by Michael Roberts
I have just attended the 9th Annual Historical Materialism conference
in London. It was an opportunity to catch up with some of the latest
academic Marxist research from around the world. I also presented a
paper at the HM conference, but more of that later. The big headline
session is when the previous year’s winner of the Isaac Deutscher prize
for the best Marxist book of the year makes an address and this year’s
winner is announced. Last year’s address was by David Harvey. You can
read my comments on his presentation in a previous post (David Harvey,
Marx’s method and the enigma of surplus, (http://thenextrecession.wordpress.com/2011/11/13/david-harvey-marxs-method-and-the-enigma-of-surplus/).
This year’s winner was David McNally. This was not unexpected.
McNally has already written an excellent account of the recent
capitalist crisis, called Global Slump: The economics and politics of
crisis and resistance on which I have commented before (see http://thenextrecession.wordpress.com/2011/10/26/the-debate-on-the-rate-of-profit-yet-again/) and http://thenextrecession.wordpress.com/2012/05/14/choonara-mcnally-and-the-us-rate-of-profit/. This book is called Monsters of the Market: zombies, vampires and global capitalism.
As its title suggests, it is an exotic and stimulating analysis of
global capital and its crises, drawing on the folklore of occult culture
with terms like monsters, zombies and vampires, also used by Marx in
his accounts of capitalism.
I have to be honest and say that I do know always where McNally is
going with this roller coaster of a read. But I think it is something
like the idea of showing that capitalism really is a monstrous system
that sucks the blood (vampire-like) out of living labour and turns human
beings into robotic zombies. Capitalism turns human beings into
commodities even by selling their body parts after their death (and
sometimes before death). The language of monsters and vampires is not
so much a metaphor of the capitalist mode of production, but a reality. “Capital is dead labour which, vampire-like, lives only by sucking living labour” (Marx).
Human beings are separated from their product of their work by capital
and market exchange and can even become part of the process of exchange
themselves. Under capitalism, human beings are disempowered and become
lifeless like zombies. But all is not lost because the zombies and
monsters can fight back as Frankenstein’s monster did. Indeed, human
beings can kill the monsters of the market. It’s certainly a different
angle on the nature of social relations under capitalism. But I do
prefer the more prosaic but compelling analysis in McNally’s earlier
books on the market (Against the Market, 1993) and capitalist crisis
(Global slump, op cit).
Readers of this blog will know that, being very prosaic myself, that I
would mainly be interested in the latest research on the economic
crisis. In this area, two papers at the HM conference attracted me.
The first was by Sergio Camara, whose paper aimed at identifying the
contribution that finance capital made during the so-called neo-liberal
era from the 1980s onwards towards boosting the profitability of US
capitalism. Camara measures what he called the return on ‘active
capital’ (basically non-financial capital) against the real rate of
interest (which was his measure of the profitability of financial
capital). Camara found that real interest rate was higher than the
return on active capital up to the end of the 1990s, after which the
reverse was true. Thus, the turning point and a marker for the end of
the neo-liberal era was then. I’m not sure his measure of financial
profitability is right, but the turning point rings true with me and
also matches the conclusions of an earlier paper by Camara, which I
highly recommend as showing how profitability is the key causal factor
in this capitalist crisis (Izquierdo rate of profit).
Professor Simon Mohun also presented a paper that tries to develop
the idea of a ‘class rate of profit’. Mohun has raised this concept
before and at the time I had severe objections to his attempt to
redefine Marx’s definition of class and consequently the measurement of
the rate of profit, (see http://thenextrecession.wordpress.com/2012/01/23/a-class-rate-of-profit/). And
my misgivings were not helped by Mohun’s statement that he did not
think that Marx supported the idea of any law of the tendency of the
rate of profit to fall. But I have to say the paper was interesting,
not least because its measurement of the US rate of profit (whether
conventionally done or under Mohun’s ‘class’ definition) showed that
profitability started to fall from 1997 and that US capitalism was in a
downphase. This, of course, is one of my key arguments.
That brings me to my paper (see here:Debt matters).
It is on debt and its connection to the rate of profit and crises.
