by Michael Roberts
At ASSA 2018, away from the huge arenas where thousands listened to the millionaire guru mainstream economists speak, were the sessions under the umbrella of the Union of Radical Political Economics (URPE),
where just handfuls heard papers from a range of heterodox and radical
economists. These sessions were a mixture of debate on Marx’s value
theory (among Marxists) and its dismissal by followers of Piero Sraffa.
But there was also some very interesting research on the nature of
capitalist economic cycles and the causes of crises, including the 2008
crash and the Great Recession.
Supporters of ‘neo-Ricardian’ theorist, Piero Sraffa, had a session
aimed at comparing Marx’s analysis of capitalism with their own hero.
In his ‘point by point’ comparison of Marx and Sraffa, Robin Hahnel
explained that Marx was the “great grandfather” of the critique of capitalism, but “a great deal has happened since Marx died in 1883”and it was time to acknowledge that “Marx’s
attempt to fashion a formal economic theory of price and income
determination in capitalism based on a labor theory of value, and
elaborate a Hegelian critique of capitalism, can now be surpassed”. Now “a
number of distinguished Sraffian economists have used modern
mathematical tools to elaborate an intellectually rigorous version of
Sraffian theory which surpasses formal Marxian economic theory in every
To justify this claim, Harnel then offers the usual set of neo-Ricardian arguments against Marx’s value theory (first raised by Ian Steedman in 1977):
values are not necessary to explain prices or profit under capitalism,
indeed they are redundant; Marx’s value and profitability theories are
empirically refuted; and anyway, Okishio has completely rebutted Marx’s theory of crises based on the law of the tendency of the rate of profit to fall.
There is no room in this post to respond properly to these
traditional arguments of the Sraffians. Instead I refer readers to the battery of work done by Marxist economists over the last 40 years
that show the logic of Marx’s theory, expose the unrealistic
assumptions in Sraffa’s approach and provide empirical support for
Marx’s laws of motion under capitalism. I have only to mention but a
few: the work of Husson, Carchedi, Freeman, Kliman and Moseley among
Indeed, at ASSA, in other sessions Marxist value theory was
convincingly expounded. Riccardo Bellofiore took us carefully on a tour
through Marx’s value theory from various angles. And see Bellofiore’s account of Sraffa from another session.
And Fred Moseley recounted his important summary of Marx’s value theory and laws of motion in his book of last year, Money and Totality.
His book offers a firm critique of Sraffian theory as well as a
convincing interpretation of the so-called transformation problem of
‘converting’ labour values into the prices of production – an issue that
the Sraffians and all critics of Marx’s value theory latch onto.
At ASSA, Moseley’s ‘macro-monetary’ approach to Marx’s value theory was criticised by David Laibman and Gilbert Skillman.
But Moseley was firm in his view that “Marx’s theory of
capitalism is internally logically consistent. The long-standing and
widely-held criticism that Marx “failed to transform the inputs” in his
theory of prices of production in Volume 3 is not a valid criticism.
Marx did not fail to transform the inputs because the inputs are not
supposed to be transformed. The inputs of constant capital and variable
capital are the same actual quantities money capital advanced at the
beginning of the circuit of money capital to purchase means of
production and labor-power which are taken as given”. So prices of
production can be derived from total surplus-value and general rate of
profit in a logically consistent way. Marx’s value theory is both
necessary and sufficient in explaining market prices, indeed better than
mainstream neoclassical marginalist theory or the ‘physicalist’
production equations of Sraffa.
As I said, the debate between Marxists and the
neo-Ricardians/Sraffians is now over 40 years old. It boils down to
whether you think Marx’s value theory and his critique of capitalism is
logically valid. Marxists have, in my opinion, conclusively won that
But for Marxist economics in the last 15 years, and certainly since
the Great Recession, the issue has moved on to whether Marx’s value and
crisis theory is empirically supported. There has been a mountain of studies on this – with work by Freeman, Kliman, Moseley, Carchedi (and myself). And this year, Carchedi and I will publish a collection of research by young Marxist economists from all corners of the globe that help verify empirically Marx’s law of profitability and theory of crises.
And at ASSA, yet more convincing empirical work was presented. In
particular, David Brennan presented an analysis based, he said, on using
Marx’s law of profitability and Michal Kalecki’s macro identities. Brennan offered “a
new methodology based on the work of Kalecki to provide empirical
estimates of profits and the various components of realization, profit
rates, and the organic composition of capital. These estimates provide
new insights into the Great Recession and the “recovery.”
Now readers of this blog and some of my research papers will know that I have serious criticisms of the Keynes/Kalecki macro identities
as a useful tool in explaining crises under capitalism. In essence, as
Brennan also shows when he goes through the macro categories, the
capitalist economy’s driver can be boiled down to profits=investment
Why? Because if we assume workers in general consume all they get and
capitalists save all they get, while governments balance their books
and external trade is in balance, then all that is left is
profits=investment. The Keynesian/Kalecki conclusion is that investment
drives or creates profits based on the view of the ‘effective demand’
of capitalists. But this is back to front. The Marxist view is that profits drive or create investment, not vice versa. And there is plenty of empirical evidence to confirm the Marxist view.
But Brennan wanted to make the point that crises could not be caused
by just a fall in the rate of profit; slumps also depend on the
realisation of the mass of profit. “Marxian theory was not
wrong about the causes of the Great Recession, although various Marxian
theories emphasized different aspects of the crisis. In the end, the
rate of profit matters for the trajectory of the economy. But to
understand crises like the Great Recession, profit rates alone are not
sufficient. Crises, unlike typical recessions, are sudden and often
unforeseen. The Great Recession was both a profit rate and a profit
Brennan sees the latter as the contribution of Kalecki. Actually, Marx’s theory of crises has always taken that into account. Indeed,
when the rate of profit falls and is no longer compensated for by a
rise in the mass of profit, a slump is set to come. The Marxist economist, Henryk Grossman, particularly emphasised this aspect of Marx’s crisis theory.
As Marx put it: “the so-called plethora (overaccumulation) of
capital always applies to a plethora of capital for which the fall in
the rate of profit is not compensated by the mass of profit… and
“overproduction of commodities is simply overaccumulation of capital”. It is precisely when the mass of profit stopped rising that the Great Recession ensued.
And this is what Brennan finds in the US data using his combination
of a Marxian rate of profit and ‘Kalecki’ profits. The profit rate fell
in the 1964-1980 period and then rose in the neoliberal 1980-2006
period, fell during the Great Recession and recovered subsequently.
These results repeat what a host of studies have already shown.
Brennan now adds the impact of the movement in the mass of profits (a la
Kalecki) and finds that the Marxian profit rate peaked well before the
global financial crash and then was followed a fall in the mass of
profit and investment. “It was the significant dip in total profit
flows coupled with the low rates of profit, accumulation and
exploitation that formed the Great Recession.” Exactly: below is my version.
Brennan adds a slightly different interpretation: “The rate of
exploitation up to that time peaked during 2006Q1. Yet profit flows
continued to rise until 2008Q3. Therefore, the financial sector was
essentially trying to realize profit gains that were not there in real
production. This is one reason why the housing boom could not continue
much past the end of 2005. While the crisis was indeed precipitated by
the housing collapse, the collapse was brought on by difficulties of
both profit production and realization.” Yet, Brennan’s Kalecki
analysis confirms the Marxist analysis already presented by Carchedi,
Freeman, Kliman, (myself) and many others.
Marx’s crisis theory stands out as mainstream economics flails about,
unable to forecast or explain the global financial crash, the ensuing
Great Recession and the Long Depression that has followed.