The informal empire, finance and the mono cause of the Anglo-Saxons

I attended the 10th annual Historical Materialism London conference at the weekend.  This gathering of Marxist and radical academics generates hundreds of papers on a range of subjects to do with economics, philosophy, social trends, theoretical and otherwise.  I presented a joint paper written with Guglielmo Carchedi – but more of that later.  This year’s conference had as its theme, The Making of the World Working Class, and certainly the emphasis of many papers was on the global aspects of capitalism.

Every year, there is a Deutscher Prize lecture by the author of the previous year’s winner of the best radical or Marxist book of the year.  Last year, this was won by David McNally for his book Monsters of the Market (see my post,  David McNally called his lecture “The Blood of the Commonwealth: War, the State and the Making of World Money”, and by many accounts, it was a tour de force, filling in gaps in the Marxist theoretical and historical account of the interrelationship between state and capital in a global system.

So it was no surprise that this year’s winner of the best book was The making of global capitalism: the political economy of the American Empire by Leo Panitch and Sam Gindin (  Gindin is the former Research Director of the Canadian Autoworkers Union and Packer Visiting Chair in Social Justice at York University and Panitch is Canada Research Chair in Comparative Political Economy and Distinguished Research Professor of Political Science at York University. The two have worked together on many books and publications.

Panitch and Gindin argue that market economies have never existed independent of nation states. The state was necessary for the genesis of capitalism and the state was, and still is, necessary for its historical development and continuous reproduction. The book’s primary aim is to challenge the widespread notion that globalisation has led to the retreat of the state.  As Marx wrote, capitalism has the capacity to “nestle everywhere and settle everywhere”. But there is nothing inevitable in the development and expansion of the system. Through the New Deal and the Bretton Woods framework, the American model was applied to the remaking of capitalist states after the Second World War, with the US dollar becoming the central currency for reconstruction. It was in that period that the American state took responsibility for creating the political and juridical conditions for the general extension and reproduction of capitalism internationally. But they reckon that America did not dictate or impose its will on other states; rather “it has set the parameters within which the others determined their course of action”.

The argument that states still have a role in directing global capitalism is obviously right.  America is still the leading imperialist power and leads the other imperialist powers in an ‘informal empire’.  But in addition, Panitch and Gindin maintain that workers are generally weaker now and the American state and global “informal American empire,” has greatly strengthened since the post-1973-83 crisis.  But I am not sure that American imperialism is actually stronger now than 50 years ago.  Also, the idea that the neoliberal period was also a Golden Age like the post-war period is wrong, if we mean by that fast growth in GDP, high profitability and productive investment.  Sure, growth in the 1980s and 1990s was faster than in the crisis period of the late 1960s and 1970s, but it was still slower than in the first Golden Age and investment was way less productive (the evidence for this can be found in my book, The Great Recession). Just because in the neoliberal period the finance sector had a bonanza and thus so did American imperialism does not mean it was a golden age, I think.

Another area where I have a strong disagreement is with Panitch and Gindin’s theory of capitalist crisis as expounded in the book.  It is crucial to their thesis that each crisis is unique depending upon the particular relationships and alliances forged between workers, business, finance, and the state. There have been four major historical global crises, the Long Depression in the 1870s onwards, the Great Depression of the 1930s, the Great Recession of 1970s, and what they call the Great Financial Crisis of 2007-09.  For them, each has a different cause.

This is an argument that was echoed by many at this year’s conference (more on that later).  As Panitch and Gindin put it in the book: “Going back to the theories of imperialism a century earlier, that overaccumulation is the source of all capitalist crises, the crisis that erupted in 2007 was not caused by a profit squeeze or collapse in investment due to overaccumulation.  In the US in particular, profits and investment has recovered since the early 1980s… Indeed investment was growing significantly in the two years before the onset of the crisis, profits were at a peak and capacity utilisation in industry had just moved above the historic average… it was only after the financial meltdown in 2007-8 that profits and investment declined.”   Instead, the authors prefer to explain the Great Recession as a result of stagnating wages, rising mortgage debt and then collapsing housing prices, causing “a dramatic fall in consumer spending”.

But this account of the years before the credit crunch of 2007 and the Great Recession of 2008-9 just does not correspond with the facts.  As G Carchedi and I show in the paper we presented to the conference (The long roots of the present crisis), US corporate profits were falling some two years before the recession began and investment dropped as a result before GDP contracted.  And in the recovery, again it was profits that led investment and GDP up.

US profits and investment

Indeed, consumption as a share of GDP had never been higher in 2007.  And the subsequent fall in consumption was much milder and later than the huge collapse in investment – so a lack of consumption could hardly be the major cause of the crisis.