Anybody who has read my blog knows that I have been arguing that the
reason for the weak economic recovery since the end of the Great
Recession is two-fold. First, the rate of profit in most major
capitalist economies has not recovered and we remain in a downphase for
profitability. And second, the sheer weight of fictitious capital
(mainly debt) is holding down the ability of the productive sectors of
capitalism to restore investment and growth.
My paper quantifies the expansion of fictitious capital since the
1980s in the neo-liberal period and then attempts to measure
profitability against not just tangible (physical) capital but also
against fictitious capital. It draws on the work of Alan Freeman, Tony
Norfield and others is in trying to do this (their papers are cited in
For me, capitalist crises can be triggered by the expansion of
private sector debt rather than public sector debt that obsesses
mainstream economics for both ideological and class interests. In the
neo-liberal era from the early 1980s up to the late 1990s, debt expanded
dramatically and so did financial sector profits.
In measuring corporate profits against net worth of corporations
(tangible + financial assets less financial liabilities) in the US, I
find that the non-financial corporate sector no longer benefited from
the expansion of fictitious capital after the end of the 1990s. Indeed,
profitability against net worth was lower than the rate of profit
against tangible assets by the early 2000s – echoing Camara’s
conclusions (see above).
The neoliberal expansion in fictitious capital that had helped push
capitalism out of the crisis of the 1970s was now laying the basis for
new crises and slumps. The credit crash led to the bailing out of the
banks by the state and sovereign debt then rocketed. Capitalism is now
left with a huge debt burden in both the private and public sector that
will take years to deleverage in order to restore profitability. So,
contrary to the some of the conclusions of mainstream economics, debt
(particularly private sector debt) does matter. Indeed, assuming growth
does not return soon, precisely because debt remains too large, there
are only two ways to reduce the debt burden. The first is through
inflation (reducing the real value of the debt) for debtors at the
expense of creditors. That’s the Keynesian solution. The other way is
through default (you might call it the Marxist way). This is the
quickest way but the most painful for capitalism and the creditors. For
some capitalist economies like Greece, there is no choice: default is
the only exit.
Comments from the floor on my paper only increased my misgivings
about the approach of the paper. The first was a point made by
Professor Fred Moseley that I had left out the role and impact of the
growth in financial debt (i.e the debt of the banks and other financial
institutions) and thus the nexus between that household and sovereign
debt. The finance sector borrowed in order to lend to households to
fuel the property bubble. When that bubble burst, banks got deep into
trouble and their debts had to be covered by the state. The banks could
then deleverage their worthless assets at the expense of taxpayers,
while households defaulted on their mortgages. So it was from
households to banks to government; passing the parcel of debt. I am
going to have to try integrate this into my calculations on
The other misgiving is that I am not sure my current attempt to
measure profitability against advanced capital that includes financial
assets and liabilities works. At the conference, Tony Norfield
presented a paper that modified Marx’s formula for the rate of profit
that incorporated finance capital. This may be a better way forward.
Tony has an excellent blogsite where his papers are available (http://economicsofimperialism.blogspot.co.uk/).
He produced some great data on how US and UK capitalism are the
pre-eminent ‘rentier’ imperialist powers in the world. His index of
imperialism, for example, based on GDP, military power, FDI, bank assets
and foreign currency transactions is a real eye-opener.
As readers know, I am convinced that the most compelling explanation
of the global slump is to be found by starting with profits and then
from the movement in profitability of capital to investment, wages and
consumption. But most don’t agree, even most Marxists. There are other
explanations of the crisis that are based on the view that there is
inadequate ‘effective demand’ (Keynesians) and the more sophisticated
version that might be described as post-Keynesians. If you want to read
the basic ideas and key papers of the post-Keynesians go to http://hussonet.free.fr/postk.htm.
