The crisis of neoliberalism and Gerard Dumenil

Gerard Dumenil and Dominique Levy have made important contributions to the understanding of Marxist economics over the years.  Now they have a new book out, called The crisis of neoliberalism (  Gerard Dumenil was in London this week to give a presentation on the main ideas in their book.

Dumenil started by saying modern capitalism, or “contemporary capitalism” as he called it, has different phases and takes different forms.  Neoliberalism is the latest.  It is a new form of capitalism.  One of its features is that it is very violent.  You could say it started in 1979 with Volcker’s rate hikes, or with the coup in Chile along with Milton Friedman or with Argentina in 1976, or with Thatcher in 1979, a friend of Pinochet.  But the US is the locus of neoliberalism because it is where ‘financialisation’ and ‘financial hegemony’ started and went furthest (the UK is like a little sister in this regard).

For Dumenil, capitalist crises can be caused by a variety of reasons.  There is no one cause and it won’t be the same cause each time.  He identified what he called “four structural crises” in “contemporary capitalism” of which the crisis of neoliberalism was the latest.  They were structural, unlike ordinary recessions or crises, because they were crises of the prevailing ‘social order’ of capitalism.

The four crises were the decade of 1890s; the 1930s Great Depression; the 1970s crisis; and now the neoliberal crisis of the early 21st century.  The 1890s crisis was caused by a lack of profitability; but the 1930s depression was a financial crisis (as profitability had been rising up to 1929).  The 1970s crisis was one of profitability again; but the crisis of neoliberalism was one of a collapse of financial hegemony (again profitability had been rising up to 2006).

Profitability is not always and not even often the cause of these ‘structural crises’, argues Dumenil.  He had “no idea why there were structural crises every 30-40 years”, but each structural crisis laid the basis for a change in the prevailing social order’.  Those who argue that falling profitability is the cause of capitalist crises forget that Marx did not raise this cause in the Communist Manifesto, but on the contrary referred to the cause of crisis in the credit system.  The crisis of neoliberalism was caused when capitalists “lost control“ of the credit system.  Dumenil said you can see that because the profit crisis of the 1970s took the form of a capitalist “collapse” while the financial crisis of 2008-9 took the form of an “explosion”.

Neoliberalism is a social order, a new form of capitalism, that can be explained by recognising, according to Dumenil, that there are now three classes or “social orders” in contemporary capitalism: the capitalists; the “popular class” made up of wage workers and lower-level salaried employees; and in between there is what he called the “managerial class”.  The social order changes when the managerial class sides with one or other of the other two.  Thus in the 1930s and in the post war period, the managerial class sided with the popular class against the capitalist class and we had the welfare state etc.  In the neoliberal era, the managerial class sided with the capitalist financial class and the popular class was on the back foot.  With the crisis of neoliberalism, we could look to a new realignment of this ‘social order’, with the managers swinging back again.

Neoliberalism started in the US because US capitalism was uniquely placed to expand financial hegemony and could rely on globalisation for growth.   This made the US economy imbalanced with a growing trade deficit and relying on capital inflows from the rest of the world.  This generated excessive consumption and inadequate investment.  And debt took over from saving.  That meant slow accumulation of capital in productive sectors and the need for more financialisation to raise profits.

It was this imbalance of financialisation and globalisation that caused the structural crisis of 2008-9.  It was not falling profitability.  Dumenil produced a graphic showing that the rate of profit for the US non-financial corporate sector peaked in 1965, fell back to 1982, then rose to 1997, fell again to 2002 and then rose again to peak in 2006.  For Dumenil, the crisis of 2008-9 could not be caused by falling profitability because it rose from 1982 to 2006.  This was especially the case if you looked at after-tax profitability and not overall profitability.   The trigger, but not the cause, of the crisis was the residential subprime loans market and the securitisation of those loans around the world

Dumenil concluded from his analysis that the crisis of neoliberalism may well force the US to change the social order with the managers moving towards the ‘popular class’ and adopting a policy of joint government/private investment in green technology and infrastructure as Obama has been arguing.  Dumenil did not think this would work in solving the crisis of neoliberalism and so capitalism would have a new crisis some time.

