Marxism in London, socialism in Slovenia

I made a presentation to the Marxism Festival 2014 over the weekend ( The presentation was called The nature of the current Long Depression. There were three things that I wanted to argue in that presentation.

First, I argued that Marx’s law of the tendency of the rate of profit to fall was the underlying cause of the cycle of recurrent crises (booms and slumps) in modern economies, including the Great Recession. Suffice it to say that mainstream economics has no convincing explanation of recurrent crises. As Nobel economics prize winner Eugene Fama put it: “We don’t know what causes recessions. I’m not a macroeconomist so I don’t feel bad about that. We’ve never known. Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity….If I could have predicted the crisis, I would have. I don’t see it. I’d love to know more what causes business cycles.”

Now Thomas Piketty, author of the best-selling economics book of the 21st century, called Capital in the 21st century (see my posts, has been quick to dismiss Marx’s law as plain wrong in fact. As Piketty puts it in his book, with the same title as Marx’s 19th century version: “the rate of return on capital is a central concept in many economic theories. In particular, Marxist analysis emphasises the falling rate of profit – a historical prediction that has turned out to be quite wrong”.

Well, in my presentation, I show the work of Esteban Maito (Maito, Esteban – The historical transience of capital. The downward tren in the rate of profit since XIX century) on what has happened to the rate of profit in an amalgam of 14 countries since Marx developed his law of profitability in the mid-19th century, arguing that it was the most important law of all political economy. Here is my version of Maito’s data.

World rate of profit

Marx’s prediction has been confirmed. The global rate of profit has been in secular decline. But not straight down because there have been periods of upturn when the counteracting factors to Marx’s law dominated, if only for a while. Look at the neoliberal period from the early 1980s to the late 1990s – a period we are all familiar with. The rate of profit rose but really that rise was just a small interlude in the long decline in capitalist profitability. This persistent downward tendency in the rate of profit regularly creates conditions when capitalists stop investing with some going bankrupt and provoking financial panics and crashes and then causing a cascade into a slump of investment, output, employment and incomes.

The second point that I made was that sometimes this regular cycle of boom and slump is interrupted and a recession or slump turns into a depression. By a depression I mean that any recovery is weak and does not re-establish the previous rate of economic growth, investment or employment. These ‘winter’ phases (see the graph above) only come around every 50-70 years. And we are now in one.

The schematic graph below shows the difference between a recession and a depression.

Recessions and depressions

A recession can take the form of a v-shape before returning to trend growth or a w-shape as in a double-dip recession. But a depression is more a square-root shape as output never gets back to trend growth. There have been three depressions: one in the late 19th century, the Great Depression of the 1930s and the current one.

Do depressions come to an end and under what circumstances? That was the third point of the presentation. Well, clearly the first two did. As Marx said “there is no permanent crisis”. If sufficient value is destroyed in a slump or series of slumps (depressions contain more than one recession), eventually the profitability of the remaining capital is restored to levels that encourage a new round of accumulation. Then, as Marx put it, the whole ‘crap’ starts again.

Does it require a world war? Would the Great Depression of the 1930s have carried on forever if there had been no world war? Well, the 19th century Long Depression came to an end without any world war. So we can expect that this current winter will come to an end – in my view – not through world war. Failing a successful revolution in a major capitalist economy, capitalism will eventually enter a new ‘spring’ with a recovery in profitability and new investment growth based on new technologies already ‘discovered’ but just waiting for development.

Of course, each time, the system finds it more difficult to develop that new technology as it becomes more and more unproductive in the capitalist sense. Unless replaced with a mode of production based on ownership in common and a democratically controlled plan for the world to meet the needs of people, capitalism will continue to engender poverty, inequality, recurrent (and ever increasingly destructive) crises in employment, income and health. And it is fast destroying nature and through global warming generating ever more extreme weather and environmental disasters.

My power point presentation is available here Marxism 2014 and my notes are available here The nature of current long depression. The meeting was recorded so there should be a ‘you tube’ thingy soon.

