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The long depression and Marx’s law – a reply to Pete Green
by Michael Roberts
Pete Green has now taken up the cudgels in the debate that
Jim Kincaid and I have begun over the causes of regular and recurrent
crises in capitalist production and in particular the Great Recession. He makes a welcome and considered critique of my views,
as expressed in my book, The Long Depression and in recent discussions
at the Historical Materialism conference in London earlier this month. I
think he raises some new and important points in his critique, which,
as he says, will require further debate and research.
Like Pete, I cannot deal with all arguments in this short reply on my blog but I’ll do my best to take up some key ones, but it still makes this post long enough!
Pete starts by saying he is not going to dispute the data on the rate of profit that I have presented, mainly for the US, but also for other economies. But apparently he “shares Jim Kincaid’s scepticism about reliance on US national income accounts as source for corporate profitability”. Actually, I am not sure Jim is sceptical of the official data. Indeed, he has said that I have used the data accurately and as Pete says, “there is no adequate alternative available for those engaged in empirical investigation”.
And that is what the bulk of my research is: engaging in empirical investigation to verify or otherwise particular theories or laws. In my view, too many Marxist economists have ignored empirical work and concentrated on interpreting (and re-interpreting) Marx’s writings and ‘what he meant’, rather testing his laws of motion of capitalism to see if they best fit the facts.
Luckily, I am not alone in doing empirical investigations – Andrew Kliman has done prodigious analysis, Anwar Shaikh’s new book is a gold mine of empirical studies, G Carchedi has also tested Marx’s law with the evidence. And there is a host of new young scholars internationally doing such work. Carchedi and I will be publishing a book of these research projects next year that empirically support Marx’s law of profitability.
But Pete wants to “step back” from any debate over the stats and consider the “theoretical framework” of my book. He does not think that Marx’s law of the tendency of the rate of profit to fall is “sufficient for an explanation of the cyclical fluctuations that have characterised capitalism”. Why not? Well, it seems that, while he does not deny “the logical coherence” of Marx’s law of profitability and its relevance to “whole period since the 1960s”, using the law to explain regular crises or “fluctuations” is “over-reductionist” and “two-dimensional”, especially in reference to the latest crises (ie the Great Recession?).
So Pete reckons that Marx’s law of profitability is logically coherent but irrelevant to an understanding of crises. It’s ‘overreductionist’ (or maybe just reductionist?) to claim its relevance to crises. There are more dimensions than two (presumably the tendency and the counter-tendency?), he says.
This does not seem the way to approach the relevance of Marx’s law to crises. Pete says that the law is not “sufficient” to explain crises. But does he think it “necessary”, which is not the same thing as sufficient? If he does; how does it fit in? You see, I think we must start with Marx’s approach, which was to abstract from reality the underlying essential (necessary) laws of capitalist motion and then add back concrete features of capitalism to reach the immediate. In only that way can we identify the causes of crises under capitalism. In that sense, Marx’s law can be seen as the underlying or ‘ultimate’ cause of recurrent crises, which can be triggered by ‘proximate’ events i.e. (oil price crisis, stock market bubble, real estate crash etc). Then we have ‘sufficient’ causes. For more on this, see my paper, Presentation to the Third seminar of the FI on the economic crisis
This approach thus makes it transparent that a financial crash or credit crisis is not the essence of crises in capitalism, but their surface manifestation. Jim Kincaid has done a new post in which he outlines what Marx said about the 1847 crisis in Britain making the point that “the falling rate of profit plays no role in Marx’s account”, considering only the financial speculation and credit crunches. Jim claims that for Marx, “The fall in the rate of profit of these businesses is only a transmission mechanism. What matters are the causes of bankruptcy and business collapse.”
At this point, I am reminded of what Marx said a little later in 1858 during the first great international crisis of the 19th century: “What are the social circumstances reproducing, almost regularly, these seasons of general self-delusion, of over-speculation and fictitious credit? If they were once traced out, we should arrive at a very plain alternative. Either they may be controlled by society, or they are inherent in the present system of production. In the first case, society may avert crises; in the second, so long as the system lasts, they must be borne with, like the natural changes of the seasons”. Dispatches for the New York Tribune, Penguin p201.
