Wednesday, December 17, 2014

David Harvey, monomaniacs and the rate of profit

Order this book here
by Michael Roberts

David Harvey is a Distinguished Professor at the City University of New York (CUNY), Director of The Center for Place, Culture and Politics ( and author of numerous books. For over 40 years, he has been one of the world’s most trenchant and critical analysts of capitalist development. And he has developed a global audience for his on-line video lectures on reading Capital, (see

Harvey won the 2010 Isaac Deutscher prize for the best Marxist book of the year with The Enigma of Capital (
I have commented on Harvey’s contributions to Marxist economics on various occasions on my blog.

Professor Harvey has always been critical of the view that Marx’s law of the tendency of the rate of profit to fall plays any significant role as a cause of crises under capitalism. In his award winning book, The enigma of capital, he states that “There is, therefore, no single causal theory of crisis formation as many Marxist economists like to assert. There is, for example, no point in trying to cram all of this fluidity and complexity into some unitary theory of, say, a falling rate of profit”.
Recently, Harvey has returned to this point in the presentation of an essay to the University of Izmir, Turkey in October. You can see a You tube screening of that presentation at

What was particularly interesting to me was that, in his paper, Professor Harvey singles me and my work out as an example of those who support Marx’s law of profitability as the cause of crises. He opens his paper with the words “In the midst of crises, Marxists frequently appeal to the theory of the tendency of the rate of profit to fall as an underlying explanation. In a recent presentation, for example, Michael Roberts attributes the current long depression to this tendency”. He continues: “Roberts bolsters his case by attaching an array of graphs and statistical data on falling profit rates as proof of the validity of the law. Whether the data actually support his argument depends on (a) the reliability and appropriateness of the data in relation to the theory and (b) whether there are mechanisms other than the one Roberts describes that can result in falling profits.”
David Harvey

Harvey is very sceptical of my work and that of others: “Before submitting pacifically to the weight of the empirical evidence that has been amassed by Roberts and many other proponents of the falling rate of profit theory, some serious questions have to be asked”. And he proceeds to ask them.

I think that it is significant that such an eminent Marxist economist (or I think he prefers ‘historical-geographical materialist’) should produce a paper that critiques my work. It is also revealing that he reckons there is a need for him to take to task the work of those supporters of Marx’s law as the cause of crises. Clearly, recent work by such as Carchedi, Kliman, Freeman, Moseley, Shaikh, Esteban Maito, Tapia Granados, Peter Jones, Mick Brooks, Sergio Camara and others, is gaining some traction. So much so that, recently, one Marxist economist from the ‘overproduction school’ called me a ‘monomaniac’ in my attachment to Marx’s law of profitability as the main/underlying cause of capitalist crises (see Mike Treen, national director of the New Zealand Unite Union, at the annual conference of the socialist organisation Fightback, held in Wellington, May 31-June 1, 2014, and a seminar hosted by Socialist Aotearoa in Auckland in November 10, 2014 —

Anyway, I approached David Harvey for his paper and suggested that we conduct a debate on the issues involved. Professor Harvey graciously agreed that a debate would be a great idea and that we could conduct this debate in public, on my blog and elsewhere. So I attach Harvey’s paper Harvey on LTRPF but also point out to you that it will eventually appear in its final form as David Harvey, Crisis theory and the falling rate of profit; to be published in 2015 in The Great Meltdown of 2008: Systemic, Conjunctural or Policy-created?, edited by Turan Subasat (Izmir University of Economics) and John Weeks (SOAS, University of London); Publisher: Edward Elgar Publishing Limited.

It is not possible to do justice to Professor Harvey’s critique of the supporters of Marx’s law as the cause of crises. You must read the whole paper. But in essence, Harvey argues that the LTRPF is not the only or even the principal cause of crises. Thus it cannot be the basis of a Marxist theory of crisis.

Indeed, as he said above: “There is, I believe, no single causal theory of crisis formation as many Marxists like to assert”. He is sceptical of Marx’s law being relevant and accepts the views of MEGA scholars like Michael Heinrich that Marx also probably became sceptical and dropped it. “I find Heinrich’s account broadly consistent with my own long-standing scepticism about the general relevance of the law” (see my posts on Heinrich, Indeed, Harvey has doubts that it is a law at all: “we know that Marx’s language increasingly vacillated between calling his finding a law, a law of a tendency or even on occasion just a tendency”.

Harvey argues that we proponents of Marx’s law as the basis of a theory of crises are one-sided and monocausal in our approach because: “proponents of the law typically play down the countervailing tendencies”. Thus we rule out many features of capitalism that may be better causal factors in crises. For example, we ‘monomaniacs’ (to use Mike Treen’s term) “suggest financialization had nothing to do with the crash of 2007-8. This assertion looks ridiculous in the face of the actual course of events. It also lets the bankers and financiers off the hook with respect to their role in creating the crisis.” Moreover, Professor Harvey pours cold water over our “array of graphs and statistical data on falling rates of profit as proof of the validity of the law”.