US labour share and consumption

The argument that the cause of the global financial collapse of 2007-8 and the Great Recession of 2008-9 was really just a financial collapse and nothing to do with profitability of capital is also a conclusion of another new book, Profiting without producing; how finance exploits us all, by Costas Lapavitsas.  Lapavitsas presented his book at an HM session just before Carchedi’s and mine.  The book’s key point is that capitalism has been transformed in the neo-liberal period with the emergence of a financial sector that bears no relation to what Marx experienced in the 19th century.  It now gets profit not from interest on lending to corporations but through the exploitation of workers through mortgages and this a huge innovation.  Mortgage debt can be flipped on and capital gains can be made again and again.  So the financial sector can make huge profits without any connection with the production sectors.

So “Anglo-Saxon Marxists” who are obsessed with the rate of profit and production crises are missing the trick.  The Great Recession was not preceded by a fall in the rate of profit, but by a financial crisis in mortgages and securitised debt.  And Lapavitsas is ambiguous about whether this profit comes from a deduction from wages or reduced variable capital (although what is new about that – are not taxes a deduction from wages or surplus value?) or from surplus value (i.e. the profits of other capitalists) or is in some way additional to surplus value created in the productive sectors (in which case, in Marxist theory, is it not just fictitious?).  But wherever it comes from, it is a new form of profit and so it makes its own crises, according to Lapavitsas.

In this sense, I think Lapavitsas takes the same position as those bourgeois theorists who see the Great Recession as a result of a banking crisis or panic induced by excessive credit, financial speculation and a lack of regulation (see my previous post,  The policy conclusion could also be similar to the bourgeois, namely that more regulation or the end of speculative banking might solve these crises.  Indeed, the subtitle of the book suggests this when it says that finance ‘exploits us all’ (the productive capitalists too?).  Lapavitsas, being a good socialist, no doubt would deny this and say his conception has revolutionary implications and anyway he is not denying the contradictions in the production sectors either. But his theory of ‘financialisation’ does seem to suggest that the crisis is all the fault of greedy bankers directly exploiting the workers rather than due to the contradictions within the whole capitalist mode of production.

Indeed, all these theories that there has been a structural change in the nature of modern capitalism through ‘financialisation’ seem to lead towards a view that the cause of crises is centred in finance and not in capitalism at large – this is something that a paper by Juan Pablo Mateo Tome has shown (Financialization_theory_of_crisis_JPMT_PERI).  And it is the point made by Maria Ivanova in a recent paper (she also presented at this year’s HM conference, CONF_2011_Maria_Ivanova MARX and MINSKY).

It seems to me that this new form of financial profit that Lapavitsas analyses is not new at all.  Either it is a deduction from the surplus value created by the productive sector of capital (interest-bearing debt) or from workers wages (mortgage debt interest), or it is fictitious profit from an extension of credit (selling on mortgage-backed securities), which eventually must be brought into line with real values through crisis.  In that sense, it does not change the nature of capitalist accumulation or exploitation (see Ben Fine’s clear paper on this issue, Ben Fine, Locating financialisation, HM 18 2010-1).

It would be more fruitful to try and measure just how much of the rise in profits in the neo-liberal period was actually fictitious and driven by an expansion of financial instruments, thus hiding the reality of falling profitability in the productive sector.  This is what Tony Norfield (who also presented at the HM conference) does in his excellent paper Tony Norfield on derivatives and the crisis.  Also, in a recent paper to the Australian Society of Heterodox Economists  last month, Peter Jones has has tried to identify just how much profit generated by the financial sector since the mid-1980s is fictitious. His measures show that when this fictitious profit is stripped out, the overall profitability in the US has been falling, especially from about the late 1990s.  This would support a ‘monocausal ‘ explanation of the Great Recession of 2008.

Nevertheless, the idea that each major capitalist crisis has had a different cause and there is no ‘monocausal’ theory of crisis remains dominant. Riccardo Bellofiore’s contribution on the two Marxist Pauls, Sweezy and Mattick (senior), was very entertaining as he went into lots of anecdotal and personal accounts of his readings of and meetings with Sweezy, Sraffa and others.  But his main point was to argue that he had read the letters exchanged between Sweezy and Mattick and concluded in his readings of all their stuff that Sweezy was not really an eclectic multi-causal stagnationist and Mattick was not really a crude ‘monocausal’ breakdown theorist.  According to Bellofiore, Mattick was right about Keynesian policies not really working in the 1970s when the crisis was one of a ‘profit squeeze’.  But, you see, each major crisis has had a different cause ‘within the Marxist paradigm’:  in the 1890s it was a ‘classic’ crisis of profitability under industrial capitalism; the Great Depression of the 1930s was a crisis of ‘realisation’; the crisis of the 1970s was one of profit squeeze and the current one is a post-Fordist financial credit one.  So Mattick was right in the 1970s and presumably Sweezy is sort of right now.

Instead, we ‘Anglo-Saxon’ Marxist economists remain ‘obsessed’ with finding the ultimate cause of crises in the production sector and in trying to find a ‘mono cause’ for the regular re-occurrence of crises.  And that is what we try to do in the paper that Carchedi and I presented to the HM Conference.  Our paper was originally published in the World Review of Political Economy, Spring 2013 (The Long Roots of the Present Crisis: Keynesians, Austerians and Marx’s Law).  At the conference, I outlined how we reckoned that the US data show a close connection between the movement in the rate of profit and Marx’s law of profitability, including its countervailing factors; and also that the movement in the mass of profits is the driver behind boom and slump (as Peter Jones also shows).

