Financialisation – the cause of the crisis?

I have to return to this issue that I raised in a previous blog (A financial or economic crisis?, 15 June 2010), because there are so many radical economists who are arguing that the causes of the Great Recession do not fit a ‘classical Marxist’ explanation based on a decline in profitability.

No, according to these economists, the Great Recession is really a product of a new development in capitalism, the growing dominance and ‘autonomy’ of the financial sector from the rest of capitalism.  This process of financialisation has been operating with increasing intensity over the last 30 years and culminated in the collapse of the financial sector in 2007 that triggered the recession.  A Marxist explanation of the crisis is wrong for at least several reasons.

First, the rate of profit was not falling before the crisis and indeed has not been falling but rising since the early 1980s .  See the assertions of Lapatvitsas among others in my previous blog (Costas Lapavitsas, Financialisation and capitalist accumulation, Research on Money and Finance, February 2010).

Second, the rise in profitability was mainly due to the exploitation of the labour force under what is called ‘neoliberalism’, a new regimen of capitalism that began in the early 1980s as the political response of the strategists of capital the growing militancy of the labour force.  A series of economic recessions, state measures against the trade unions, the breaking-up of the state by privatisation and deregulation all laid the ground for a ne0liberal supremacy.  This was exhibited in the fall in the share of value going to the labour force compared to the capitalist class.  The share of profit rose and that’s why the rate of profit did too – not because of Marx’s classic law of a rising organic composition of capital.

At the recent Marxism 2010 conference in London in early July, this view was expressed verbally by Alfredo Saad-Filho who argued that the Great Recession was a ‘bubble-like crisis’ centred in the financial sector.  Indeed, all recessions since the 1980s have been caused by excessive credit bursting and not by a crisis in accumulation due to a falling rate of profit, said Saad-Filho.

Each crisis is special and unique, claimed Saad-Filho and there is no overriding or underlying cause of capitalist crisis as proponents of Marx’s law of profitability have argued.  Indeed, Marx never really had a theory of crisis anyway.

Those of us who have tried to defend Marx’s law of profitability have responded forcefully to these arguments.  Andrew Kliman has argued in his paper, The persistent fall in profitability underlying the current crisis: new temporalist evidence ( that the US corporate rate of profit did fall throughout the period of ‘neo-liberalism’ in the 1980s and 1990s.  Andrew also took to task the financialisation theorists in his paper, Masters of words, (

I have taken a different tack in my book, The Great Recession, and in my recent paper to the Annual Conference of Heterodox Economists that took place in Bordeaux, France in mid-July called The causes of the Great Recession: mainstream and heterodox interpretations and the cherry pickers, July 2010 (The Great Recession paper for Bordeaux).

I calculate that the rate of profit, however you measure it, did rise after 1982.  But when it peaked in 1997, it was still way below the levels of the previous peak of 1964.   See the data in my book (  So there is both a cyclical and a secular trend in the rate of profit.

Second, the rise in the rate of profit from 1982 to 1997 cannot be explained solely by a rise in the exploitation of labour, as the ‘financialisation’ proponents argue.  Indeed, according to my calculations, at the very lowest, at least 40% of the rise in this period was due to a fall in the organic composition of capital, as capitalist accumulation grew more slowly than labour compensation.

Third, the US rate of profit had been falling from 2005, as against the arguments of ‘neo-liberals’ (see my previous blog above).

So the Great Recession is just as much a classic Marxist crisis as that of 1974-5.  It is true that the financial sector has been bloated in the period leading up to the Great Recession by a huge injection of ‘fictitious capital’ especially after 2002, when new forms of  credit  took  off (credit derivatives and CDOs) and the US property bubble exploded.  As a result, the crisis was triggered in the financial sector and was much larger than in previous recessions.

But it is my contention that the US was in a downward phase for profitability from 1997, as well as in a downward phase in the longer cycle of prices of production (the Kondratiev cycle) since 1982.  When combined, that ensured more and deeper economic recessions and weaker economic recoveries.  That downward phase still has some way to  go, to 2015 or so.

Saad-Filho told us at the Marxism conference that such is the strength of the ‘neo-liberal’ order that even the Great Recession will not fundamentally threaten the capitalist system because the workers are too weak or too politically divided to fight back.