As Marx puts it, ‘over-speculation and fictitious credit’ arise from regular crises in the capitalist system of production. They cannot be eradicated by social action unless the mode of production is replaced. It is not possible to separate crises in the financial sector from what is happening in the production sector.
Pete refers to the debate between Marxist economists on the cause of crises in the 1920s and 1930s, as described in Richard Day’s excellent book, The crisis and the crash. As Pete says, the debate was between those who explained cyclical fluctuations as due to disproportionality between departments of production and those who reckoned it was due to the ‘limited consumption of the masses’, ie underconsumption. As Pete says, “Marx’s tendency for the rate of profit to fall, as a function of a rising organic composition of capital, plays no role at all in these debates.” But that does that mean the law is irrelevant? It was no accident that the law was ignored. Most leading Marxist revolutionaries had not read or seen Volume 3 of Capital where Marx’s “most important law of political economy” is expounded. And if they had, they were guided away from Marx’s law as a cause of crises by the likes of Kautsky, Hilferding and Luxemburg.
One Marxist economist who had read and digested Volume 3 was Henryk Grossman. As a result, he was able to present a coherent theory of capitalist crises based on the law, showing the connection between the tendency of the rate of profit to fall and the countertendencies; the relation between the rate of profit and the mass of profit; and thus the relation between profit and crises. But his thesis, as Rick Kuhn says in his excellent biography of Grossman, was “an economic theory without a political home”. Grossman also shows in his work, The law of accumulation being also a theory of crises, that those who followed an ‘anarchy of production’ theory of crises could not really provide a coherent argument for regular and recurring slumps or breakdowns inherent in capitalist production. Indeed, just remove competition and allow monopoly to regulate and the anarchy can be controlled, suggested Hilferding or Kautsky.
Pete brings to our attention the work of Pavel Maksakovsky at that time. As Pete says, he provides us with the most sophisticated version of the anarchy of production theory of crises. As usual, Maksakovsky refers to Marx’s law of profitability, but only to dismiss it as irrelevant to the cycles of boom and slump and instead, like those in debate of the 1920s, focuses on Volume Two of Capital with its reproduction schema. Maksakovksy outlines his theory succinctly in pp136-9 of his book.
This is a disproportion theory but with the addition of trying to show that the disproportion between the sectors of means of production gets ‘periodically detached from consumption’. Interestingly, Maksakovsky, correctly in my view, dismisses the idea that excessive credit and financial market busts are the cause of crises (p139), just as Marx did in 1858, but now revived by Jim. They are only at the ‘superstructural level’ of capitalist society and can never eliminate the cyclical developments caused by the ‘anarchy of production’. This is worth remembering in the light of the arguments now being presented by many modern Marxist economists that finance is the real cause of crises now and for the Great Recession (see below).
Does the anarchy of production or disproportion of sectors of reproduction hold up to scrutiny as an alternate theory of crises? I don’t think so. Grossman demolishes it in his book and in a little known essay on Marx’s reproduction schema (recently edited by Rick Kuhn). Grossman shows that Marx’s schema do not show a “widening and deepening contradiction” (Maksakovsky) between production and consumption under capitalism and so cannot be the Marxist explanation of recurrent crises. By assuming in the reproduction schema, accumulation and exchange between the sectors take place at the level of labour values, Maksakovsky makes the same mistake as Luxemburg and others and so finds ‘disproportion’. But Marx’s reproduction schema are at the level of prices of production after the process of competition. Rates of profit are averaged. At that level, there is no inherent disproportion from the reproduction schema.
To deny disproportion as the cause of capitalist crises is not to support Say’s law (or ‘fallacy’, to be more exact) that ‘supply creates its own demand’ –as Pete suggests that I do. Marx was fierce in his dismissal of Say’s nonsense. The very process of exchange on the market creates the ‘possibility of crisis’. But that does not explain the periodic and recurrent crises in capitalist production and investment.
