The most important book on capitalism this year will be Anwar Shaikh’s Capitalism – competition, conflict, crises.
As one of the world’s leading economists who draws on Marx and the classical economists (‘political economy’, if you like), Anwar Shaikh has taught at The New School for Social Research for more than 30 years, authored three books and six-dozen articles. This is his most ambitious work. As Shaikh says, it is an attempt to derive economic theory from the real world and then apply it to real problems. Shaikh applies the categories and theory of classical economics to all the major economic issues, including those that are supposed to be the province of mainstream economics, like supply and demand, relative prices in goods and services, interest rates, financial asset prices and technological change.
Shaikh says that his “approach is very different from both orthodox economics and the dominant heterodox tradition.” He rejects the neoclassical approach that starts from “Perfect firms, perfect individuals, perfect knowledge, perfectly selfish behavior, rational expectations, etc.” and then “various imperfections are introduced into the story to justify individual observed patterns” although there “cannot be a general theory of imperfections”. Shaikh rejects that approach and instead starts with actual human behavior instead of the so-called “Economic Man”, and with the concept of ‘real competition’ rather than ‘perfect competition’. Chapters 3 and 7-8 emphasize that. It is the classical approach as opposed to the neoclassical one.
The book is a product of 15 years work, so it has taken longer to gestate than Marx took from 1855 to 1867 to deliver Capital Volume one. But it covers a lot. All theory is compared to actual data in every chapter, as well as to neoclassical and Keynesian/post-Keynesian arguments. A theory of ‘real competition’ is developed and applied to explain empirical relative prices, profit margins and profit rates, interest rates, bond and stock prices, exchange rates and trade balances. Demand and supply are both shown to depend on profitability and interact in a way that is neither Say’s Law nor Keynesian, but based on Marx’s theory of value. A classical theory of inflation is developed and applied to various countries. A theory of crises is developed and integrated into macrodynamics. That’s a heap of things.
It’s not possible to cover all the aspects of the book in this short review post. But readers can follow in detail Shaikh’s arguments through a series of 21 video lectures that cover each chapter of the book. These can be quite technical in part, but are worth the effort of concentration. See Lecture 15 in particular for an overall summary of capitalism – this lecture is essential viewing for all interested in a theoretical understanding of capitalism. There are also short interviews with Shaikh on the main message of his book.
In this post, I want to focus on what Shaikh has to say about crises under capitalism and in particular how we can identify at what stage capitalism is currently going through.
Shaikh reckons that on the surface, the last crisis, the Great Recession, looks like a crisis of excessive financialization. But this fails to identify the real cause of the crisis. Keynesians and Post Keynesians argue that the cause of the current crisis is inequality and unemployment, so there is a need to maintain a stable wage share and to use fiscal and monetary policy to maintain full employment. But Shaikh argues that such policies would not work because, at least in the US, the post-Keynesians have got the causes of the crisis wrong, the cause of which is the movement in profitability – the dominant factor under capitalism.
The crisis was preceded by a long fall in the rate of profit. The neoliberal attack on labour from 1980s suppressed wage growth and reduced the wage share in order to stabilize the rate of profit. The enormous fall in the interest rate in the 1980s that fuelled credit expansion and massive debt finance also served to raise the net (or enterprise) rate of profit. So Keynesian fiscal policy by itself may pump up employment, but it will not restore growth. For growth, it is necessary to raise the net rate of profit and interest rates are already at lows (even negative).
Shaikh emphasises that it is profit under capitalism that drives growth and there are cyclical fluctuations in profitability. These are expressed in business and fixed capital cycles inherent in capitalist production. Crises are normal in capitalism. The history of market systems reveals recurrent patterns of booms and busts over centuries, emanating precisely from the developed world. The key crises under capitalism are ‘depressions’, such as that of the 1840s, the “Long Depression” 1873-1893, the “Great Depression” of the 1930s, the “Stagflation Crises” of the 1970s and the Great Global Crisis now.
Shaikh revives the concept of long waves in capitalist production, something first identified by the Russian economist Kondratiev and which Shaikh first cited in a paper in 1992 (shaikh92w). According to Shaikh, Kondratiev’s main point is that business cycles are recurrent and “organically inherent” in the capitalist system. They are also inherently nonlinear and turbulent: “the process of real dynamics is of a piece. But it is not linear: it does not take the form of a simple, rising line. To the contrary, its movement is irregular, with spurts and fluctuations”.