Also at the presentation was Costas Lapavitsas of the School of African and Oriental Studies.  He said that Dumenil’s book had two very strong points.  The first was that it showed irrefutably that profitability was not the cause of Great Recession.  Dumenil’s data prove that and it was just “alchemy” to suggest otherwise using various tricks as some profitability proponents do.  The fall in the rate of profit after 2005 was too short to be the cause of the recession in 2008 or certainly not enough to explain the “systemic crisis” that the Great Recession was.

Anyway, the idea that the tendency of the rate of profit to fall is the cause of capitalist crises is really a fairly new idea, one that has arisen only post-war and mainly comes from Anglo-Saxon sources, says Lapavitsas.  Sure, it might have fitted the facts in the 1970s, but not after.  “Classical Continental European Marxists” of the prewar era never proposed profitability as the cause of crisis.  Luxemburg said it was underconsumption and others said it was disproportionality.   Lapavitsas reckons the causes of capitalist crisis is complex not monocausal.  Each “structural crisis” has a different cause and Dumenil brilliantly shows this.

The second strong point in Dumenil’s thesis, said Lapavitsas, is that he looks at capitalism as changing through various ‘social orders’.  Financialisation was a product of new order of neoliberalism.  Indeed, we now ought to look at the financial sector as a “separate entity” and not just as an “adjunct” to the producer sector in capitalism.  That is why neoliberalism is an epochal change.  We need to return to Hilferding and Lenin to understand financialisation.  The circulation of capital is now key to understanding the structural crisis of capitalism not profitability.

Where do you start with all this?  As those of you who have read my posts regularly would not be surprised to guess, I could not disagree more with so many of the propositions presented by Dumenil and Lapavitsas.  Let’s start with Lapavitsas’ two ‘strong points’ from Dumenil’s book.  They seem to me to be the weakest arguments, not the strongest.  It seems that, for Dumenil, every crisis is different.  That’s surely true in its immediate or proximate causes – in the latest crisis, it was the collapse of the US residential homes markets that spread to bank assets and various ‘financial weapons of mass destruction’, as Dumenil says.  In the 1970s,  it was the oil price spike that triggered the first simultaneous post-war capitalist recession in 1974-5.  In 1929, it was the Wall St stock market crash that set off the Great Depression.

But these proximate causes do not reveal the underlying or ultimate cause of capitalist crisis.  I would argue that Dumenil makes no clear distinction between proximate and ultimate cause, but merely cherry-picks his causal explanation as it seems to fit – the very charge that Lapavitsas makes against the ‘post-war Anglo Saxons’.

Lapavitsas seemed to be arguing that, because the great ‘classical’ European Marxists of the pre-war era never proposed Marx’s law of profitability as the main causal explanation of capitalist crisis, it can’t be right.  But just maybe Luxemburg and Bukharin were wrong, and if they were ‘classical Marxists’, then maybe Marx was not a classical Marxist (as he indeed once said).

To claim that Marx’s theory of crisis is better found in that short but brilliant propaganda pamphlet, The Communist Manifesto,written in 1848, before Marx had fully formulated his economic theories, rather than in his mature works, Capital Vols 2 and 3, Theories of Surplus Value and Grundrisse, is tendentious, to say the least.  And were there no non Anglo-Saxons that saw Marx’s law of profitability as the main cause of crisis?  What about Henryk Grossman or Paul Mattick? But perhaps they were not ‘classical Marxists’.

As Guglielmo Carchedi pointed in his article in International Socialism, issue 125 ( “some Marxist authors reject what they see as “mono-causal” explanations, especially that of the tendential fall in the rate of profit.  Instead, they argue, there is no single explanation valid for all crises, except that they are all a “property” of capitalism and that crises manifest in different forms in different periods and contexts.  However, if this elusive and mysterious ‘property’ becomes manifest as different causes of different crises, while itself remaining unknowable, if we do not know where all these different causes come from, then we have no crisis theory”.