Pete does not like the “clever” flow chart in my book that shows the different possible theories of crisis. He says I want the readers to follow me down to Marx’s law of profitability, but he has three objections to that path. Pete admits that in the circuit of capital “production is primary” but then goes onto say that production and circulation are in a “contradictory unity” in capitalism. So is production not ‘primary’ after all? Indeed, he refers us to the thesis of David Harvey who argues that capitalism has various ‘bottleneck points’ in the circuit of capital and crises can come from any one of them, not just or even mainly in the ‘primary’ production of surplus value and the accumulation of capital, but also in the ‘secondary’ circulation of capital through credit finance, households and the role of government. So Pete says we need to have a theory of crisis that “embraces the whole circuit of capital” not just in production.
That’s fine but does this mean that the ‘bottlenecks’ in the circulation and distribution of capital are on the same level of causality as breakdowns in the ‘primary’ production process? The Marxist answer, in my opinion, is no. As I said before, in my view, and I think in Marx’s, circulation and distribution are at a lower plane of causal abstraction, or if you like closer to the proximate than the ultimate or underlying causes. A collapse in the stock market or in real estate prices will not lead to a collapse in production unless there are already serious difficulties in the latter. There have been many stock market collapses without a slump in production and employment (1987), but not vice versa.
Indeed, I agree with what Jim says summing up his post on the 1847 crisis mentioned above that “The rate of profit and the forces which determine it should remain central in our analysis. Marx’s own account of the 1847 crisis would surely have been strengthened by attention to profitability and its conflicting trends. We need to trace the many ways in which the law of value asserts itself – often in displaced and distorted forms. But also recognise, and give due weight to, the role of contingent factors in any crisis we examine.”
Pete also wants to drag in the Keynesian “lack of effective demand” as one of the multi-dimensional causes of crises. I have argued in many places that this ‘cause’ is no such thing. Pete agrees that aggregate demand is endogenous to investment and profit; “Keynes himself would have agreed”. Yes, but for the wrong reasons. The Keynesian-Kalecki thesis puts ‘effective demand’ i.e. investment demand, as the causal factor in the movement of profits. But Marxist economics says profits call the tune, not investment. I and other Marxist scholars have shown that the empirical evidence for the Keynesian ‘multiplier’ (a fall in spending leads to a slump) is very weak compared to the Marxist multiplier (a fall in profits leads to a slump).
Pete says I should not ‘conflate’ the underconsumption thesis with the overproduction thesis as the cause of crises. But then says that the “problem is a relative lack of productive consumption”. We may be bandying with words here, but that sounds like an underconsumption thesis to me. I presume this to refer to an excess of investment goods produced over the capitalists’ demand for them. But crises do not happen because of a lack of “productive consumption”, but because of insufficient profits brought on by falling profitability over time. And this can be proved empirically.
Andrew Kliman shows in his book, The failure of capitalist production (Chapter 8) that investment growth is always outstripping consumption but it does not lead to recurrent crises, as Maksakovsky ansd Sweezy argued. The cyclical crisis of boom and slump does not flow from excessive investment over consumption but from insufficient profit from investment. I await an empirical justification of the Maksakovksy thesis.
Pete says the proponents of Marx’s law of profitability as the underlying and ultimate causes of recurrent and regular crises are neglecting the ‘multi-dimensional’ and ‘complex’ nature of capitalism. I ignore the uneven and combined development of the world economy as expressed in the global imbalances so “astutely” identified by Keynesian economic commentator, Martin Wolf (or for that matter, I could add Yanis Varoufakis in his book, The Global Minatour). I also ignore the counteracting factors of globalisation in driving up the rate of profit. I also ignore the role of finance and growth of financial profits in total corporate profits.
The more I go down these points by Pete, the more I feel that a series of straw men have been erected for my views to be knocked down by him. These layers of ‘multi-dimension’ have not been ignored by me. The counteracting factors explain the up and down waves of the profitability cycle in capitalism. In both my books, I have spent some time looking at these long waves of profitability. And I discuss the impact of uneven and combine development of capital in the context of the euro crisis in my book.
Pete says that “Unlike some critics, I am not rejecting the relevance of this or the equally significant role of counter-tendencies raising profitability over the long-term. Indeed I would endorse to a degree Michael’s emphasis on longer waves in profitability but link them more closely to Kondratiev waves”. But I have done just that in both books – trying to relate these waves to Kondratiev’s!