Kondratieff believed that Depressions were linked to Long Waves: “during the period of downward waves of the long cycle, years of depression predominate, while during the period of rising waves of a long cycle, it is years of upswing that predominate”. In a paper that Shaikh presented in 2014 (Profitability-Long-Waves-Crises (2)), he brings up to date his analysis on this, which is also developed in Capitalism.
Shaikh reckons Kondratiev’s long waves have continued to operate, especially clear when measured by the gold dollar price: the key value measure in modern capitalism. He reckons that prices of commodities became a poor indicator of Kondratiev cycles in the post-war period of the 20th century and now looks to the gold price. In my analysis, first outlined in my book, The Great Recession, I find that the movement of interest rates also provides a very good proxy indicator of Kondratiev waves because it follows the movement in production prices.
Readers of my blog and other papers will recognise that Shaikh’s position is similar to my own on the causes of capitalist crises, the nature and existence of depressions, and the role of Kondratiev and profit cycles.
In my view, it is no accident that both of us made reasonably early (and independent) predictions of the Great Recession of 2008-9. Shaikh made his in 2003; I did so in 2005, when I said: “There has not been such a coincidence of cycles since 1991. And this time (unlike 1991), it will be accompanied by the downwave in profitability within the downwave in Kondratiev prices cycle. It is all at the bottom of the hill in 2009-2010! That suggests we can expect a very severe economic slump of a degree not seen since 1980-2 or more” (The Great Recession).
I shall return to other aspects of Shaikh’s book in future posts.
Anwar tells me that you can buy his book for only $38.50 from Oxford by using the codes on the very bottom line of the back of the Oxford brochure. And for anyone under 30, the e-book is only $30 from Amazon.
56 thoughts on “Capitalism and Anwar Shaikh”
Isn’t 2018 too early to end the winter if we are still waiting for a recession?
Maybe – in 2018,the depression itself would be only 10 years old, but the profit downwave would be around 20 years old, so something must happen soon or the theory is wrong or needs revising. That’s the scientific method. Watch this space.
That a Kondratiev’s theory, not Marx’s. The latter should make the low turns longer than up turns to make sure the law TRPF to fall. You should look for that.
So, I would give the fallowing suggestion.
See the up turns and downturns of Kodratiev’s waves, and use it to extract a more consistent TRPF: subtracting when the tendency is going upwards and adding when it is going down.
Well, I’m wondering if a correct theoretical perspective indeed has a link or an important bearing in one’s political positions. Shaik’s last trip to Latin America was to congratulate Cristina Kirchner, a progressist that applied pretty capitalist and liberal politics in his own country.
And a year before, Shaik had positively appreciated Piketty’s “efforts”,
…precisely the ones that had been criticised sistematically in this blog
Take your point – correct economic theory may not be connected with good political strategy but it ought to be!
We cannot criticize a book telling some histories about the author.
Not a marxist response by Prado. Mattick’s “Marx vs Keynes” and “Crisis and Theories of crisis” are thorough in explaining why a particular crisis theory is linked with a certain political program. And there are many examples of this in the course of historical development.
i) Maoism/guevarism was linked with subconsumism
ii) Glynn and Sutcliffe “profit squeeze” was linked with militant sindicalism of 1970s-1980s
iii) Tugan-Baranovsky disproportionality “crisis theory” was the “legal marxist” approach at regulating capitalism
iv) Luxemburg false solution of the linkage between tome 1 and tome 3 of Capital developed afterwards in thirdworldism and dependentism (the supposedly “precapitalist periphery” was an absolut limit, and when “capitalised” the crash was inminent)
v) Hilferding theory of the “non existing capitalists crisis” in its new phase (developed through a partial interpretation volume 2 of Capital), was linked to its reformism and regulationism
vii) Harvey mix between subsonsumism and luxemburguism is linked with his support of the democratic party in the US (remember Obama’s election)
viii) “Marxist” financial interpreters of the last capitalist crisis, as Lapavitsas, couldn’t break Syriza on time and are responsible of the attack this party is carrying on the greek working class.
And I assume that Piketty anti-working class progressism (eg visited Bachelet in chile just a year ago) is organically linked with its anti-marxism (the guy havent even read Capital according to Michael Roberts)
Don’t you that is too deterministic? Though I haven’t read those books, your answer looks like more of a structuralist answer.