Carchedi comments “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.”

As for Lapavitsas’ second ‘strong point’, is it really convincing to say that neoliberalism is a new social order, a structural change in the balance of class forces?  Is ‘neoliberalism’ not simply an ideological policy response from the strategists of capital to the profitability crisis of the 1970s?  Dumenil’s analysis of ‘contemporary capitalism’ with its three classes or social orders smacks more of the theory of the sociologist Weber, taken up by some Marxists in the 1930s.  For Marx, there are only two classes defined by their relation to the means of production: one that owns the means of production and appropriates the surplus value created; and one that lives only by selling its labour power.  People may think they are not members of either class but from the point of view of Marxist economic theory, they are defined by these economic categories.  The concept of a managerial class is not part of a ‘classical Marxist’ analysis.

There is a political implication from Dumenil’s theory that an alliance can be struck by the ‘popular class’ with the ‘managerial class’ against the ‘capitalist class’ that would tip the balance of forces towards a better society and defeat neoliberalism, something like the New Deal in America or the Popular Front in France in the 1930s.  President Obama could lead such an alliance in a similar way.  The trouble is that the managerial class is an illusion and there is nothing to ally with!

Can we really identify the major cause of a capitalist crisis by whether the economy collapses (profitability) or explodes (financial)?  I’m not sure I know the difference between a collapsing and an exploding economy.

But perhaps most important of all is Dumenil’s data.  He produced pretty much the same results on the movement of the US rate of profit that I and others in the ‘profitability camp’ do.  Namely, the US rate of profit peaked in 1965, then fell back to a low in 1982, then in the era of so-called neoliberalism, it rose to peak in 1997.  That 1997 peak, according to Dumenil and my own data (see graph) was not surpassed in 2006 at the peak of the credit boom.  And the 1965 peak was also higher than the 1997 peak.


That suggests, as I argue in my book, The Great Recession, that Marx’s law of profitability is operating as the ultimate cause of capitalist crisis.  Indeed, based on that view, in early 2006, I predicted the Great Recession would take place in 2009-10.  I was wrong  – it came a year earlier.  Dumenil made no such forecast as far as I am aware.

Profitability will soon resume its downward path (after its current recovery from the recession low of 2009), according to my interpretation of the data.  It will reach a new low with a new recession in four to five years time.  If that’s right, we can then judge better whether capitalist crises are a product of capitalists “losing control of credit” or the result of the inexorable tendency for the rate of profit to fall .

14 thoughts on “The crisis of neoliberalism and Gerard Dumenil

  1. Nice critique. There’s nothing new, really about “neo-liberalism.” All it is is an ideological shell for obscuring the real attack on living standards, and asset liquidation that goes on.

  2. Unemployment peaked at maybe 6 % in the 2000 recession, versus 10% now. This is a much worse recession for workers. Yet profit rates fell the same. Seems like more is going on.

    I’d also argue that the early 90’s recession was worse for workers than 2000, though profit rates essentially missed that.

  3. Wish i had been at the meeting.

    Carchedi’s criticisms seem to be on the money. My own work own on 1929 found evidence of a) profit rates lower than a decade earlier b) a decline in 28-29 triggering the first fall in October and then further declines (no doubt hastened by the financial falls) in 1930-31

    My reading of Dumenil (and some of his supporters) found him too-easily accepting the sort of facts that come out of national stats bureau, even then they are not quite clearcut. Post tax profits may be up (even here the BEA were cautioning the effect of tax changes in 04-05) but they don’t show that before tax or even after paying out shareholders/interest (not at all impressive).

    Plus as you say there are plenty of marxists who would disagree. My own simple attempts a few years back found some upswing in 2000s but still not at the peak of the mid-90s.

    btw in lieu of reading your book michael, do you have an article on your analysis of profit rates.


    1. I posted a paper that I presented to the Association of Heterodox Economists in summer 2010. It provides charts and data on the rate of profit. See my post, Financialisation: the cause of crisis, 19 July 2010 (for that AHE paper). And also see my posts on The Great Recession on 5 January 2010; A financial or economic crisis, 15 June, 2010; and Views on the Great Recession, 3 September 2010.


  4. Nice critique.

    In his article “An Introduction to the History of Crisis Theories” Shaikh mentions three lessons:

    1. Relation between theory and politics. You correctly point out the political implications of their theory.
    2. Theroy and the “facts”. That the given “facts” are not independent of a conceptual framework.
    3. Those who ignore theory are condemned to reconstruct it.

    If I didn’t know any better I would have accused them of racism when they attribute the FROP as the root cause to Anglo-Saxon. Is this an argument against a race or a theory?

    On another note, I would like to inquire about your opnion regarding the mechanism used to prop up the economies. Spending trillions resulting in massive budget deficits, real negative interest rate (what’s the long term implications?) is not sustainable. Removal of the this life support is unthinkable for the ruling class in the US. Investment in department I is not happening because capitalists know that once tax breaks, negative interest rate and other concessions are removed then it’s back to prior low profit rates. That to me explains why capitalists refrain from more investment/accumulation.

  5. Cameron

    Just to say that the “Anglo-saxon” thing came from Costa Lapvitsas and not Gerard Dumenil.

    In the depth of the financial collapse all capitalist goverments resorted to government support to the failing banks. But once that had been done, proper Keynesian policies of easy money and state spending were adopted with varying degrees of enthusiasm. Bailing out the banks was more important. The US administration has gone for “Keynesianism” more than the UK government for example. Of course, even Obama’s approach is not enough for the likes of Paul Krugman or the outright Keynesians who think it does not matter how large the deficits get or how much it costs to pay the bond holders out of taxes on incomes (wages and profits). At the other end of the argument on capitalist economic policy are the tea party Republicans who find any role for the state except to lock people up or to wage war as anathema. They want government spending decimated.

    As you say, neither policy would restore capitalist health unless it revives profitability in the productive sectors of accumulation. And that it is precisely why Marx’s law of profitability provides the best explanation and insight into the motion of capitalism.

  6. “Neoliberalism” seems to me to be just another one of those phrases that closet socialists use when they are afraid to use the more classical marxist terms. I am not sure what this buys us. The idea is that somehow if we change our language then people will be more receptive to our ideas.

    Elites= bourgeiosie

    Hegemony= imperialist control.. etc.

  7. 2. Assuming that the most fundamental definition of Marxism is that it is a movement which allies itself with the social interests of the working class and seeks to aid the working class in an historical process which results in the working class becoming the ruling class thereby abolishing class differentiated society, at what point is this form of analysis useful.
    What is its application to the class struggle or the construction of socialism.?

    3. To speak of a managerial class is to depart from Marx and to enter the realm of Bernstein. I would be interested to see statistics on the size of this “class” What is the relation of this class to the process of production. My suspicion, admittedly made without adequate analysis is that it could be easily broken up into the more specific categories of a) the bourgeiosie, owners of social capital who have managerial positions but are major shareholders or bondholders and thus are entitled to a portion of the fruits of surplus value. b) workers, ie producers of value who may sit at a desk rather than in a forklift but whom perform real work, albeit in 21st century forms, such as programmers and other technology workers. and C) more or less permanent or temporary elements of the petit bourgeiosie, owners of small enterprises who simultaneously produce some value and also exploit labor to a limited extent but who are obstructed by systemic restraints from capitalizing beyond very limited levels.
    I would suspect that true managerial professionals who do not fit in to any of these above categories and whom are nonetheless explicit agents of the bourgeiosie would represent a very small statisitcal component of society, are not a class per se and will remain in their great majority loyal to their masters irrespective of either the rate of profit or the condition of the credit markets. The analysis described above seems like a self aggrandizing petit-bourgeois fantasy in which college professors imagine themselves and their cohort to to play a pivotal historical role.
    4. Both the Manifesto and Capital refer to the unquenchable thirst for growth of the capitalist system. The present epoch is salient in the aspect that the extension of commodity production is now virtually complete on a world scale. To some extent it is already being truncated by the operation of post revolutionary state regimes which in some limited aspects superceed the law of value such as in the case of Cuba, Vietnam and China. Resolution of both limitations on the expansion of the rate of profit and most certainly limitations on the operation of credit markets depend upon opportunity for systemic growth which is no longer avaliable to the capitalist system without a prior massive destriction of existing fixed capital (war), the creation of direct access to a new market by the reimplimentation of colonial relations or some presently unforseeable major advance in the productivity of labor–such as occured in the 1990s with the development of the internet wireless technology and personal computer. Further advances in information technology have not produced the same level of productivity increases as did their introduction and have if anything intensified the downward pressure on the rate of profit as the application of these technologies has become generalized and markets for these devices saturated except for the replaceement of one device with another that is only marginally improved over its predecessor.
    Lacking the social power to alter these balance of forces, including the massive expansion of democratic power now resting in the hands of the worlds working people, capitalism has turned to cannibalism which is sometimes euphemistically called neoliberalism.

    5. The solution to this problem is a social movement to overthrow the power of capital rather than the employ of ever more intricate and sophisticated marxian analysis of capital. Marxists who posses talent as economists ought to turn their attention toward the world that we must now begin to create rather than to dissect the world that we must leave behind.

  8. well done, i think that it is true that there shall be repetition of capitalist crises and it would cause series adversiery affects and tthere shall be cut in health ,education,employment and inflation ,so there shall be resistence and it would cause revolutions ,

  9. It is interesting how Lapavitsas’ and Dumenil’s analysis of financialization is congruent with the thesis that rate of profit tendency has negligable role in current crisis. In fact, Dumenil and Levy argued that financialization was a response to rate of profit shrinkage. How then it is possible to say that present crisis has nothing to do with the rate of profit?

    Michael, may you tell your opinion on the issue whether debt/credit-driven growth in production and construction is more caused by financialization or underconsumption/lack of aggregate demand. Or, if both matter, how they correlate?

  10. I read this essay with great interest. The radical theories of late capitalist crisis seem to fall into two major camps; those that see crisis as the result of the tendency of the profit rate to fall and those who, as Baran and Sweezy hypothesized in Monopoly Capital, argue that there is a “tendency of surplus to rise” during the stage of late monopoly capitalism which can’t be profitably absorbed in an increasingly stagnant and highly concentrated economy more and more plagued by unemployment and overcapacity. This, argue those of the “Monthly Review School,” an interesting blend of structural Keynesian economic analysis and Marxist theories of class struggle, is the main cause of capitalist crisis. Such crisis manifests itself as ongoing chronic stagnation of the real economy as well as frequent and deepening financial crises as shrinking effective demand shifts more and more investment into the financial sector creating chronic and growing economic instability. J.B. Foster, the current editor of MR, sums up the current nature of the crisis succinctly in an essay published about a year ago which is worth quoting at length;

    “In Monopoly Capital, Baran and Sweezy described advanced capitalism, exemplified by the United States, as an economic and social order dominated by giant, monopolistic (or oligopolistic) corporations—the product of the concentration and centralization of production described by Marx in Capital. The central trait of the system was a tendency for surplus (value) to rise—a phenomenon made possible by the effective banning of genuine price competition in mature, monopolistic industries, together with continually rising productivity. Under these conditions, the main economic constraint was no longer the generation of surplus, but rather its absorption, i.e., a chronic lack of effective demand….corporations normally refrain from carrying out net investment if expected profits on new investment are weak. Such expectations are affected by the existing level of capacity utilization in industry; the presence of idle plant and equipment deters business from investing in still more capacity. Since a rising surplus tendency, moreover, generally means that real wages are rising less than productivity (i.e., workers are more exploited), wage-based consumption is chronically weak relative to society’s capacity to produce, resulting in increasing excess capacity, and the atrophy of net investment. Under monopoly capital the long-term growth trend is therefore sluggish, characterized by a wide, and even widening, underemployment gap. The economy, in other words, falls far short of its potential growth rate, with underutilization of labor and capital goods. Hence, the normal state of the monopoly capitalist economy, Baran and Sweezy argued, was stagnation or an underlying trend of slow growth.”

    Keynes himself discussed what could be termed an “overinvestment problem” or a falling average rate of profit in an economy becoming overcrowded with new investment; shrinking opportunities for investment was thought to drive down the average profit rate resulting in stagnation, overcapacity, recession and unemployment. But this never became the core of Keynesian crisis theory which instead, based on the problem of falling effective demand and the need for the government to fiscally “stimulate” the economy back into an upswing through deficit spending. The MR seems to consciously rely heavily on Keynesian approaches to crisis. However, Baran & Sweezy noted that it was corporate monopolies that made prices inflexible which caused surplus to rise not fall. Profit rates were saved by cutbacks in output not lowering prices to clear markets. This resulted in layoffs and unemployment and intensified class struggle; a threat to political stability in times of crisis. Barry Finger gives a good sumation of this aspect of the MR School;

    “…monopoly capital is able, through its market power, to alter the rate of exploitation, the rate at which value is divided and redistributed to capital, by operating below full capacity. This creates market shortages, artificially raising prices above the limits that might otherwise competitively prevail in the absence of monopoly restrictions on potential competition. These barriers to entry are due not to collusion as such, but rather to the prohibitively high cost of entry at the necessary scale of production needed to force prices down. The consequence, according to Baran and Sweezy, is the generation of a mass of surplus-value that cannot be readily recycled. There is no reason to build additional productive capacity when the key to monopoly profits resides in withholding production. The system therefore suffers from stagnation, a permanent difficulty in recycling its “surplus” (the preferred term in Monopoly Capital) by means of additional capital formation. In this unique sense, monopoly capitalism is said to suffer from chronic overaccumulation, which it attempts to counteract through a multiplicity of waste generating activities that absorb the surplus without arresting the central dynamic of overaccumulation. Whereas “competitive” capitalism lapsed into periodic crisis due to an insufficiency of surplus-value, the modern stage of capitalism is said to suffer from its inverse. Business cycles are replaced with an overarching tendency to stagnation, which is itself only periodically transformed into prosperity to the degree in which surplus absorption can be made successful. This takes the form primarily of advertising, war production, and imperialist adventures, the latter two financed by taxes and by the issuance of government debt. But not only by those means.”

    I find the MR School to be the most convincing left analysis of late capitalist crisis; the core of the crisis seems to be anchored in late capitalism’s increasing monopoly concentration of production and profits. Left economists like Fred Mosley have convincingly pointed out fluctuating patterns in the average rate of profit since the end of WWII which shows an overall downward trend. In conjunction with this downward trend in the rate of profit, as the MR adherents concur, is a dramatic fall in the average annual real rate of new investment (beyond inventories). However, it must be questioned to what extent the rate of profit as opposed to the mass of profit influences increased capital investment. Falling rates of profit must also be related to the manner in which late monopoly capitalism’s concentration of wealth, income, industrial assets and financial wealth has slowed down overall effective demand resulting in chronically higher levels of long term unemployment, stagnant real income growth and overall stagnant GDP growth. That this trend has led to rapidly over the past thirty years to the financialization of monopoly capitalism is evidence of the central importance of monopoly concentration.

    The dramatic shift in the share of financial corporate profits in US total profits went from 5% in 1980 to nearly 45% today. Financialization, neo-liberal economic policies and monopoly concentration are closely tied during late capitalism. Yet, monopoly capital seems to be the driver of late capitalism’s overall trends and at the very core of the crisis. Falling profit rates and low investment are more a consequence, not a cause, of the current crisis.

    1. Steve

      Your two comments are really important but to give you my view would take some time. I shall do so over the next few weeks. Suffice it to say that I dont agree with your analysis and conclusions on the causes of the the current crisis – my views are best summed up in my book, The Great Recession. But the ideas raised by the MR school are very worthy of discussion. I’ll get back to them soon.

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