Pete is right to say that Marx’s law of profitability appears to have different cycles than the so-called ‘business’ or Juglar cycles of boom and slump. I could not agree more. In my first book, The Great Recession, I spent much time trying to analyse the connections between the various cycles in ‘capital in motion’ and try to link them together. I did the same in The Long Depression in a whole chapter.
Pete says that “What can be shown in my view is that when the underlying rate of profit is falling, the business cycle fluctuations are more severe as is evident from the late 1960s to the early 1980s, and when the underlying rate is rising, the amplitude or the severity of recessions is reduced as in the 1990s and early 2000s.” That almost word for word what I have said in the past.
Pete is keen to tell us that what is new is the “unprecedented rise in the share of financial profits in total corporate profits”. Again this is dealt with in both my books. Indeed, I try to integrate this new development into an analysis of unproductive investment and fictitious capital as one of the new ‘counteracting factors’ to the law as such. I even try to measure its impact (see my paper, Debt matters).
Pete finishes by wanting to defend or promote again the Keynesian idea of “a lack of effective demand” as the cause of crises. He rejects my claim that the Keynesian position is a tautology (‘it rains because it rains’) of a slump not a cause. In retort, he suggests that Marx’s law of profitability is as remote a cause of crises as saying storms and hurricanes are caused by global warming; only worse, the law of profitability as a proven cause is more questionable than man-made global warming. Pete is not a global warming sceptic but he is falling profitability one.
Actually, his analogy has some merit. Global warming is an underlying cause of increased storms, floods and extreme weather. The science of correlations, causation and forecasts strongly supports this. Similarly, I and others argue that capitalist crises have an underlying cause in the inability of capitalists to stop the overall rate of profit on capital falling as they accumulate and try to increase profits. This dialectical contradiction also has increasing empirical backing with correlations, causations and forecasts. By the way, Marx used the analogy of the law of gravity and the movement of objects to place his law of profitability in crises.
I’m afraid the thesis of Maksakovsky has not changed my view that all other theories of crises in capitalism: underconsumption, overproduction, disproportion, bottlenecks in circulation, global imbalances, financial instability, are either wrong or at a lower plane of abstraction, so that, on their own, they do not explain crises. As Alan Freeman says, Marx’s law remains “the only credible competitor left in the contest to explain what is going wrong with capitalism”.
Like Pete, I cannot deal with all arguments in this short reply on my blog but I’ll do my best to take up some key ones, but it still makes this post long enough!
Pete starts by saying he is not going to dispute the data on the rate of profit that I have presented, mainly for the US, but also for other economies. But apparently he “shares Jim Kincaid’s scepticism about reliance on US national income accounts as source for corporate profitability”. Actually, I am not sure Jim is sceptical of the official data. Indeed, he has said that I have used the data accurately and as Pete says, “there is no adequate alternative available for those engaged in empirical investigation”.
And that is what the bulk of my research is: engaging in empirical investigation to verify or otherwise particular theories or laws. In my view, too many Marxist economists have ignored empirical work and concentrated on interpreting (and re-interpreting) Marx’s writings and ‘what he meant’, rather testing his laws of motion of capitalism to see if they best fit the facts.
Luckily, I am not alone in doing empirical investigations – Andrew Kliman has done prodigious analysis, Anwar Shaikh’s new book is a gold mine of empirical studies, G Carchedi has also tested Marx’s law with the evidence. And there is a host of new young scholars internationally doing such work. Carchedi and I will be publishing a book of these research projects next year that empirically support Marx’s law of profitability.
But Pete wants to “step back” from any debate over the stats and consider the “theoretical framework” of my book. He does not think that Marx’s law of the tendency of the rate of profit to fall is “sufficient for an explanation of the cyclical fluctuations that have characterised capitalism”. Why not? Well, it seems that, while he does not deny “the logical coherence” of Marx’s law of profitability and its relevance to “whole period since the 1960s”, using the law to explain regular crises or “fluctuations” is “over-reductionist” and “two-dimensional”, especially in reference to the latest crises (ie the Great Recession?).