Well we have an agreement here with myself and Paul Mason that the 5th Wave has stalled, Boffy would not approve though. He thinks you can set you watch to long waves. Personally I don’t think a deep slump will be enough to start the 5th off, last time it was a World War that did it.
It’s not so much stalled as not started yet as the 4th is still finishing off. I remain agnostic about the need for another war as in the 1940s to start off a new upwave as in the 1950s. The depression of 1873-92 (97) came to an end without one and a new upwave began. But it is an interesting question to debate.
Michael, the depression of 1873-1893 ignited (modern) imperialism and the scramble for Africa!
I am still waiting to see michael acknoledge that the TRPF. It should eventually make null the upward trends. TRPF should be more fundamental than the long cycles.
The inevitability of downturns can be derived from the logic of capital accumulation in the labor theory of value. About 200 years of experience validate the conclusion.
Kondratiev or long waves, however, are a different hypothesis. They have good or insufficient experiential validation depending on the usual inconclusive arguments about the time series data – but where is the logical derivation of the inevitability of these waves? Phrases about nonlinear dynamics are not enough.
This is where I differ from Shahik and Roberts. They have it right; the fundamental cause to this depression is falling profit rates, something even a lot of Marxists don’t see (many great Marxian economists, from Dumenil & Levy to David Kotz to Costas Lapavitsas, basically take the Keynesian position that our current predicament is nothing more than a financial crisis). But I think there’s more to it than the explanation provided by these ahistorical, cycle theories. What if it’s not cycles causing the fall in the rate of profit but something else? What if the problem is overproduction/under-utilization of productive capacity in industry?
The most convincing work of economics I’ve ever read was Robert Brenner’s The Boom and the Bubble, which argued that very point. Since the 1970’s, global manufacturing has stopped growing the way it once did, and now Germany, Japan, and the US fight for bigger slices of a rather static pie (the nation with the cheapest currency getting the biggest slice). Utilization of capacity has continued to fall, and in order to compete with each other, firms invest in plant equipment (greater efficiency), only exacerbating the problem. With the real economy stagnant, the only growth since has come from bubbles (Japanese real estate in the 80’s, US stock market in the 90’s, US real estate 00’s), and while governments pursue expansionary fiscal and monetary policy to prop up demand and reflate the asset bubbles, respectively, the little progress that has been made since ’08 is illusory. Japan went through all of this first and since their bubble popped in 1990, they’ve had low growth for two and a half decades.
If he is right, profit rates will not recover, something another recession will not change. If Roberts and Shahik are right, we’ll see another recession in the next couple of years, followed by a (sustainable) boom period in the 2020’s. If the global economy were to grow at a pace of 2-3% a year, it’d double around 2050, and then double again by the end of the century. A booming Africa would be nowhere near enough to propel those kind of numbers. Even mainstream economists are starting to believe that we’re in for a very long period of “secular stagnation,” and it’s very hard to feel optimistic about the economy. I just don’t see the 20’s becoming roaring; I think we’re headed for Japanese style stagnation or worse. Profit cycles didn’t help them out. But I guess over the course of the next decade, we’ll see who’s right.
Reblogged this on 21st Century Theater.
The following sentence was not written properly. It gives a misleading impression about Anwar’s approach to develop his own “General Theory.”
“He starts from “Perfect firms, perfect individuals, perfect knowledge, perfectly selfish behavior, rational expectations, etc.” as in the classical (neoclassical) tradition, and then “various imperfections are introduced into the story to justify individual observed patterns” although there “cannot be a general theory of imperfections”.”
I think its right interpretation. Shaikh is saying that there must be perfect to say that something is in inperfect condition. and roberts said this. no ?
I do not think so. That was the reason Roberts had to change his original sentence. If you have the book you may check it out there.
Well Imperialism and the gold boom in South Africa/Yukon helped end the depressionary Long Wave. To sustain the post WW2 expansionary Long Wave you needed the United States as global power underwriting Bretton Woods for the capitalist world. The US of today couldn’t push a Bretton Woods lite let alone anything better.
How does TPP (Vietnam etc.) fit into all this?
Well on the surface it may look similar WT but Bretton Woods promoted, for a while at least, stability. Since the TPP leaves out a number of major capitalist players I’m not sure stability will result from its passage.
