on the same general commodity market. However, a new problem emerged, after the initial rise in profitability disappears due to competitors catching up in productivity, the gains of more use values being produced becomes widely dispersed. Just how important is it to the maker of washing machines that they've become 20% less expensive in real terms if washing machines only amount to a fraction of a percent of their annual consumption budget? This creates a free-rider problem: everyone benefits from productivity improving benefits, but, for capitalists who lose out on consumption to achieve them the loss in use values through exchange of their profits is almost certainly greater than the gain in use values from cheaper outputs from their industry. In a socialist society, this free rider problem would dissolve itself because both the costs and benefits of investment would be fully socialized, but in capitalism this means that there are strong political and personal incentives for the capitalist class as a whole to become that landlord who pockets all the rent without doing the repairs.

Given all this, what, precisely, needs to be revised in Marxist orthodoxy? Marxism came about in the young age of capitalist industrialization, despite contemporaneous pronouncements of its lateness, hence it saw as natural the conditions of the upper right quadrant, of a high rate of exploitation and a high rate of investment. There were so many opportunities to massively boost productivity and output through rationalizing the division of labor and mechanizing production in simple ways that capitalists practically flooded the economy with a rapid increase in the investment rate. In such a situation, the natural focus for a workers movement would be a laser like fixation on the rate of exploitation, and therefore on wages, unions and the length of the working day. But Marxism struggled to adapt to the situation of the upper left and lower right quadrants.

After the rise of the USSR and social democracy, the workers movement became absorbed into professional state apparatuses⁷. This did effectively result in decreasing the rate of exploitation across the world, but this institutionalization also subordinated the worker’s movement to the existing systems for circulating surplus. In social democracy and high Fordism, the contradictions of this machine struggle between investment and capitalist consumption took the worker’s movement by surprise, undertheorized as it was. Attitudes like those of the Frankfurt school that the economic contradictions of capitalism had been resolved by monopoly and state management, stances which are echoed today in the pages of publications like Jacobin on the left, were popular. The dismantling of social democracy and high Fordism by the politically retrenched capitalist class, which largely still retained its ability to control the investment rate and used this right to great effect, therefore also dismantled the unions and political organizations of the worker’s movement. In the Soviet Union, where the capitalist class had effectively been liquidated a generation earlier, this problem still emerged. Here, managers who, even though they could not personally consume the entirety of the surplus they controlled, still retained benefits from this control, including diverting portions of it to the black market, or wielding it as bureaucratic leverage. While the central planners diverted immense resources towards investment, and had an abnormally high investment rate, managers would block the implementation and utilization of new investments because the resources they were granted control over was determined by the technical requirements of production, hence lower productivity meant more resources they controlled. Since the worker’s movement in the USSR was totally subsumed into the state and centralized under the authority of the Communist Party, which banned any opposition factions, there was no alternative for the worker’s movement when this system began to fail.

In both cases, the contradictions of incentives associated with investment took Marxists and the worker’s movement by surprise. I present these revisions as an attempt to advance a general theory which will prevent such surprises in the future. In addition, there are implications for more immediate socialist strategy, which both emphasizes the importance of getting control over investment decisions (seizing the heights of industry), as well as maintaining sufficient competition to ensure that these investments are actually utilized effectively (the theoretical development of socialist competition and managers). Just as well, while in the upper left quadrant, socialist strategy and messaging should highlight the risk that capitalists present towards investing at the most socially optimal levels, that at any time they may decide to throw a wrench into the system due to their private interests. And in the bottom right quadrant, socialist strategy should emphasize how the worker’s movement is the only credible political force fighting for investment levels which improve standards and costs of living. This happens to be the quadrant we find ourselves languishing in now, and also why sloganeering about degrowth and against development is a genuine mistake.

Marxism set out from the position that class struggle was the primary motor of history, but, as it was a scientific project not merely a political ideology, it discovered a certain excess to this initial framing, something that gestured at other fundamental dynamics. All the dynamics about the investment rate, which were distilled and simplified by Kalecki, can be found in embryo form in the three volumes of Capital. For this reason, I don’t consider this revision to be one that is coming from evidence external to Marxism, but as one which is immanent to the theoretical project of Marxism itself. And I firmly believe that such a revision is necessary for Marxism to continue to persist as a scientific project in the 21st century.

1. Marx, Karl. 2025. “Economic Manuscripts: Capital Vol. I - Chapter Eighteen.” Marxists.org. 2025. https://www.marxists.org/archive/marx/works/1867-c1/ch18.htm.

2. Villarreal, Nicolas D. 2021. “Simulating the Rate of Profit.” Substack.com. Pre-History of an Encounter. January 2, 2021. https://nicolasdvillarreal.substack.com/p/simulating-the-rate-of-profit.

3. Marx, Karl. 2025. “Economic Manuscripts: Capital: Volume Two.” Marxists.org. 2025. https://www.marxists.org/archive/marx/works/1885-c2/ch20_02.htm.

4. Michał Kalecki. 2009. Theory of Economic Dynamics : An Essay on Cyclical and Long-Run Changes in Capitalist Economy. New York: Augustus M. Kelley.

5. The simulations are currently limited by assuming that changes in the value of the capital stock are proportional to changes in total value, however one could easily add adjustments based on relative price changes (multiplying the depreciation schedule by (∆means of production prices - ∆means or consumption prices)). See here for details on how the simulations currently work: Villarreal, Nicolas D. 2022. “On the Determination of Profit.” Substack.com. Pre-History of an Encounter. November 29, 2022. https://nicolasdvillarreal.substack.com/p/on-the-determination-of-profit.

6. Basu, Deepankar, Julio Huato, Jesus Lara Jauregui, and Evan Wasner. 2022. “World Profit Rates, 1960–2019.” Review of Political Economy, November, 1–16. https://doi.org/10.1080/09538259.2022.2140007. https://dbasu.shinyapps.io/World-Profitability/

7. Villarreal, Nicolas D. 2023. “Thesis on the Petty Bourgeoisie as a Revolutionary Class.” Pre-History of an Encounter. October 4, 2023. https://nicolasdvillarreal.substack.com/p/thesis-on-the-petty-bourgeoisie-as.