So Pete reckons that Marx’s law of profitability is logically coherent but irrelevant to an understanding of crises. It’s ‘overreductionist’ (or maybe just reductionist?) to claim its relevance to crises. There are more dimensions than two (presumably the tendency and the counter-tendency?), he says.
This does not seem the way to approach the relevance of Marx’s law to crises. Pete says that the law is not “sufficient” to explain crises. But does he think it “necessary”, which is not the same thing as sufficient? If he does; how does it fit in? You see, I think we must start with Marx’s approach, which was to abstract from reality the underlying essential (necessary) laws of capitalist motion and then add back concrete features of capitalism to reach the immediate. In only that way can we identify the causes of crises under capitalism. In that sense, Marx’s law can be seen as the underlying or ‘ultimate’ cause of recurrent crises, which can be triggered by ‘proximate’ events i.e. (oil price crisis, stock market bubble, real estate crash etc). Then we have ‘sufficient’ causes. For more on this, see my paper, Presentation to the Third seminar of the FI on the economic crisis
This approach thus makes it transparent that a financial crash or credit crisis is not the essence of crises in capitalism, but their surface manifestation. Jim Kincaid has done a new post in which he outlines what Marx said about the 1847 crisis in Britain making the point that “the falling rate of profit plays no role in Marx’s account”, considering only the financial speculation and credit crunches. Jim claims that for Marx, “The fall in the rate of profit of these businesses is only a transmission mechanism. What matters are the causes of bankruptcy and business collapse.”
At this point, I am reminded of what Marx said a little later in 1858 during the first great international crisis of the 19th century: “What are the social circumstances reproducing, almost regularly, these seasons of general self-delusion, of over-speculation and fictitious credit? If they were once traced out, we should arrive at a very plain alternative. Either they may be controlled by society, or they are inherent in the present system of production. In the first case, society may avert crises; in the second, so long as the system lasts, they must be borne with, like the natural changes of the seasons”. Dispatches for the New York Tribune, Penguin p201.
As Marx puts it, ‘over-speculation and fictitious credit’ arise from regular crises in the capitalist system of production. They cannot be eradicated by social action unless the mode of production is replaced. It is not possible to separate crises in the financial sector from what is happening in the production sector.
Pete refers to the debate between Marxist economists on the cause of crises in the 1920s and 1930s, as described in Richard Day’s excellent book, The crisis and the crash. As Pete says, the debate was between those who explained cyclical fluctuations as due to disproportionality between departments of production and those who reckoned it was due to the ‘limited consumption of the masses’, ie underconsumption. As Pete says, “Marx’s tendency for the rate of profit to fall, as a function of a rising organic composition of capital, plays no role at all in these debates.” But that does that mean the law is irrelevant? It was no accident that the law was ignored. Most leading Marxist revolutionaries had not read or seen Volume 3 of Capital where Marx’s “most important law of political economy” is expounded. And if they had, they were guided away from Marx’s law as a cause of crises by the likes of Kautsky, Hilferding and Luxemburg.
One Marxist economist who had read and digested Volume 3 was Henryk Grossman. As a result, he was able to present a coherent theory of capitalist crises based on the law, showing the connection between the tendency of the rate of profit to fall and the countertendencies; the relation between the rate of profit and the mass of profit; and thus the relation between profit and crises. But his thesis, as Rick Kuhn says in his excellent biography of Grossman, was “an economic theory without a political home”. Grossman also shows in his work, The law of accumulation being also a theory of crises, that those who followed an ‘anarchy of production’ theory of crises could not really provide a coherent argument for regular and recurring slumps or breakdowns inherent in capitalist production. Indeed, just remove competition and allow monopoly to regulate and the anarchy can be controlled, suggested Hilferding or Kautsky.
Pete brings to our attention the work of Pavel Maksakovsky at that time. As Pete says, he provides us with the most sophisticated version of the anarchy of production theory of crises. As usual, Maksakovsky refers to Marx’s law of profitability, but only to dismiss it as irrelevant to the cycles of boom and slump and instead, like those in debate of the 1920s, focuses on Volume Two of Capital with its reproduction schema. Maksakovksy outlines his theory succinctly in pp136-9 of his book.