As a result, what is wrong with Keynesian and Austerian explanations of crises and their ‘solutions’ is a denial of any role for profit in what is after all a profit economy where businesses are money-making  machines – and where meeting some people’s needs for goods and services is merely a necessary, but not sufficient, side-effect.  Nowhere does profit appear in the Keynesian multiplier, which has only investment and consumption as its drivers.  But unless profitability recovers, no amount of Keynesian fiscal spending or monetary injections will revive the global economy.


39 Responses to “The informal empire, finance and the mono cause of the Anglo-Saxons”

  1. Paul Cockshott Says:

    The surplus being appropriated through mortgages is ground rent in a disguised form. The creation of credit by the banks bids up house prices to a level at which the mortgage payments eat up the corresponding portion of worker’s wages as paying rent to private landlords once did. As to the question where does this come from, it is the same as the general question of where does rent come from. In the case of differential rent on agricultural land or mines it comes from selling the product at its marginal labour value rather than its average labour value.
    In the case of houses the surplus comes from the banks appropriating the direct and indirect labour costs of travel. Differential rent in the case of urban property takes the form of a decline in price with distance from workplaces. The bank ends up appropriating the time and money that workers would have spent had they travelled from such a distantant location that the prices of houses there only replaced the building costs.

    • Matt Says:

      Generally correct and on point, but that is not all. The bottom line is that all rent == transformed surplus profits, and these in turn are the monetary form of and distribution from the total surplus value.

      The implication is that wage labor (in the advanced capitalist countries) is privileged to receive a portion of the total surplus value as a component of their wages, over and above the wage minimally required for the reproduction of labor power according to the standard of living of those countries.

      If the worker is a renter, the surplus value is simply passed through the wage form to be realized by the landlord. But if the worker is a “homeowner”, has contracted to pay the rent + and additional rent == mortgage interest (the modern form of *absolute* rent in my view) to a bank, to finance, they OTOH, have the possibility of recouping a portion of this surplus value as “home equity” realizable upon sale of the house, and OTOtH this little paper nest egg becomes an easy target for predatory finance – that of the same banks issuing the mortgage contracts. That is basically what happened in the 2000’s.

      The limit to this process is that it not materially impinge on the reproduction of labor power. It did in the case of what capitalism de facto labeled the “subprime working class” in the US, who began to default, triggering the 2008 crisis.

      In relation to the TRPF the above process should be seen as a type of counter-tendency, and finance capital as a concentration and centralization of counter-tendential responses. A realization of the TRPF will reverberate throughout the whole system of the distribution of surplus value, to be channeled and focused via the financial system. The financial system, formally speaking, is triggered to act counter-tendentially – this is the root cause of financial predation and the so-called “financialization” generally.

      It is a really nifty way to generate sudden wage cuts without demanding them up front (as in the 19th century), or without overt rent-racking. Now of course the capitalist having to pay the wage to cover the mortgage is in fact seeing a portion of surplus value be redistributed to the profit of mortgage finance, but finance acts system-wide rather than sectorally to reverse the realization of the TRPF.

      In fact (at least here in the SFBA) rents fell during the housing bubble phase. Now they are skyrocketing here, precisely as the mechanism of rape by mortgage financing broke down (so then I went and bought a condo!🙂


  2. Paul Cockshott Says:

    Note that your own graph undermines your thesis, up until the crisis investment lags profit by about 2 years, then the sharp decline in investment between july 08 and jan 09 produces an instant an un-lagged downward spike in the profit rate, this indicates a strong Kaleckian feedback between current investment and current profit,

    • michael roberts Says:

      Hi Paul
      I don’t think it does. It is the mass of profit not the rate by the way – the rate falls even earlier than the mass actually. Investment falls well after both the rate and the mass and rises well after too. The mass falls first and when investment falls there is an even sharper fall as you say. I think that means employment and wage income falls in the capital goods sector and that leads to a new fall in profits in the consumer goods sector and that jag down. You can call it a kalecki effect then if you want but the graph still shows that profits led investment and GDP and not vice versa

  3. Riccardo Bellofiore Says:

    Dear Michael,

    thanks for your post on Historical Materialism, London 2013. Just a few words to clarify a couple of things (not to open a long debate, unfortunately my English, and my work load, makes this impossible).

    Definitely, I was not arguing that Mattick was right is the 1970s and Sweezy is right now. As I clarified in London, I am not for the falling rate of profit à la Mattick, nor I am an underconsumptionist (so both Mattick and Sweezy are wrong).

    By the way, I think most of the argument by Mattick later going into Marx and Keynes was already there in the 1950s. The book was published much later. But the foresight of Mattick was for this even more impressive.

    I rather said that, whatever their disagreements, Mattick and Sweezy put forward arguments which are important to understand “Fordism” (to borrow the regulation terminology), and both may be related to the notion of unproductive labour. So, because of this, they were both right.