This brings me to my second item: socialists in Slovenia. The United Left party has apparently won 6% of the votes in Slovenia’s snap general election to gain six seats in parliament.  The United Left is a coalition of two socialist parties that includes the Initiative for Democratic Socialism, which is a party formed out of the socialist students in the Workers and Punks University and the Institute of Labour Studies in Ljubljana. As readers of this blog will know, I have been to Slovenia to present papers at the invitation of this grouping on two occasions, the second time as part of the launch of the IDS

The entry of the United Left into parliament is a great leap for Slovenia and small step for socialism.


18 Responses to “Marxism in London, socialism in Slovenia”

  1. Sean Delaney Says:

    Thank you for the instructive posts, Michael. I wonder if it might be a misplaced faith that Marxists have in the eventual return to growth? Is a return to ‘normality’ actually an impossibility? It seems the so-called ‘third microelectonic revolution’ has completely changed the nature of the cyclical form of crisis that Marx spoke of.

    Have we not seen a point of no return, in that labour time has now been very effectively evacuated from value production due to the revolution in technology, a revolution unprecedented in human history? In his last study before he died, Immeterial Labour, Andre Gorz spoke about this, and the late Robert Kurz was convinced that one powerful signal of this new reality was the fact that the major Western economies are now subject to the same catastrophic crises that had previously been ‘ring-fenced’ by the economies of the periphery.

  2. Sašo Slaček Says:

    Small correction: The United Left Coalition is composed of four elements: Initiative for democratic socialism (IDS), Party for ecosocialism and sustainable development (TRS), Democratic worker’s party (DSD) and a group of “independents” (non-party progressive civil movements and individuals). We managed to become the 4th strongest party in parliament (7 parties managed to get past the threshold of 4%) with a campaign budget of little more than 10.000€, a fraction of what the bourgeois parties spent.

  3. Daniel Rocha Says:

    I cannot understand what Marx says: “There is no permanent crisis”. Well, what about the profit being 0? It will break down at some point.

    • michael roberts Says:

      I have considered the issue of the relationship of recurrent crises (slumps) and ‘breakdown’ in a previous post.

      Also Maito in the last section of his paper quoted considers the issue of the trend towards zero profitability. Worth a read. On the current trajectory (which changes with the impact of counteracting influences and so is a moveable feast), zero profitability on Maito’s 14 country measure of the world rate of profit would not be reached until 2056.

      • Daniel Rocha Says:

        But, if you think a bit further, stock market, specially futures, maybe banking at large, will soon not a be a way to do business. For example, stocks grow exponentially in relation to a linear growth, at least it looks like to me. So, unless business is done within a wide scale controlled economy, within thin margins, it is surely bound to ever give negative returns (given that banks always take part of trades as a “tax”).

        So, it’s not really 2056…

  4. Jonathan Davies (@profjsdavies) Says:

    Michael – wondering if there is any evidence that particular rates of profit (e.g. 8% or 10%) operate as crisis trigger points? I ask because the neoliberal recovery occurred at a much lower rate of profit than the crisis of the early 1970s. The rate of profit in the long depression was higher still, according to your world rate of profit graph. This makes it look as if capitalism today can sustain growth at a much lower rate of profit than it could in the 1970s, for example. How do you see that relationship working?

    • michael roberts Says:

      The evidence that various Marxist economists have produced show that there is a long-term decline in the profitability of capital accumulation. Capitalism starts with a high rate of profit because it can use cheap supplies of plentiful labour at first in the major capitalist/imperialist economies and later expanding (and still doing so) globally. However, cheap and plentiful labour is increasingly exhausted over time (150 years) and Marx’s law operates so that the rate of profit is in secular decline. This fall in global profitability hides rising profitability in the emerging economies, where faster growth than the global average is achieved. According to the studies of Maito and mine, the rate of profit in the emerging economies is more than double that of the core capitalist economies. The neoliberal recovery in profitability saw a relative recovery in growth in the major economies between the early 1980s and late 1990s compared to the 1970s, but at a rate still well below the golden age of the 1950s and early 1960s. The downturn in profitability rates from the late 1990s is matched by a lower G7 growth rate since then to now, even taking into account the boom of 2002-6.