This is a disproportion theory but with the addition of trying to show that the disproportion between the sectors of means of production gets ‘periodically detached from consumption’. Interestingly, Maksakovsky, correctly in my view, dismisses the idea that excessive credit and financial market busts are the cause of crises (p139), just as Marx did in 1858, but now revived by Jim. They are only at the ‘superstructural level’ of capitalist society and can never eliminate the cyclical developments caused by the ‘anarchy of production’. This is worth remembering in the light of the arguments now being presented by many modern Marxist economists that finance is the real cause of crises now and for the Great Recession (see below).
Does the anarchy of production or disproportion of sectors of reproduction hold up to scrutiny as an alternate theory of crises? I don’t think so. Grossman demolishes it in his book and in a little known essay on Marx’s reproduction schema (recently edited by Rick Kuhn). Grossman shows that Marx’s schema do not show a “widening and deepening contradiction” (Maksakovsky) between production and consumption under capitalism and so cannot be the Marxist explanation of recurrent crises. By assuming in the reproduction schema, accumulation and exchange between the sectors take place at the level of labour values, Maksakovsky makes the same mistake as Luxemburg and others and so finds ‘disproportion’. But Marx’s reproduction schema are at the level of prices of production after the process of competition. Rates of profit are averaged. At that level, there is no inherent disproportion from the reproduction schema.
To deny disproportion as the cause of capitalist crises is not to support Say’s law (or ‘fallacy’, to be more exact) that ‘supply creates its own demand’ –as Pete suggests that I do. Marx was fierce in his dismissal of Say’s nonsense. The very process of exchange on the market creates the ‘possibility of crisis’. But that does not explain the periodic and recurrent crises in capitalist production and investment.
Pete does not like the “clever” flow chart in my book that shows the different possible theories of crisis. He says I want the readers to follow me down to Marx’s law of profitability, but he has three objections to that path. Pete admits that in the circuit of capital “production is primary” but then goes onto say that production and circulation are in a “contradictory unity” in capitalism. So is production not ‘primary’ after all? Indeed, he refers us to the thesis of David Harvey who argues that capitalism has various ‘bottleneck points’ in the circuit of capital and crises can come from any one of them, not just or even mainly in the ‘primary’ production of surplus value and the accumulation of capital, but also in the ‘secondary’ circulation of capital through credit finance, households and the role of government. So Pete says we need to have a theory of crisis that “embraces the whole circuit of capital” not just in production.
That’s fine but does this mean that the ‘bottlenecks’ in the circulation and distribution of capital are on the same level of causality as breakdowns in the ‘primary’ production process? The Marxist answer, in my opinion, is no. As I said before, in my view, and I think in Marx’s, circulation and distribution are at a lower plane of causal abstraction, or if you like closer to the proximate than the ultimate or underlying causes. A collapse in the stock market or in real estate prices will not lead to a collapse in production unless there are already serious difficulties in the latter. There have been many stock market collapses without a slump in production and employment (1987), but not vice versa.
Indeed, I agree with what Jim says summing up his post on the 1847 crisis mentioned above that “The rate of profit and the forces which determine it should remain central in our analysis. Marx’s own account of the 1847 crisis would surely have been strengthened by attention to profitability and its conflicting trends. We need to trace the many ways in which the law of value asserts itself – often in displaced and distorted forms. But also recognise, and give due weight to, the role of contingent factors in any crisis we examine.”
Pete also wants to drag in the Keynesian “lack of effective demand” as one of the multi-dimensional causes of crises. I have argued in many places that this ‘cause’ is no such thing. Pete agrees that aggregate demand is endogenous to investment and profit; “Keynes himself would have agreed”. Yes, but for the wrong reasons. The Keynesian-Kalecki thesis puts ‘effective demand’ i.e. investment demand, as the causal factor in the movement of profits. But Marxist economics says profits call the tune, not investment. I and other Marxist scholars have shown that the empirical evidence for the Keynesian ‘multiplier’ (a fall in spending leads to a slump) is very weak compared to the Marxist multiplier (a fall in profits leads to a slump).