Ozlem Onaran and Giorgos Galanis presented a paper (Distribution,
growth and the crisis: implications for the global economy) that they
said was based on neo-Kaleckian theory. This approach relies on the
work of Michel Kalecki, the Polish radical economist who merged Marxist
ideas with Keynesian ones. I have commented on Kalecki’s ideas in many
previous posts. Neo-Kaleckian theory is an attempt to combine the
Marxist law of profitability as the cause of crisis with the Keynesian
one based on the lack of effective demand, if you like. Onaran and Galanis
analysed the changes in wage and profit share across a large number of
capitalist economies since 1960. They argue that the evidence shows that
the crisis was ‘wage-led’ not ‘profit-led’. In other words, it was the
fall in labour’s share that eventually led to a lack of demand and this
triggered a collapse in investment and growth. Indeed, if labour’s
share had been sustained at 1970s levels, the golden age of economic
growth would have been maintained during the neo-liberal era. So the
crisis of capitalism after the 1980s was due to a lack of wages not a
lack of profits. I think you can find their paper at the International
Labour Organisation site.
Now I have problems with this thesis both on theoretical and
empirical grounds. Theoretically, the Kalecki-Keynesian view of the
capitalist economy is the wrong way round (in particular see my post,
If crises are not profits led, then the solution to crisis could be
just by raising wages. Ah! say the neo-Kaleckians, well then there
would be a profit-led crisis as wages squeezed profits. And anyway,
capitalists would politically block any move to raise wages even if it
is rational to do so. Now I accept that the collapse in labour’s share
was a neo-liberal response to the profitability crisis of the 1970s. It
helped to drive up the rate of surplus value and counteracted falling
profitability. But profitability was still lower than in the golden age
in 1997. And it has been falling (on a trend) from 1997. We may have a
correlation between declining labour share and low growth. But which
way is the causation? Is it not low profitability to poor investment
and thus to low growth, forcing capitalism to squeeze labour?
And I have to comment on a sort of debate between Professors Riccardo
Bellofiore and Fred Moseley on Marx’s schema for understanding capital
and surplus value (Hegel and Marx: lost in translation; the universal and particulars in Hegel’s logic and Marx’s theory of capitalism).
It seemed to me that what was really behind the so-called difference in
translating between the German for Hegelian concepts of ‘appearance’,
‘false appearance’ and ‘essence’ in capitalism was being used by RB to
suggest that capital (as money) was different from its value even at the
level of ‘capital in general’. RB seemed to be hinting that capital
was more than a form (an appearance) of surplus value at this level of
abstraction and thus Marx’s law of value does not explain ‘capital’ in
full. Maybe I am wrong, but that is what I concluded. If so, this
looks like a departure from Marx’s value theory, not a clarification.
Otherwise why make such a big fuss between surplus value and capital?
All this sounds pretty arcane, but
when you read RB’s explanations of the crisis, which I think diverge
from a Marxist view, this may be connected. Last year Bellofiore argued
that the euro crisis is really just part of an overall global debt
crisis. As he put it: “if only the economic analysis of the Left
would have escaped obsolete readings, such as the tendential fall in the
rate of profit or would have resisted the underconsumption temptation
(according to which the global crisis was of a world of low wages), it
could have seen in advance that was the collapse of ‘privatised
Keynesianism’. By privatised Keynesianism, Bellofiore means
uncontrolled private debt expansion that creates an ‘imbalance’ in the
capitalist economy which must eventually be corrected through a crisis.
Thus the cause of capitalist crisis is not the Marxist one of
profitability or rising inequality (currently the vogue among
non-mainstream heterodox economists), but uncontrolled debt,
Minsky-style. For more on this see my post (http://thenextrecession.wordpress.com/2011/10/07/riccardo-bellofiore-steve-keen-and-the-delusions-of-debt/).
I appreciated two main things from the many papers at the conference,
of course, confirming my own prejudices! The first is that the
neo-liberal period is over. The neo-liberal period was a response by
capitalism to the profitability crisis of the 1970s in two ways: a)
reducing the share of labour in total value to boost profitability and
b) expanding fictitious capital (and unproductive labour) and investing
in financial assets over real assets for higher profit. That eventually
collapsed because profitability never recovered to the level of the
Golden Age (because of weakness of productive capital) and even started
to fall back in the major capitalist economies after the late 1990s. As
a result, fictitious capital became levitated like the cartoon Road
Runner before taking a big tumble.
The second is that the very weight of dead capital (fictitious and
real) is so great that it will take years (decades?) to liquidate or
devalue to restore profitability. So we are in a Long Depression. The
monstrosities of the market have returned in a very dreaded way.
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