That may be the case but it is not an economic argument.  What the Great Recession showed was that the classical Marxist theory of crisis is the best explanation of what happened.  Capitalism is inherently unstable and moves in cycles of boom and slump.  As former Fed chairman and symbol of  neo-liberalism, Alan Greenspan said, “unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible.  Assuaging the aftermath is all we can hope for.” (The Crisis, March 2010)

Sure, each crisis has its own particular features and the Great Recession had that with its ‘shadow banking’, Special Investment Vehicles, credit derivatives and the rest.  But the underlying cause remained the profit nature of the production system.  If financialisation means the finance sector has divorced itself from the wider capitalist system, that is clearly wrong.

4 Responses to “Financialisation – the cause of the crisis?”

  1. Andrew Kliman Says:

    Hi Michael,

    Good post.

    You write, “I calculate that the rate of profit, however you measure it, did rise after 1982. But when it peaked in 1997 ….”

    Readers of your post may perhaps conclude that this is incompatible with my own estimates and conclusions, so I want to point out that

    (1) my estimates of U.S. corporations’ rates of profit also show a rise from the trough of 1982 to the peak of 1997, and

    (2) my conclusion has been that there was no *sustained* rise in the rate of profit after 1982. It fell sharply with the bursting of the dot-com bubble burst, the 2001 recession, and the 9/11 attacks. The rate of profit in the trough years of 2001-02 was well below the rate of 1982 when total nonlabor income is used to measure profit, and the same as the rate of 1982 when before-tax profits are used.

    I found it interesting that Saad-Filho also made a point of denying that the latest economic crisis is a “crisis of capitalism.” He said that it is instead a “crisis of neoliberalism.” And he ended by hailing the prospect of a broad alliance against neoliberalism, as he called it, rather than any challenge to capitalism as such. It seems to me that the cash-value of this is to get working people and the left to line up behind “Keynesianism” (i.e., expansionary fiscal and monetary policies) instead of taking an independent direction.

    I heard almost the identical stuff from Pratnab Patnaik a year ago in London during a talk of his, except that he used an expression like “financialized capitalism” instead of “neoliberalism.”

    Thanks for the references to my work. I’d like to plug another recent paper of mine, which provides some background context that “Maters of Words” lacks: “Essence and Appearance: Neoliberalism, Financialization, and Underlying Crisis of Capitalist Production” (

    • michael roberts Says:


      Thanks for clarifying your position better than I did. I ought to have pointed out to readers that you were on the platform with Saad-Filho at the Marxism 2010 school and answered many of his points then.

  2. Manit Boonmana Says:

    Dear Mr Michael Roberts

    I am a Thai living in Thailand. I love your book “The Great Recession”. I am not an expert in Economics, rather just a small investor and I found your work a great preparation for the coming downturn in 2014 that you predicted in your book.

    My question is :: are we in deflation or inflation period? Inflation gold goes up, does gold price go down in deflation?

    There’s a lot of talk about ASIA being the next economic power, have you thought about writing a book K-wave and Asia.

    Thank you

  3. michael roberts Says:

    Thanks for your kind words. As the book explains, I think we are in a Kondratiev downwave for production prices. Indeed we are in the ‘winter’ phase of that, similar to the 1930s. So the capitalist economy is in a deflationary environment, which is expressed in very low interest rates and recently even in near outright deflation of prices in Japan, Europe and the US.

    That could change for a while if capitalist central banks and governments launch a huge new expansion of money printing (or fictitious capital, as Marx called it) in response. Ben Bernanke at the Fed is threatening that. But even if that happens, any inflation won’t last long when we enter a new economic recession.

    Asia is slightly different in that food prices are much higher proportion of the average person’s spending basket and these prices are liable to sharp ‘scarcity’ rises. So inflation is higher and more susceptible to cheap inflows of capital from the OECD economies.

    Either way, I think the gold price will rise as paper currencies suffer.

    Whether Asia will become the dominant capitalist super power is a misleading question. Asia is not one entity. China, still a highly-controlled and planned economy, is one giant where the capitalist law of value is severely restricted. And China stands against lots of smaller Asian capitalist economies, while Japan is a mature capitalist economy with similar if not worse problems than those in the west. There is too much to be said on this in the space available!

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