Pete says I should not ‘conflate’ the underconsumption thesis with the overproduction thesis as the cause of crises. But then says that the “problem is a relative lack of productive consumption”. We may be bandying with words here, but that sounds like an underconsumption thesis to me. I presume this to refer to an excess of investment goods produced over the capitalists’ demand for them. But crises do not happen because of a lack of “productive consumption”, but because of insufficient profits brought on by falling profitability over time. And this can be proved empirically.
Andrew Kliman shows in his book, The failure of capitalist production (Chapter 8) that investment growth is always outstripping consumption but it does not lead to recurrent crises, as Maksakovsky ansd Sweezy argued. The cyclical crisis of boom and slump does not flow from excessive investment over consumption but from insufficient profit from investment. I await an empirical justification of the Maksakovksy thesis.
Pete says the proponents of Marx’s law of profitability as the underlying and ultimate causes of recurrent and regular crises are neglecting the ‘multi-dimensional’ and ‘complex’ nature of capitalism. I ignore the uneven and combined development of the world economy as expressed in the global imbalances so “astutely” identified by Keynesian economic commentator, Martin Wolf (or for that matter, I could add Yanis Varoufakis in his book, The Global Minatour). I also ignore the counteracting factors of globalisation in driving up the rate of profit. I also ignore the role of finance and growth of financial profits in total corporate profits.
The more I go down these points by Pete, the more I feel that a series of straw men have been erected for my views to be knocked down by him. These layers of ‘multi-dimension’ have not been ignored by me. The counteracting factors explain the up and down waves of the profitability cycle in capitalism. In both my books, I have spent some time looking at these long waves of profitability. And I discuss the impact of uneven and combine development of capital in the context of the euro crisis in my book.
Pete says that “Unlike some critics, I am not rejecting the relevance of this or the equally significant role of counter-tendencies raising profitability over the long-term. Indeed I would endorse to a degree Michael’s emphasis on longer waves in profitability but link them more closely to Kondratiev waves”. But I have done just that in both books – trying to relate these waves to Kondratiev’s!
Pete is right to say that Marx’s law of profitability appears to have different cycles than the so-called ‘business’ or Juglar cycles of boom and slump. I could not agree more. In my first book, The Great Recession, I spent much time trying to analyse the connections between the various cycles in ‘capital in motion’ and try to link them together. I did the same in The Long Depression in a whole chapter.
Pete says that “What can be shown in my view is that when the underlying rate of profit is falling, the business cycle fluctuations are more severe as is evident from the late 1960s to the early 1980s, and when the underlying rate is rising, the amplitude or the severity of recessions is reduced as in the 1990s and early 2000s.” That almost word for word what I have said in the past.
Pete is keen to tell us that what is new is the “unprecedented rise in the share of financial profits in total corporate profits”. Again this is dealt with in both my books. Indeed, I try to integrate this new development into an analysis of unproductive investment and fictitious capital as one of the new ‘counteracting factors’ to the law as such. I even try to measure its impact (see my paper, Debt matters).
Pete finishes by wanting to defend or promote again the Keynesian idea of “a lack of effective demand” as the cause of crises. He rejects my claim that the Keynesian position is a tautology (‘it rains because it rains’) of a slump not a cause. In retort, he suggests that Marx’s law of profitability is as remote a cause of crises as saying storms and hurricanes are caused by global warming; only worse, the law of profitability as a proven cause is more questionable than man-made global warming. Pete is not a global warming sceptic but he is falling profitability one.
Actually, his analogy has some merit. Global warming is an underlying cause of increased storms, floods and extreme weather. The science of correlations, causation and forecasts strongly supports this. Similarly, I and others argue that capitalist crises have an underlying cause in the inability of capitalists to stop the overall rate of profit on capital falling as they accumulate and try to increase profits. This dialectical contradiction also has increasing empirical backing with correlations, causations and forecasts. By the way, Marx used the analogy of the law of gravity and the movement of objects to place his law of profitability in crises.
I’m afraid the thesis of Maksakovsky has not changed my view that all other theories of crises in capitalism: underconsumption, overproduction, disproportion, bottlenecks in circulation, global imbalances, financial instability, are either wrong or at a lower plane of abstraction, so that, on their own, they do not explain crises. As Alan Freeman says, Marx’s law remains “the only credible competitor left in the contest to explain what is going wrong with capitalism”.
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