I got a few complaints on my comments page for reporting on Sylvia’s Nasar’s book on great economists (see my post, A Grand Pursuit, 13 August 2012). Some readers reckoned that I was wasting my time discussing Nasar’s rather bizarre and jaundiced views on Marx. Well, I am not wasting my time bringing to your attention Mick Brook’s new book, Capitalist crisis – theory and practice (published by Expedia and available at Brooks’ blogsite, http://capitalistcrisis.org/). Brooks provides one of the best and most succinct accounts of the causes of the Great Recession, how it compares with previous crises and the role of finance, all based on a solid theoretical foundation. He also looks critically at the policy response of governments and economists.
Brook deals with the failure of orthodox economics to foresee or explain the Great Recession. They were caught on the hop and afterwards carried on as though there had been no crisis. None of the failed theories of mainstream economics have been disowned, confirming that mainstream theories are more apologies for, than analyses of, capitalism. Brooks argues that only a radical shift in economic thinking towards a Marxist explanation can revive the credibility of economics as science.
Brooks stands four square behind Marx’s law of profitability as the key underlying cause of capitalist crises, in opposition to the alternative explanations of underconsumption and disproportionality (see his chapter 3.7). Brooks explains that the Great Recession was triggered by the credit crunch as the capitalist mode of production is connected through the circulation of money and credit. Financial crises can spread to the rest of the capitalist economy, but only when the ‘real’ economy is weak, can they have devastating consequences.
Yes, finance is inherently unstable, as Hyman Minsky perceived, but it is the ability or otherwise to generate profit or surplus value that is the real Achilles heel of capitalism. There is a close causal connection between general profitability in a capitalist economy and the boom-slump cycle. That approach explains, not just the Great Recession but also the Great Depression, which in Brooks’ view was not the result of some ‘stock market crash’, but rooted in the weakness of the boom in the US economy of the 1920s before the crash.
The ‘financialisation’ of capitalism in the last half century has been an important long-term trend, but it is not a ‘new stage’ of capitalism that radically transforms the underlying forces in capitalist accumulation. In chapter 3, Brooks explains how capitalist accumulation takes place and why the rate of profit is the regulator for the capitalist economy as a whole. Brooks confirms the view of many other Marxist scholars that there has been a secular decline in the rate of profit since the end of world war two, even though there have cyclical upturns in the last 60 years. A declining rate of profit is the simplest and best explanation for the declining rate of accumulation that capitalist economies have experienced over the last half-century.
Brooks analyses some of the debates that we Marxist economists have had over measuring the rate of profit, including the vexed question of current and historic cost measures for fixed capital. His main conclusion is that Marx’s law of profitability, based on a rising organic composition of capital, remains confirmed. He rejects the alternative of ‘overproduction’ as an explanation of crisis. As Brooks puts it: “to simply attribute the crisis to overproduction gives no explanation as to when the crisis breaks out as it does. Overaccumulation means the overproduction of capital. That means more capital has been produced than can be used to make a profit”. p194. And it is the collapse of investment, not consumption, that is the key feature of any slump.
Brooks dismisses the policy responses of governments through either austerity or the alternative Keynesian solutions of quantitative easing, fiscal stimulus etc, as unable to turn around capitalism. Only the destruction of capital values in a significant way, either through the long process of deleveraging or through the violent intervention of war, can restore capitalist accumulation.
Brooks’ book may not offer anything startlingly new to readers of this blog and for those who follow the current debates among Marxist economists. But he does provide a rounded account of the nature of capitalist crises and the causes with all the jargon and pretensions of some stripped away. Clarity is his watchword.