      • Jonathan Davies (@profjsdavies) Says:

        Thanks – yes, I think I understand that. What I am getting at is that recoveries appear to occur after each cycle at a tendentially lower rate of profit than in the preceding recovery. The implication is that if capitalism cannot escape Marx’s law, it nevertheless “adapts” somehow, so that accumulation is possible with lower returns than in earlier cycles. But presumably this effect is something of an illusion, because each succeeding boom tends to be weaker: – a higher proportion of unproductive capital, larger asset-price bubbles, lower growth and lower business investment. Is that the right way to understand how booms still occur, even at rates of profit that are very low by historical standards?

  5. Edgar Says:

    Well done to the SWP for putting on a great and very informative event.

    “that labour time has now been very effectively evacuated from value production due to the revolution in technology”

    Tell that to the workers in China, Vietnam, Bangladesh etc.

    On the actual change in the nature of work, I reject that work is becoming a more creative activity. I claim it is still measured by time. In the advanced IT jobs, a firm employs workers who are able to create data warehouses, oversee IT projects etc etc. These projects, the work they do, is timed to the hour, as clients pay by the hour. Meetings take place with the clients to argue over the number of hours worked. Every task has an estimated time attached to it, despite the element of problem solving the solutions are often applicable to various projects. The work of an advanced IT specialist is still mainly a time based operation.

    Yes knowledge is being shared and it is difficult to privatise this but it is a small component of the real totality.

  6. matthewrusso9 Says:

    “Well, the 19th century Long Depression came to an end without any world war”.

    Well, not exactly. In general, nobody (capitalist states) consciously goes to war to “get out of the economic crisis”. Wars are primarily triggered by geopolitical forces. However in the case of WW1, all of the key Powers were already well engaged in accelerating very large armament / military readiness programs, including even the U.S., engaged with replacing the old militia system with a regular federal standing army. “Everyone knew” that a great trial of strength was coming. Hence it can be said that the massive arms buildup for the Great War was already effecting an end to the Long Depression a few years before the actual outbreak of war in 1914. In other words, the world was already engaged in a virtual world war before the first shot rang out.

    Indeed it is likely that the accelerated military buildups by Britain, France and Russia prompted Kaiserliche Germany to launch a war before their military edge vanished. See the classic “Germany’s Aims in the First World War” by Fritz Fischer.

    • sartesian Says:

      To add to that, I don’t think the period 1873-1896 even qualifies as a “long depression.” Long deflation, certainly. But “depression”? Due to the decline in prices for food, housing, — the basics in the US– it is estimated that real wages actually increased; certainly capital accumulated throughout this period– that is to say the means of production as capital with railroads, steel, coal, wheat all expanding output significantly.

      A reduced rate of growth does not make a depression– if it did, we’d be calling the entire period since the mid 1970s as a long depression– which it is not.

      • Daniel Rocha Says:

        Wasn’t he talking about the World Rate of Profit? Maybe the rest of the world wasn’t going that well.

      • sartesian Says:

        He was indeed. And the rate of profit did take some blows. The “long deflation” period applies to Britain, as well as the US.

        But in the UK too, it was a period of pretty steady price declines and not absolute, sustained economic contraction.

      • michael roberts Says:

        Interesting issue – the late 19th century depression. I am dealing with this in my upcoming book and Ill try a do a post on it soon.

      • Daniel Rocha Says:

        Same in France, Germany, Russia?

      • psychoticphilosopher Says:

        Michael, I am a late reader of your blog. Started reading it since mid March this year. Great Work.

        Here I want to re-emphasise is Sartesian’s point. Are we in a long depression since mid 1970s?

  7. sartesian Says:

    Russia, while participating extensively in the world markets for grain, expanding its railroads and industry, integrating more and more in the capitalist network was not exactly undergoing a substantive transformation to capitalism (Lenin and “The Development of Capitalism in Russia” to the contrary notwithstanding).

    Germany, after defeating France, was undergoing rapid capitalist industrialization– under Bismarck’s “rye and iron” Junker/capitalist amalgam, with steel, coal, and chemical industries achieve parity in the markets, if not leadership.

  8. billjefferies Says:

    Maito’s data are somewhat unbelievable, given that he has a rate of profit for China – including for a period when it didn’t produce any profits.He doesn’t include wages in his calculation. And does odd things with turnover. All in all totally unconvincing.

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