Marxism and economics: Choonara, McNally and the US rate of profit

by Michael Roberts

Dave McNally wrote a very good book last year called, Global Slump (http://www.amazon.co.uk/Global-Slump-Spectre-David-McNally/dp/1604863323Global Slump).  Joseph Choonara wrote a critical review, Once more (with feeling) on Marxist accounts of the crisis, http://www.isj.org.uk/index.php4?id=762&issue=132).  In his review, Choonara says that McNally’s claim of a doubling in the rate of profit from 1982 to 1997 is incorrect.  Choonara goes on to argue that just looking at the cyclical rise in US profitability from a trough in 1982 to a peak in 1997 leaves out the secular downward trend that is evident in the US rate of profit in the post-war period.  Choonara is right, but that does not deny the cyclical upturn.  There is a secular downward trend, but it is broken up by cyclical up phases that can last some time, decades.

So Choonara’s criticism of McNally on this score seems harsh.  McNally was not suggesting that the rise in the rate of profit after 1982 meant that Marx’s law played no role in the crisis.  On the contrary, McNally in a recent paper refers to the fact the mass of profits in the US rose only 6% from 1997 to 2007 and then fell absolutely in 2006 (quoting my post, Profits and investment in the economic recovery, 29 December 2010 by the way!).  As he says “underlying the crisis was a peak in business profits which then turned into a classic expression of the contradictions of capitalist accumulation, which rendered the system vulnerable to a dramatic financial shock”.  McNally

McNally says that some Marxists have become obsessed with the Golden Age of capitalism from 1948-65, regarding it as an exceptional period that eventually gave way to the long-term reality of secular decline.  In contrast, McNally points out that the period from 1982 can hardly be called a period of decline for US capitalism if profitability and growth are the criteria.  Profitability rose and so did economic growth compared to the period of falling profitability from 1965-82.  I had made this same point in my book, The Great Recession, when I showed that when profitability rises, so does economic growth under capitalism and when it falls, growth is generally slower.  It is what you would expect when an economy is driven ultimately by profitability.  Choonara seems to want to deny this by arguing that growth was slower from 1982 to now compared to the Golden Age.  But that is an unfair comparison, as growth was actually faster from 1982-97 than between 1965-82, but is now much slower in the downward phase of profitability since 1997.

McNally has now responded to Choonara’s criticisms in Explaining the crisis or heresy hunting? A response to Joseph Choonara, ISR Issue: 134.  In this, McNally comments: “My concern in this area was not with the methodologies and preferred data sets for tracking movements in the rate of profit, which involve questions that lie far beyond the range of Global Slump. My interest was in showing that, notwithstanding differences in methodology, multiple Marxist studies display a protracted upward trend in the rate of profit in the US from the low point of the last crisis until 2006-7.

McNally refers to my work in a note that says “At the time of writing Global Slump, I was not acquainted with the very important work of Michael Roberts, particularly his book The Great Recession (Roberts, 2009). Using historic costs rather than replacement costs for measuring capital stock, Roberts too comes to the conclusion “that the period of 1982 to 1997 (the so-called period of neoliberalism) does show a rise in profitability, however you measure it” (Roberts, 2012). Focusing more on the over-accumulation side of the equation, my argument about an upward cycle from 1982 to 1997 that was then extended increasingly through credit-creation accords closely with Roberts’s findings.”

I think McNally is trying to argue that we cannot consider the neo-liberal period one of renewed crisis like the period of 1965-82, and that the crisis of capitalism (at least in economic terms) did not continue without abate through the last quarter of the century, as Choonara seems to argue.  However, McNally goes too far to suggest that the neoliberal period was one of boom equivalent to 1948-73.  Also, I think the downphase or new period of slump began in 1997, although McNally is right to say that the massive expansion in fictitious capital in this first decade was a response to the end of the neoliberal ‘boom’ in the rate of profit.

As readers of my blog will know, ad nauseum, I think there has been a secular downtrend visible in the US rate of profit, but there is also a profit cycle in the US capitalist economy that lasts from trough to trough about 32-36 years.  I reckon that the last peak year of 1997 set the marker for the end of the ‘neoliberal’ up phase from 1982.  The down phase then began to exert pressure on the US capitalist economy.  It forced an even bigger switch from productive investment in manufacturing, transport and communications into financial and property sectors to maintain profits through the expansion of what Marx called fictitious capital, or credit.  That laid the basis for the crisis in 2007 and the ensuing major slump.  In that sense, Marx’s law of profitability did operate to cause the crisis.  The great up phase in profitability after 1982 had finished in 1997, some ten years before the Great Recession.  We are still in the down phase, which will last for at least another three to seven years, on my reckoning, in what is really a long depression like the 1880-90s in the US and the UK.

But remember the data for these arguments are for the US only.  I’m working on an analysis for the G7 economies and beyond at the moment.  That may produce some interesting conclusions.