    But again they were both wrong, since they did not capture one (if not) the most fundamental cause of the crisis in the late 1960s/early 1970s, the resistance to a rise (or even fall) of the rate of exploitation in capitalist labour processes. This was much better captured by Claudio Napoleoni. I think they also underestimated (Mattick more than Sweezy) financial instability in the late 1960s.

    I added that a decade ago Sweezy (who was not a Keynesian) was however very farsighted because, already since the late 1970s, he stressed the role of the burgeoning private (and household) debt: and later he affirmed (rightly) that we need theoretically to analise the nexus between finance and capitalism.

    That’s it.

    The paper sooner or later will be available in a first definitive version. Say March 20014.

    As to what was the right interpretation of crises, as you may have guessed, my reference is to … me. To my perspective on the falling rate of profit as a meta-theory of the crisis, on realisation crisis as underinvestment crisis, on profitability crisis as possibly also the result of class struggle in valorisation, and on the present crisis as a crisis of what I call the real subsumption of labour to finance and debt (where it is pointless to distinguish ‘real’ and ‘financial’ causes) Each crisis stems from the other, and so does not “deny” the prior ones.

    See my paper in Research in Political Economy, 2011

    An aside. I think you have a peculiar notion of “Keynesianism”: whoever thins that the causality goes from profits to capitalist expenditures, rather than the other way round. I guess you would object to be named as Neoclassical, though they would say exactly what you are saying …😉


    • michael roberts Says:

      Dear Riccardo
      I really enjoyed your presentation which was both instructive and entertaining – something sadly lacking in most of the presentations at the conference including my own

      And thanks for clarifying your position on mattick and sweezy and correcting my misinterpretation of what you said. I shall read your paper and hope my blog readers will too.
      I don’t think my view that profit drives the accumulation of capital rather than vice versa makes me a bedfellow of neoclassical economics. Indeed Keynes’ concept of profit as not the unpaid labour of workers but the marginal efficiency of capital is clearly neoclassical. But that is another discussion. Look forward to meeting up for discussion in the future . michael

  4. Riccardo Bellofiore Says:

    At the end there is an evident slip: It should be: “An aside. I think you have a peculiar notion of “Keynesianism”: whoever thinks that the causality goes from capitalist expenditures to profits, rather than the other way round. I guess you would object to be named as Neoclassical, though they would say exactly what you are saying …😉

  5. Boffy Says:

    “It seems to me that this new form of financial profit that Lapavitsas analyses is not new at all. Either it is a deduction from the surplus value created by the productive sector of capital (interest-bearing debt) or from workers wages (mortgage debt interest), or it is fictitious profit from an extension of credit (selling on mortgage-backed securities), which eventually must be brought into line with real values through crisis.”

    I think this is right, but there is a danger of falling into a Physiocratic error here. The Financial Services industry as with any other service industry is capable of generating surplus value from the production and exchange of commodities in this case financial commodities. Mortgages do not come into this category because they are simply the lending of money for interest. The interest payments form a part of the value of labour power, and therefore variable capital. It is no more a deduction from the surplus value of other capitalists then than is the fact that higher costs of food increase the value of labour power, and thereby reduces surplus value!

    But, in just the same way that say a firm of gardeners may sell a gardening service as a commodity, and extract surplus value from the labour of the gardeners it employs, so a financial services company may sell financial commodities to consumers to keep their finances rather than their garden in good order. Such a financial services firm then extracts surplus value from the labour of the investment advisors etc. that it employs to produce such commodities.

  6. ps Says:

    I think there’s a big difference between a “weak” working-class and a “defeated” working’ class. A weak wc implies a past due date, deathbed wc. Whereas a defeated wc implies that they still can rise from the ashes. Their potential to fulfil their historic mission is always alive under capitalism.
    And whatever the case, a stronger or weaker global capitalism, the mission is still the same. Capitalism will not wither away. It has to be buried by class-conscious protagonists.

  7. Paul Cockshott Says:

    What are these financial ‘commodities’ Boffy?
    Surely in all cases what is involved is lending money, and lending money is not the sale of a commodity.

  8. Edgar Says:

    Wasn’t this a banking crisis? Wasn’t it the banks they bailed out rather than any unprofitable companies?

    Isn’t the conclusion to reach from this crisis, speaking from a system point of view, create a world banking system that serves capitalism rather than leeching off it, rather than bringing everything down with it’s own decadent excesses? I.e. the non finance ruling class need to go to war with the Bankocracy. Or are the contradictions too great to create these new institutions?

  9. Boffy Says:


    I thought I’d made it clear in what I said. A financial advisor that advises a consumer how to make best use of their money is no different to a gardener who helps you keep your garden tidy and in order. The financial advisor is not lending money to anyone, they are providing a service the same as a gardener, cleaner, singer, actor, footballer etc. They are selling a commodity.

    The capitalist who employs any of the above workers extracts surplus value from the labour-power they buy, which is realised in the commodity produced.