He doubts their validity because there is plenty of evidence in the ‘business press’ that the rate of profit, or at least the mass of profit, in the US has been rising, not falling. And even if it is correct that there was a post-war fall in the rate of profit, “Profit can fall for any number of reasons”. He cites a fall in demand (the post-Keynesian explanation); a rise in wages (the neo-Ricardian profit squeeze explanation); ‘resource scarcities’ (Ricardian); monopoly power (Monthly Review school view of rent extraction from industrial capital).

Professor Harvey prefers other reasons for capitalist crises than Marx’s law. There is the effect of credit, financialisation and financial markets; the devaluation of fixed constant capital in the form of obsolescence; and, above all, the limits on consumer demand imposed by the holding down of real wages relative to capitalist investment and profits. He wants us to consider alternative theories based on the “secondary circuit of capital” i.e. outside that part of the circuit to do with the production of value and surplus value and instead look at that part concerned with the distribution of that value, in particular ‘speculative overproduction’. Again, he wants us to look at the crises caused by a redistribution of the value created by ‘dispossession’, a form of ‘primitive accumulation’ where wealth is accumulated by force or seizure and not by the exploitation of wage labour in production as in fully developed modern capitalism.

Well, Professor Harvey has provided a new opportunity to debate these points and hopefully for all of us interested in this to gain a better understanding of what causes crises under capitalism so we can resist and overcome the power of capital eventually. I have replied to Professor Harvey’s paper as best as I can with my own, which can be found here reply-to-harvey.

Naturally, I do not agree with Harvey on any of his points. I think that Marx’s law of profitability does provide the cornerstone of the Marxist theory of crisis, which I think is coherent and ascertained from Marx’s works, mainly Grundrisse and Capital. I don’t think Marx’s law is logically incoherent or ‘indeterminate’ or that he dropped it in his later years, as Heinrich suggests. As for being monomaniacal or one-sided, I agree with G Carchedi: “if crises are recurrent and if they have all different causes, these different causes can explain the different crises, but not their recurrence. If they are recurrent, they must have a common cause that manifests itself recurrently as different causes of different crises. There is no way around the ”monocausality” of crises.”

I don’t think that I or other supporters of Marx’s law as the basis of the cause of crises have ignored the countervailing tendencies to the tendency of the rate or profit to fall as capital accumulates. That’s because the law is both the tendency and countertendency. Henryk Grossman, supposedly the most ‘monomaniacal’ of all supporters of the law as a theory of crises, in his book devoted 68 pages to the tendency and 71 pages to all the countertendencies.

Anybody who has read my book, The Great Recession, knows that I fill large amounts of space to the role of the US housing boom and bust, the banking crisis, exotic and toxic derivatives etc. Indeed, my current blog has at least 25 posts on the relation between profitability, credit (debt), banking and the crisis. And in 2012, the year after DH gave the Isaac Deutscher memorial speech at the Historical Materialism conference, I presented a long paper entitled Debt Matters (Debt matters). The role of credit in crises is important and I and others have spent some time trying to incorporate that into a Marxist theory of crisis.

As for the data, well, I and many others have painstakingly tried to ensure proper empirical analysis and statistical techniques to justify the case that there has been a secular fall in the rate of profit of capital in all the major economies, as well as a cyclical process(or waves) of profitability when countertendencies come into play. If these data are wrong, then I await alternative data from Professor Harvey. I don’t think anecdotal evidence from the business press is sufficient.

My and the work of others have enabled us to get a causal sequence of the development of capitalist crises. As Marx himself argued, there is a point in the accumulation process when the rate of profit on the stock of investment falls to a level where new investment actually leads to a fall in the mass of profit and new value. This ‘absolute overaccumulation’ of capital is the trigger moment for the collapse of investment and then bankruptcies, unemployment and falling incomes – in other words, a slump. A study by Tapia Granados has shown this causal sequence holds for the US economy since 1945 (does_investment_call_the_tune_may_2012__forthcoming_rpe)_and I and G Carchedi have shown it holds for the Great Recession too (The long roots of the present crisis). Profits call the tune. This seems to me a much more compelling case for explaining crises (with even predictive power) than falling back on various theories from bourgeois economics based on credit booms (Austrian school), financial speculation (Minsky), lack of demand (Keynes); low wages and inequality (Stiglitz and the post-Keynesians), as I think Harvey does – see my paper, The causes of the Great Recession (The causes of the Great Recession).

All the alternative theories have one thing in common: that, if their particular theory is right, then capitalism can be corrected through financial regulation (Martin Wolf, James Galbraith), higher wages (post-Keynesians), or progressive taxation (Piketty) without removing the capitalist mode of production itself. That’s because these theories argue that there is no fundamental contradiction in capitalist mode of production that causes recurrent and cyclical crises (as Marx claimed); there are only problems with circulation.

I am ‘monomaniacally’ convinced that the theory of crisis must be found in the production process even if it manifests itself in circulation and realisation. Appearances can be deceiving.

Anyway, let’s discuss.

No comments: