Monsters, delusions of debt and the crisis

I have just attended the 9th Annual Historical Materialism conference in London.  It was an opportunity to catch up with some of  the latest academic Marxist research from around the world.  I also presented a paper at the HM conference, but more of that later.  The big headline session is when the previous year’s winner of the Isaac Deutscher prize for the best Marxist book of the year makes an address and this year’s winner is announced.  Last year’s address was by David Harvey.  You can read my comments on his presentation in a previous post (David Harvey, Marx’s method and the enigma of surplus, (

This year’s winner was David McNally.  This was not unexpected.  McNally has already written an excellent account of the recent capitalist crisis, called Global Slump: The economics and politics of crisis and resistance on which I have commented before (see  and This book is called Monsters of the Market: zombies, vampires and global capitalism.  As its title suggests, it is an exotic and stimulating analysis of global capital and its crises, drawing on the folklore of occult culture with terms like monsters, zombies  and vampires, also used by Marx in his accounts of capitalism.

I have to be honest and say that I do know always where McNally is going with this roller coaster of a read.  But I think it is something like the idea of showing that capitalism really is a monstrous system that sucks the blood (vampire-like) out of living labour and turns human beings into robotic zombies.  Capitalism turns human beings into commodities even by selling their body parts after their death (and sometimes before death).  The language of monsters and vampires is not so much a metaphor of the capitalist mode of production, but a reality. “Capital is dead labour which, vampire-like, lives only by sucking living labour” (Marx).  Human beings are separated from their product of their work by capital and market exchange and can even become part of the process of exchange themselves.  Under capitalism, human beings are disempowered and become lifeless like zombies.  But all is not lost because the zombies and monsters can fight back as Frankenstein’s monster did.  Indeed, human beings can kill the monsters of the market.  It’s certainly a different angle on the nature of social relations under capitalism.  But I do prefer the  more prosaic but compelling analysis in McNally’s earlier books on the market (Against the Market, 1993) and capitalist crisis (Global slump, op cit).

Readers of this blog will know that, being very prosaic myself, that I would mainly be interested in the latest research on the economic crisis.  In this area, two papers at the HM conference attracted me.  The first was by Sergio Camara, whose paper aimed at identifying the contribution that finance capital made during the so-called neo-liberal era from the 1980s onwards towards boosting the profitability of US capitalism.  Camara measures what he called the return on ‘active capital’ (basically non-financial capital) against the real rate of interest (which was his measure of the profitability of financial capital).  Camara found that real interest rate was higher than the return on active capital up to the end of the 1990s, after which the reverse was true.  Thus, the turning point and a marker for the end of the neo-liberal era was then.  I’m not sure his measure of financial profitability is right, but the turning point rings true with me and also matches the conclusions of an earlier paper by Camara, which I highly recommend as showing how profitability is the key causal factor in this capitalist crisis (Izquierdo rate of profit).

Professor Simon Mohun also presented a paper that tries to develop the idea of a ‘class rate of profit’.  Mohun has raised this concept before and at the time I had severe objections to his attempt to redefine Marx’s definition of class and consequently the measurement of the rate of profit, (see   And my misgivings were not helped by Mohun’s statement that he did not think that Marx supported the idea of any law of the tendency of the rate of profit to fall.  But I have to say the paper was interesting, not least because its measurement of the US rate of profit (whether conventionally done or under Mohun’s ‘class’ definition) showed that profitability started to fall from 1997 and that US capitalism was in a downphase.  This, of course, is one of my key arguments.

That brings me to my paper (see here:Debt matters). It is on debt and its connection to the rate of profit and crises.  Anybody who has read my blog knows that I have been arguing that the reason for the weak economic recovery since the end of the Great Recession is two-fold.  First, the rate of profit in most major capitalist economies has not recovered and we remain in a downphase for profitability.  And second, the sheer weight of fictitious capital (mainly debt) is holding down the ability of the productive sectors of capitalism to restore investment and growth.

My paper quantifies the expansion of fictitious capital since the 1980s in the neo-liberal period and then attempts to measure profitability against not just tangible (physical) capital but also against fictitious capital.  It draws on the work of Alan Freeman, Tony Norfield and others in trying to do this (their papers are cited in mine).

For me, capitalist crises can be triggered by the expansion of private sector debt rather than public sector debt that obsesses mainstream economics for both ideological and class interests.  In the neo-liberal era from the early 1980s up to the late 1990s, debt expanded dramatically and so did financial sector profits.

In measuring corporate profits against net worth of corporations (tangible + financial assets less financial liabilities) in the US, I find that the non-financial corporate sector no longer benefited from the expansion of fictitious capital after the end of the 1990s.  Indeed, profitability against net worth was lower than the rate of profit against tangible assets by the early 2000s – echoing Camara’s conclusions (see above).

The neoliberal expansion in fictitious capital that had helped push capitalism out of the crisis of the 1970s was now laying the basis for new crises and slumps.  The credit crash led to the bailing out of the banks by the state and sovereign debt then rocketed.  Capitalism is now left with a huge debt burden in both the private and public sector that will take years to deleverage in order to restore profitability.  So, contrary to the some of the conclusions of mainstream economics, debt (particularly private sector debt) does matter. Indeed, assuming growth does not return soon, precisely because debt remains too large, there are only two ways to reduce the debt burden.  The first is through inflation (reducing the real value of the debt) for debtors at the expense of creditors.  That’s the Keynesian solution.  The other way is through default (you might call it the Marxist way).  This is the quickest way but the most painful for capitalism and the creditors.  For some capitalist economies like Greece, there is no choice: default is the only exit.

Comments from the floor on my paper only increased my misgivings about the approach of the paper.  The first was a point made by Professor Fred Moseley that I had left out the role and impact of the growth in financial debt (i.e the debt of the banks and other financial institutions) and thus the nexus between that household and sovereign debt.  The finance sector borrowed in order to lend to households to fuel the property bubble.  When that bubble burst, banks got deep into trouble and their debts had to be covered by the state.  The banks could then deleverage their worthless assets at the expense of taxpayers, while households defaulted on their mortgages.  So it was from households to banks to government; passing the parcel of debt.  I am going to have to try integrate this into my calculations on profitability.

The other misgiving is that I am not sure my current attempt to measure profitability against advanced capital that includes financial assets and liabilities works.  At the conference, Tony Norfield presented a paper that modified Marx’s formula for the rate of profit that incorporated finance capital.  This may be a better way forward. Tony has an excellent blogsite where his papers are available (  He produced some great data on how US and UK capitalism are the pre-eminent ‘rentier’ imperialist powers in the world. His index of imperialism, for example, based on GDP, military power, FDI, bank assets and foreign currency transactions is a real eye-opener.

As readers know, I am convinced that the most compelling explanation of the global slump is to be found by starting with profits and then from the movement in profitability of capital to investment, wages and consumption.  But most don’t agree, even most Marxists.  There are other explanations of the crisis that are based on the view that there is inadequate ‘effective demand’ (Keynesians) and the more sophisticated version that might be described as post-Keynesians.  If you want to read the basic ideas and key papers of the post-Keynesians go to

Ozlem Onaran and Giorgos Galanis presented a paper (Distribution, growth and the crisis: implications for the global economy) that they said was based on neo-Kaleckian theory.   This approach relies on the work of Michel Kalecki, the Polish radical economist who merged Marxist ideas with Keynesian ones.  I have commented on Kalecki’s ideas in many previous posts.  Neo-Kaleckian theory is an attempt to combine the Marxist law of profitability as the cause of crisis with the Keynesian one based the lack of effective demand, if you like.  Onaran and Galanis analysed the changes in wage and profit share across a large number of capitalist economies since 1960. They argue that the evidence shows that the crisis was ‘wage-led’ not ‘profit-led’.  In other words, it was the fall in labour’s share that eventually led to a lack of demand and this triggered a collapse in investment and growth.  Indeed, if labour’s share had been sustained at 1970s levels, the golden age of economic growth would have been maintained during the neo-liberal era.  So the crisis of capitalism after the 1980s was due to a lack of wages not a lack of profits.  I think you can find their paper at the International Labour Organisation site.

Now I have problems with this thesis both on theoretical and empirical grounds.  Theoretically, the Kalecki-Keynesian view of the capitalist economy is the wrong way round (in particular see my post,  If crises are not profits led, then the solution to crisis could be just by raising wages.  Ah! say the neo-Kaleckians, well then there would be a profit-led crisis as wages squeezed profits.  And anyway, capitalists would politically block any move to raise wages even if it is rational to do so.  Now I accept that the collapse in labour’s share was a neo-liberal response to the profitability crisis of the 1970s.  It helped to drive up the rate of surplus value and counteracted falling profitability.  But profitability was still lower than in the golden age in 1997.  And it has been falling (on a trend) from 1997.  We may have a correlation between declining labour share and low growth.  But which way is the causation?  Is it not low profitability to poor investment and thus to low growth, forcing capitalism to squeeze labour?

And I have to comment on a sort of debate between Professors Riccardo Bellofiore and Fred Moseley on Marx’s schema for understanding capital and surplus value (Hegel and Marx: lost in translation; the universal and particulars in Hegel’s logic and Marx’s theory of capitalism).  It seemed to me that what was really behind the so-called difference in translating between the German for Hegelian concepts of  ‘appearance’, ‘false appearance’ and ‘essence’ in capitalism was being used by RB to suggest that capital (as money) was different from its value even at the level of ‘capital in general’.  RB seemed to be hinting that capital was more than a form (an appearance) of surplus value at this level of abstraction and thus Marx’s law of value does not explain ‘capital’ in full.  Maybe I am wrong, but that is what I concluded.  If so, this looks like a departure from Marx’s value theory, not a clarification.  Otherwise why make such a big fuss between surplus value and capital?

All this sounds pretty arcane, but when you read RB’s explanations of the crisis, which I think diverge from a Marxist view, this may be connected.  Last year Bellofiore argued that the euro crisis is really just part of an overall global debt crisis.  As he put it: “if only the economic analysis of the Left would have escaped obsolete readings, such as the tendential fall in the rate of profit or would have resisted the underconsumption temptation (according to which the global crisis was of a world of low wages), it could have seen in advance that was the collapse of ‘privatised Keynesianism’.  By privatised Keynesianism, Bellofiore means uncontrolled private debt expansion that creates an ‘imbalance’ in the capitalist economy which must eventually be corrected through a crisis.  Thus the cause of capitalist crisis is not the Marxist one of profitability or rising inequality (currently the vogue among non-mainstream heterodox economists), but uncontrolled debt, Minsky-style.  For more on this see my post (

I appreciated two main things from the many papers at the conference, of course, confirming my own prejudices!  The first is that the neo-liberal period is over.  The neo-liberal period was a response by capitalism to the profitability crisis of the 1970s in two ways: a) reducing the share of labour in total value to boost profitability and b) expanding fictitious capital (and unproductive labour) and investing in financial assets over real assets for higher profit.  That eventually collapsed because profitability never recovered to the level of the Golden Age (because of weakness of productive capital) and even started to fall back in the major capitalist economies after the late 1990s.  As a result, fictitious capital became levitated like the cartoon Road Runner before taking a big tumble.

The second is that the very weight of dead capital (fictitious and real) is so great that it will take years (decades?) to liquidate or devalue to restore profitability.  So we are in a Long Depression.  The monstrosities of the market have returned a very dreaded way.

17 thoughts on “Monsters, delusions of debt and the crisis

    1. John
      The first ‘long depression’ started in both the US and the UK in 1873 and, interspersed with short booms (like 1932-37), it lasted until 1893 before there was sustained growth without a slump through to the early 1900s. So that would be 20 years. The Great Depression of the 1930s started in 1929 and did not end until the outbreak of the war, ten years later. The IMF and others reckon that the major economies will not return to previous peak levels until 2016 at the earliest, so that’s nine years since the crisis broke out. There are other studies on debt deleveraging that put the period before recovery at seven to nine years. I like the 20-year model.

      1. FT 14 November:
        Britain’s weak recovery shows little sign of improving and inflation will be higher than previously expected, the Bank of England predicted on Wednesday, in its most pessimistic medium-term forecasts since gaining independence. The BoE now thinks output in the economy will remain below the 2008 peak until late in 2015 and said “growth is more likely to be below than above its historical average rate over the entire forecast period”.

      2. I think Marcello is bringing important things in. First I like to mention that since Hilferding, big corporations cooperating with big banks (German finance capital) put more emphasis on the mass of profits than on the rate of profit. There is a shift in emphasis, Marx said that for big capitals a fall in the rate of profit can be compensated by the mass of profit. From my viewpoint, that is why there is such a pressure on the wage rate in GDP, everywhere, as O. Onaran showed in her research, and all those financial and credit cycles, are also used for households. Increasing consumption, is accelerating circulation, and by this the mass of profits. Since 1920s, starting in the US, they created consumer credit cycles to buy cars and houses, the actual crisis is so severe, probably long lasting, because households, after 90 years, are overloaded with private debts together with very low wages….

  1. Micheal,

    Thanks for the excellent overview! Integrating financial capital or finance capital in the falling rate of profit is a good way forward to analyse US and UK capitalism. I do agree with your remarks on Ozlem Onaran and R.B. you could call them underconsumptionists. For them the OCC is constant. Be aware that they have never done any empirical research on OCC, industrial technology, innovations etc…
    It is of course true that as in the 70s UK crisis of capitalism there was a rising OCC and a declining S/V, Keynesian measures helped to raise OCC further, declined S/V which created a further collapse of the rate of profit of the UK economy! The only way to understand the actual crisis is integrating the development of OCC and relate this to the development of S/V. If, as you showed there is a declining OCC this means in macro-economic terms that there is a shift from department l to department ll, department l is becoming more efficient i.e. through industrial innovations. If at the same time S/V is rising this will mean more and more profits are invested in department l and less and less will be used for consumption in department ll. So the boom of the 90s in sector l, the Kondratiev cycle, is financed by sector 2, leading to overinvestment and a fallinf rate of profit in sector 1 and underconsumption/overproduction and a falling profit in 2, if you have rising trade and current account deficits and a budget surplus, as under Clinton in the 90s, together with a very high rate of interest and an overload of debt (as you showed) you get a crisis or a long depression which you mentioned. OCC and the rate of profit are the KEY!

  2. Of course “fallinf” is falling and a “falling profit in sector 2” is “a falling rate of profit in sector 2”!

  3. You might want to correct this sentence: “It draws on the work of Alan Freeman, Tony Norfield and others is in trying to do this (their papers are cited in mine).” ==in trying==

    Thanks for sharing the doings at this intriguing conference and the links to various papers. I recognised some of my thinking in your description of the neo-Kaleckians. Yes, why not point to the stagnation in real wages since the 70s as an attempted cure for the tendency of the rate of profit to fall. After all, lower wages are the key to higher rates of profit. With increasing productivity adding fuel to the fire of lower and lower amounts of socially necessary labour time being embodied in commodities, thus lowering the value of the commodities, the workers iow, the market, is saturated more quickly, even as real wages are stagnate.

  4. Micheal,

    Thanks. Yes, in the US and the UK they compensated the fall in the rate of profit, due to an increasing OCC, by reducing the wage rate or increasing the rate of exploitation in the 70s and 80s, Neo-Keynesians do not understand that creating new industrial innovations is costing a lot of investment capital. But they kept on doing this, even during the period when OCC was declining as you showed, when a new Kondratiev boom was taking off.
    Creating a new Kondratiev cycle and related stock market cycles are at the expense of the real wage rate and labour consumption. This will mean a secular trend of rising overproduction in sector 2 and increasing overinvesment in sector 1.
    They created growing disproportionalities between sector 1 and 2 which were not compensated for by growing exports during the 90s, on the contrary..
    Micheal, I prefer to call them neo-Keynesians, Kalecki did read Marx and had his version of OCC which he called capital-output ratios and these ratios could rise!

  5. Michael,

    I did the paper of Sergio Camara. I am not convinced and I think you can not derive conclusions on sectoral rates of profit, such as sector 1 and 2, and the causes for their decline, by only calculating a general rate of profit for the US economy as a whole! He shoud have disaggretate his data in at least 2 sectors. This is also true for the industrial capacity utilisation ratios. Why is this true? Because the fixed capital and labour coefficients in both sectors are completely different. In the past this was shown in the economic planning models used, they used an input-output matrix with different fixed capital and labour coefficients!

    1. Duvin,

      Clear statement. Yes, there is a realisation problem which should be integrated in any crisis theory. At the same time, prices of resources, especially oil, should be integrated as well. we are living in a kind of oil- and car capitalism. There is a strong connection between declining oil prices, declining OCC and a rising rate of profit between 1982-1998. Since 1998 the oil price started to rise and this accelerated after 2000, contributing to further disproportionalities between investment and consumption, imports and exports etc… Yes, this element should also be integrated into a crisis theory. Indeed the problem of oil depletion and it’s effect on the rate of profit will not be easily solved….

    2. “to not making a clear theoretical distinction between two types of crisis: cyclical & breakdown”

      Certainly, but I think the real reason lies with some Marxists mis-applying Marx’s analysis of a closed economic system to the actual world we live in. I.e. Dogma.

      It seems to me that only Simon Mohun is attermpting to break free of this.

  6. Michael, thank you for the report and especially for the papers. I would like to comment on the two measures of profitability, since I’m not sure I understand them.

    My understanding is that corporations used borrowed money in order to buy financial assets, and the strategy worked because this fictitious capital generated (somehow) a larger share of profits than tangible assets. This continued up to a tipping point at the beginning of this century. The main cause of the reversal was the fall in the mass of ‘conventional’ profit.

    So the ‘nonconventional’ rate of profit is an indicator of how well fictitious capital can offset the effects of the falling rate of conventional profit, and how badly it weighs against the start of a new cycle of expansion after the recession. It is not, as I see it, a causal factor in the recession but a synthetic indicator of the conditions preparing a recession or a new cycle of investment.

    As for the graph, it is not easy to read. Its main defect is that it can be interpreted as an indicator of the growth of corporate debt (reducing net worth and increasing the rate of ‘nonconventional’ profit). It may thus seem that after 2000 corporations started to reduce their debt (which is contradicted by other figures) or started to liquidate their financial investments (but then their net worth would decrease). What happened, really? One could also ask why, with a net worth equal to tangible assets, non-financial corporations would still be burdened by fictitious capital. There is certainly a more consistent way to read the graph but I can’t see it.

    About your misgivings about the graph, I’m not persuaded that integrating households’ debt would go in the right direction. The fact that it all started from the subprime crisis is of historical and practical interest, but also accidental. The general rule is that households don’t issue bonds or fictitious capital (banks do). And they were not bailed out, so the debt transferred to governments was not theirs.

    Finally, a terminological issue. In the paper’s abstract you make a distinction between credit and fictitious capital, but then in the rest of the paper you seem to treat all credit as fictitious capital (for example, you say that “global liquidity is a measure of what Marx called fictitious capital”). As I see it, credit entering the reproduction cycle of capital is not fictitious capital. It’s the title of credit that becomes fictitious capital, when it is transformed into a financial instrument that can be traded at prices that do not reflect the interest. Well, maybe it’s more than a terminological issue.

    Excuse me for the long comment,

    1. Marcello

      Your arguments are directly to the point! That is what I was trying to do: show how fictitious capital could offset a fall in the rate of profit. And the graph does not do that well as it looks only at non-financial corporate capital and the reading of it is, as you say, difficult. I took the idea from Duminel and Levy and I am increasingly convinced that it is not very helpful. As you say, household debt is not directly relevant but financial debt is, but the problem here is that there is double counting as banks lend to banks.

      You are also right of course that a) credit is not all of fictitious capital (there are shares etc) and b) not all credit is fictitious from day one.

      So the paper does not deliver a good analysis – more work to do. In the meantime, the ‘conventional’ rate of profit remains a much more solid indicator of what is going on.

  7. Michael,

    Thanks for refering to Tony Norfield. It is an interesting rewriting of the formula of the rate of profit. Considering the important role of the financial sector in the UK and the US, with it’s international monopoly banks, something like this is necessary. As I have tried to show earlier on, these big banks, together with big corporations, put constant pressure on a rising S/V or the constant pressure on the wage share in GDP globally, as shown by O. Onaran. Tony is also making this kind of analysis when he talks about financial centres which are taking a share of globally produced surplus value.

  8. Michael,

    I have to add that globally produced surplus value, actually means the surplus value/savings produced by Chinese workers which are transfered to the UK and the US through global operating financial centres.

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