  10. Boffy Says:


    Yes, you are quite right this was a financial crisis not an economic crisis. Even Michael admits that the rate of profit was high and had been rising in the preceding period up to 2006. So, any crisis certainly cannot be attributed to any long run tendency for the rate of profit to fall.

    In fact, the period up to 2008 is almost identical to the situation described by Marx and Engels from around 1842, up to the financial crisis of 1847. Then as in the early 2000’s, the rate and volume of profit was high. Engels points out that it was so high that despite huge capital accumulation in new factories etc. all the surplus value could not be productively consumed.

    It went, he says into speculation in railway shares, to the extent that as the Railway Bubble blew up, capitalists even then starved their actual businesses of capital to speculate further in shares. Crop failures in 1847 combined with the 1844 Bank Act to cause a credit crunch like that of 2008. I burst the speculative bubble. The Government suspended the Bank Act, just as in 2008, central banks printed lots of money, and within months the credit crunch was resolved, and the economy quickly rebounded, leading to a continued boom into the 1860’s, only seriously interrupted by another financial crisis in 1857, that was remedied even quicker by another suspension of the Bank Act, and money printing.

    In Volume I of Capital, Marx refers specifically to this situation and specifically distinguishes between such “money” crises that originate in the financial sector, stock market etc., and whose effects ar4e only “indirect upon the real economy.

  11. Paul Cockshott Says:

    Financial advisors do not provide a paid service to customers, they are paid on a commission basis by the banks which employ them to con people into taking out loans, payment protection insurance and the rest of that garbage.

  12. rayrising Says:

    I agree with Michael Roberts when he says: “..But in addition, Panitch and Gindin maintain that workers are generally weaker now and the American state and global “informal American empire,” has greatly strengthened since the post-1973-83 crisis. But I am not sure that American imperialism is actually stronger now than 50 years ago. Also, the idea that the neoliberal period was also a Golden Age like the post-war period is wrong, if we mean by that fast growth in GDP, high profitability and productive investment..” – This is my assessment of their book’s message too. The financialisation of the post-2nd world war reconstruction was established, principally of course through Bretton Woods (IMF and World Bank) after 1944, the hegemony of the USA and their fiat dollar. But this was only achieved at the cost of dissipating the strength of the US’s inherent reserves accumulated in former times when it was consolidated only as one star amongst vying and dying aspiring Empires – especially Europe.

  13. S. Artesian Says:

    To those who think 2007-2009 (or 2010) amounts to a “financial crisis” as opposed to an “economic crisis”– as if there can be one without the other– allow me to quote Marx to those who love to quote Marx:

    “The superficiality of Political Economy shows itself in the fact that it looks upon the expansion and contraction of credit, which is a mere symptom of the period changes in the industrial cycle, as their cause.”

    Looking at 2007 or 2008 as a “financial crisis” separate and apart from what was happening in the “productive” economy in 2005 and 2006 is a fool’s analysis; as is looking at 2005-2006 apart from the recession from 2001-2003 and the steps capital took to emerge from that contraction– steps that included holding down wages below their 2000 higher levels, rigid controls on capital spending with the fixed asset replacement rate actually dropping below 1; and the resulting shift in bank loan ratios, from the previous 50% commercial/industrial, 50% consumer to the “new model” of 30% industrial/commercial, 70% consumer.

    That “hold” on capital expenditure, and pressure on wage rates, started to come undone in 2006.

    To further attempt to explain the period without reference to the role of US petroleum companies, raising prices, aggrandizing, at one point 35% of all the profits generated in manufacturing and mining, thus transferring profits to this sector with its extraordinarily high organic composition of capital, misses what’s really going on in capitalism– which was overproduction, leading to a devaluation of capital and the need to drive wages below the value of labor power.


  14. Boffy Says:


    That’s simply not true. There are plenty of firms of IFA’s, as well as Wealth Management firms like St. James’ Place that provide financial advice to clients on a fee basis, for advice on investing their money.

    But, even if firms of financial advisors were paid by banks that would not change the fact that these firms are then selling a commodity to the banks, that the banks were paying for. It would not change the fact that these firms were employing capital for that purpose, and extracting surplus value from the workers they employ to provide it.

  15. Boffy Says:

    Marx wrote clearly distinguishing purely financial crises from economic crises,

    “The monetary crisis referred to in the text, being a phase of every crisis, must be clearly distinguished from that particular form of crisis, which also is called a monetary crisis, but which may be produced by itself as an independent phenomenon in such a way as to react only indirectly on industry and commerce. The pivot of these crises is to be found in moneyed capital, and their sphere of direct action is therefore the sphere of that capital, viz., banking, the stock exchange, and finance.” (note 1 p 137)

    He and Engels described the financial crisis of 1847 in precisely those terms.

    ““At the close of 1842 the pressure which English industry suffered almost uninterruptedly since 1837, began to lift. During the following two years foreign demand for English manufactured goods increased still more; 1845 and 1846 marked a period of greatest prosperity. In 1843 the Opium War had opened China to English commerce. The new market gave a new impetus to the further expansion of an expanding industry, particularly the cotton industry… But all the newly erected factory buildings, steam-engines, and spinning and weaving machines did not suffice to absorb the surplus-value pouring in from Lancashire. With the same zeal as was shown in expanding production, people engaged in building railways. The thirst for speculation of manufacturers and merchants at first found gratification in this field..

    The enticingly high profits had led to far more extensive operations than justified by the available liquid resources. Yet there was credit-easy to obtain and cheap. The bank discount rate stood low: 1¾ to 2¾% in 1844, less than 3% until October 1845, rising to 5% for a while (February 1846), then dropping again to 3¼% in December 1846. The Bank of England had an unheard-of supply of gold in its vaults. All inland quotations were higher than ever before.”

    The crisis arose due not to any economic crisis, but due to a credit crunch arising from the 1844 Bank Act.

    “The general cessation of payments caused the failure of several leading and very many medium-sized and small firms. The Bank itself was in danger due to the limitations imposed by the artful Bank Act of 1844. The government yielded to the general clamour and suspended the Bank Act on October 25, thereby eliminating the absurd legal fetters imposed on the Bank. Now it could throw its supply of bank-notes into circulation without hindrance. The credit of these bank-notes being in practice guaranteed by the credit of the nation, and thus unimpaired, the money stringency was thus instantly and decisively relieved. Naturally, quite a number of hopelessly enmeshed large and small firms failed nevertheless, but the peak of the crisis was overcome, the banking discount dropped to 5% in December, and in the course of 1848 a new wave of business activity began which took the edge off the revolutionary movements on the continent in 1849, and which inaugurated in the fifties an unprecedented industrial prosperity, but then ended again — in the crash of 1857. — F. E.]”

    But, as regards these financial crises,

    “As regards the fall in the purely nominal capital, State bonds, shares etc.—in so far as it does not lead to the bankruptcy of the state or of the share company, or to the complete stoppage of reproduction through undermining the credit of the industrial capitalists who hold such securities—it amounts only to the transfer of wealth from one hand to another and will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.” (TOSV2 p 496)

  16. paulc156 Says:

    What strikes me about this ongoing debate amongst socialists/marxists as to to the causal relationship between profits and investment, [a debate by the authors own admission has sided somewhat against the notion that profits lead investment] is that if the question of ROP is so damned difficult to discern even long after the event, how the hell are capitalists expected to be making decisions on prospective rates of return? It does rather beg the question that in the absence of any definitive formula for measuring the rate of return [in the real world in real time] doesn’t confidence play a much more important role than ‘ROP’ proponents are willing to admit. That animal spirits, utterly impossible to forecast or even directly measure as they are, are the only real causal mechanism at play here and that if a critical mass of producers decide to invest in a short enough period of time then demand will respond to investment. ROP itself being an elusive ‘after the event’ measurement for theorists only, not capitalists.

    • Charles Says:

      Capitals can observe current demand for specific commodities or test it at bearable expense, with some qualifiers about really new products. What we all find out after the fact is the general rate of profit, which is the total surplus value over the total capital value.

      • Boffy Says:

        But, observing current demand and estimating on the basis of it, what future demand is likely to be then puts more emphasis on consumer and business confidence as a basis of investment decisions.

  17. Riccardo Bellofiore Says:

    Hi Michael,

    thanks for your answer, and for enjoying my presentation – though I am part of the boring profession, I try to be the less boring as possible.

    I would not use a strong word as “misrepresentation”, in fact you just heard a paper presented very quickly, so you may have lost some nuances. I just wanted to clarify a couple of points.

    My reference to Neoclassicals was clearly a joke, or if you wish a “provocation”. I do well know that you are not Neoclassical just because you think that the causality runs from profits to investments, as you do (Neoclassical would say savings => investments rather than investments => savings).

    I am retorting that Sweezy, or Kalecki, were not Keynesians if they think (as I do think) that the causality runs from capitalist expenditure to profits.

    By the way, I think that my position is strictly Marxian – as Luxemburg said, the new value (with surplus value) production is demand driven. But this, as you say, is for another discussion!


  18. Paul Cockshott Says:

    Boffy, it is not possible to produce surplus value by unproductive labour. All labour in the financial sector is undproductive and its cost a deduction from total surplus value.The banking sector depends on the surplus produced in the rest of the economy, it is just a superstructural mechanism for the unproductive consumption of the surplus product. Selling of financial ‘products’ is no more commodity production than the medieval sale of papal indulgences was.

    • rayrising Says:

      Insofar as banking and financialisation, do not produce real value and retain surplus value out of themselves alone, Paul is quite correct against Boffy. But, it does have a use value in the capitalist money markets insofar as the medium of exchange, in which they purvey, has credence and acceptability in the market as a whole, and in that, that the participants agree to participate voluntarily or compulsorily within it. When manufacture-production capital is equitably conjoined with debt finance capital there is an actual and simultaneous devalorization of the former and enhanced value of the latter. “..In contemporary society man’s cardinal tie is exchange. Any product of labour that enters into the process of exchange becomes a commodity. Marx began his investigation with the commodity and deduced from that fundamental cell of capitalist society those social relations that have objectively shaped themselves on the basis of exchange, independently of man’s will. Only by pursuing this course is it possible to solve the fundamental puzzle – how in capitalist society, in which man thinks for himself and no one thinks for all, are created the relative proportions of the various branches of economy indispensable to life.

      The worker sells his labour power, the farmer takes his produce to the market, the money lender of banker grants loans, the storekeeper offers an assortment of merchandise, the industrialist builds a plant, the speculator buys and sells stocks and bonds – each having his own considerations, his own private plan, his own concern about wages or profit. Nevertheless, out of this chaos of individual strivings and actions emerges a certain economic whole, which, true, is not harmonious, but contradictory, yet does give society the possibility not merely to exist but even to develop. This means that, after all, chaos is not chaos at all, that in some way it is regulated automatically, if not consciously. To understand the mechanism whereby various aspects of economy are brought into a state of relative balance, is to discover the objective laws of capitalism.

      Clearly, the laws which govern the various spheres of capitalist economy – wages, price, land, rent, profit, interest, credit, the Stock Exchange – are numerous and complex. But in the final reckoning they come down to the single law that Marx discovered and explored to the end; that is, the law of labour value, which is indeed the basic regulator of capitalist economy. The essence of that law is simple. Society has at its disposal a certain reserve of living labour power. Applied to nature, that power produces products necessary for the satisfaction of human needs. In consequence of division of labour among independent producers, the products assume the form of commodities. Commodities are exchanged for each other in a given ratio, at first directly, and eventually through the medium of gold or money. The basic property of commodities, which in a certain relationship makes them equal to each other, is the human labour expended upon them – abstract labour, labour in general – the basis and the measure of value. Division of labour among millions of scattered producers does not lead to the disintegration of society, because commodities are exchanged according to the socially necessary labour time expended upon them. By accepting and rejecting commodities, the market, as the arena of exchange, decides whether they do or do not contain within themselves socially necessary labour, thereby determines the ratios of the various kinds of commodities necessary for society, and consequently also the distribution of labour power according to the various trades.

      The actual processes of the market are immeasurably more complex than has been here set forth in but a few lines. Thus, oscillating around the value of labour, prices fluctuate considerably above and below their value. The causes of these fluctuation are fully explained by Marx in the third volume of Capital, which describes “the process of capitalist production considered as a whole.”

      Nevertheless, great as may be the divergencies between the prices and the values of commodities in individual instances, the sum of all prices is equal to the sum of all values, for in the final reckoning only the values that have been created by human labour are at the disposal of society, and prices cannot break through this limitation, including even the monopoly prices of trusts; where labour has created no new value, there even Rockefeller can get nothing..” –

  19. Boffy Says:


    “Boffy, it is not possible to produce surplus value by unproductive labour. All labour in the financial sector is undproductive and its cost a deduction from total surplus value.The banking sector depends on the surplus produced in the rest of the economy, it is just a superstructural mechanism for the unproductive consumption of the surplus product. Selling of financial ‘products’ is no more commodity production than the medieval sale of papal indulgences was.”

    That is precisely the Physiocratic error I referred to. Marx’s definition of “productive” is productive of surplus value. A financial advisor who sells their labour power to a financial services capitalist, who sells financial advice and products as commodities, is a productive worker, because their labour-power produces surplus value, the difference between the value of the product of that labour, and the value of the labour-power consumed in its production.

    This commodity is sold to consumers be they capitalists, landlords, workers or whoever. In the 1990’s, nearly all the people in the office I worked in, i.e. ordinary workers, used the services of a financial advisor for advice on investing their money in ISA’s, PEP’s, pensions etc. They paid for that commodity, in the same way that some of them paid for cleaners, or others paid for child minders to provide services to them.

    But, even if it were only capitalists who bought such services out of their revenue it would make no difference. The logic of your position is that the producers of say Rolls Royces do not produce surplus value, and that therefore Rolls Royce workers are not productive, because Rolls Royces are bought by capitalists out of the surplus value they receive as dividends etc, and, therefore are a deduction from surplus value!

    The whole point is that the consumers of these commodities buy them out of their revenue, and so they payment is NOT a deduction from surplus value at all. The consumers buy the products at their value. That is completely different from the situation of a money-capitalist who does share in surplus value as a result of lending money to a productive capitalist, a landlord who charges rent, or a merchant capitalist who buys commodities from a productive-capitalist beneath their value, and thereby shares in the surplus value produced in the production of the commodity.

    The productive capitalist here IS the financial capitalist. The commodity – financial advice etc.- is produced by the workers employed by that financial capitalist, using the constant capital bought by that financial capitalist, its value is determined by the labour-time expended by those workers, and the value of the constant capital employed. The surplus value is the difference between the value added by the workers, and the value of their labour-power.

    • rayrising Says:

      Boffy, I think you are quite mad – or financial services have driven you so. An honest financial advisor for a pension fund, trust fund or property should caution the advised that the value of the investment can fall as well as rise. Therein, in the final analysis is the dependency of his financial service on the already existing markets of commodities and of the mutual ability of money form to realise its compatibility with value – in use and exchange. There is no added value or surplus in this service just as there is no inherent value in money as an abstraction.

      • David Schanoes Says:

        Questions of sanity aside, the issue of productive labor and surplus value cannot be separated from the product of such productive labor, the product of surplus value, which is of course, capital, or more precisely recapitalization and accumulation.

        Marx, not physiocrat but “physicalist” or rather materialist that he is says this about that:

        “Accumulation requires the transformation of a portion of the surplus product into capital. But we cannot, except by a miracle, transform into capital anything but such articles as can be employed in the labour process (i.e. means of production), and such further articles as are suitable for the sustenance of the worker (i.e. means of subsistence)…In a word, surplus-value can be transformed into capital only because the surplus product, whose value it is, already comprises the material components of a new quantity of capital.”

        Finance capital creates no surplus product that can be rendered as surplus value; it distributes, allots, portions of the total already created value.

        The financial advisor no matter what the portion of his pay is to the amount of revenue generated for the bank no more creates surplus value, than a police officer by the fact of his/her wage is engaged in the production of surplus value.

      • Boffy Says:

        The same sort of thing could be said about someone who goes to consult a psychic, or the people who buy bottled fresh air!

        Yet, both fulfil the requirement that Marx sets out for a commodity i.e. that they are use values – something that something wants for whatever reason – and which are the result of the expenditure of labour-time.

      • Boffy Says:

        @ David,

        In addition to my reply to ray above, I would refer you to what Marx says about a teacher being the producer of surplus value, despite the fact that they produce no physical product.

        Transport produces no physical product either, but Marx clearly defines the service it provides as a commodity, and the labour-power employed in it productive of surplus value.

        In Theories of Surplus Value, Marx also discusses the nature of actors as productive labourers. They are productive precisely because they produce surplus value, even though they produce no surplus physical product.

        People require more than physical commodities in order to live, and for labour-power to be reproduced and developed.

  20. vallebaeza Says:

    Reblogged this on Econo Marx 21.

  21. Paul Cockshott Says:

    My view is that the entirety of dept III – production of luxuries for the capitalist class weapons ete is unproductive – that includes Rolls Royce manufacture, manufacture atom bombs…. and what have you. For the reason Marx gives in the quote given by David Schanoes .

  22. Paul Cockshott Says:

    “People require more than physical commodities in order to live, and for labour-power to be reproduced and developed.” And the example you give is how to invest in stocks and shares? You invest in stock and shares not to reproduce your own labour power but to appropriate surplus value from other workers. The employment of financial advisors is absorbing part of the surplus value produced by the exploited workers.

  23. Edgar Says:

    “The employment of financial advisors is absorbing part of the surplus value produced by the exploited workers”

    I just want some clarification for my own piece of mind, I make no judgement.

    If I am a capitalist and put my capital into a vase making business, employing workers who make vases and sell them to the populace then that is productive. If I set up a financial management company, employing finance advisers and sell the advisory service to the populace then that is unproductive? And if so, why? I do seem to think that the actual payment to the advisory company is based on a % of the original investment by the client. So if the investing goes up or down the % payment to the financial management company remains the same, in most cases.

    Hasn’t the proliferation of non physical product industries sort of proved that Marx’s definition of productive labour is correct i.e. it is not just related to a physical product, in opposition to say, Adam Smith, Just as the fact we are not all starving is a refutation of Marx’s objections to Malthus?

    Are we accepting or rejecting or refining Marx’s definitions here?

    • rayrising Says:

      Edgar, the financial advisor is simply making a money margin on existing products within the specific arena of the market exchange – as a derivative service, as a coupon clipper who adds nothing to the underlying value of the circulation of products.

  24. Edgar Says:

    But, in principle, financial products can create surplus value can they not? In other words a finance management company could employ advisers who give more labour to the employer than they receive back in wages?

  25. nadim Says:

    Have you seen this Michael?

  26. Hacky The Hufrex Says:

    Financialisation is a derivative. If it was a counter tendency then it would always run counter in both boom and bust, but financialisation is pro cyclical. In the democratic period of the 20th century, government was a counter tendency. Now we are in a period of oligarchy. What’s really clear is that the wage share has been declining since 1970. The anarchist view is that capital is ultimately property and property is law which is a monopoly of violence. The actions of monopoly power are not even remotely capitalist in the Marxist sense. Monopolists are more like kings. Marxists, anarchists and institutionalists can probably all agree that financialisation is a fetish. To date, anthropology has outshone the other disciplines in analysis of this.

    Kalecki is fundamental to even old Cambridge Keynesian theory and is still central in post Keynesian theory. The Keynesian view of circular cumulative causality is usually attributed to Gunnar Myrdal. Much of Keynesian theory is not attributed to Keynes.

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