I am afraid I have to swim against the tide of comments registered here. It is impossible to derive a rate of profit without including variable capital, without taking into account the duplicated value that litters the NSA and to factor in the inclusion of R&D and in-house software in non-residential fixed assets. All these elements have weighed on the rate of profit. Adjusting for there effect shows that at least in the US, the period 2011 t0 2015 was the highest and most sustained plateau of profitability in the US since WWll. Admittedly the peak in the rate of profit occurred in the first half of 2014, and since then there has been a gentle fall, now accelerating. If the mass of profit contract by the 6% suggested for Q1 2016 then for the first time in five years the rate of profit will have fallen below the plateau set in 2011. I am currently working on China, Here profitability has clearly peaked. Future blogs will concentrate on China, the world’s largest economy in terms of value production when duplication of value in the USA is taken into account. For example China’s goods producing sector, which includes Utilities but excludes Agriculture, is double that of the USA (or equal to the USA, Japan and the EU).. World manufacturing has thus soared not contracted since the 1990s.
Brian – very interesting. I shall email you to ask for your data. In my estimates for the ROP, I do include variable capital and also the US BEA does include R&D etc in its capital stock, although I have doubts about that inclusion.
From: Jim Drysdale.
For Marx, society is viewed as a living organism, i.e. as a totality in a process of movement and change. A totality in motion that can only be understood in terms of the driving contradiction at the heart of a specific mode of production.
By locating the fundamental source of capitalist crisis in the contradiction between capital and labour, Marx dispels any theories of capitalist crisis that don’t see society as a totality in motion. That is, Marx reveals that as capital develops the social forces of production, it simultaneously develops the social relations of production.
The decline of capital is, moreover, due to the very activity of capital’s own laws of motion.
Empiricism compared to dialectics is sterile. Far too late for many academics of the left to escape the sterile clutches of bourgeois statistics, data and theory.
We are offered statistics to explain change. Never are we told the source, the nature, of the change that we all see in society. Marx reveals that it is the movement of the categories that bring change, change that ensures that capital, capitalism, capitalist society, are not eternal. That is, the very activity of capital’s own laws of motion are the source of the decline of capital, the source of the deepening crisis of capitalist society.
‘With the change of the economic foundation the entire immense superstructure is more or less rapidly transformed. In considering such transformations a distinction should always be made between the material transformation of the economic conditions of production, which can be determined with the precision of natural science, and the legal, political, religious, aesthetic or philosophic – in short, ideological forms in which men become conscious of this conflict and fight it out.’ (Preface to Contribution to the Critique of Political Economy. Karl Marx)
Marx shows that change in economic conditions, i.e., the decline of capital, although primary, should, however, not be seen as the only historical drive as the social relations of production evolve. That is, the subjective factor must also play its part.
Left academics should pay more attention to change in capitalist society.
As capital declines, the relations between the classes become polarised and irreconcilable. The struggle within a disintegrating society, will be decided by the increasingly aware majority. A rational majority who will, increasingly, recognise the necessity of freeing labour, that is, itself, from the yoke of capital.
The working class do not and will not require access to the tomes of left academia. Understanding Marx will suffice.
http://www.capitalismnofuture.co.uk incl: Marx: Capitalism No Future
The idea that profit cycles alternate with long wave phases is perverse. A look at Marx’s analysis of the cycle, and its effect on interest rates, in Capital III, indicates that the rate of profit rises during the Winter phase (Marx’s stagnation phase), because new labour saving technologies are introduced, which create a relative surplus population pushing wages down, and the rate of surplus value up; it reduces the value of circulating constant capital, as new sources of materials are developed, and more efficient means of using materials are developed; and it causes a moral depreciation of the fixed capital stock.
As Marx describes that raises the rate of profit, throughout the Winter phase, during which time growth remains sluggish as existing technologies get replaced rather than added to, and as the higher level of productivity means that relatively less labour is taken on. As Marx describes, the effect of that is to increase the mass of available money-capital, at a time when the demand for that money-capital does not rise sharply, so interest rates are pushed down.
In the Spring Phase of the cycle, (Marx’s prosperity phase) capital accumulation and economic growth rises, as the higher rate and mass of profit of the previous phase leads to a spread into new activities. But, the relative surplus population created in the previous period still exists, and with the higher level of productivity that the roll out of new technologies creates, any level of economic growth, results in proportionally less labour being taken on than in previous cycles, so wages do not get pushed up. As Marx describes it, this means that the mass and rate of profit continues to rise during the Spring phase, so that the supply of loanable money-capital rises further, and so that even as the demand for that money-capital rises, this increase in the supply caused by the higher rate and mass of profit, means that interest rates do not rise sharply.
As Marx puts it in Capital III, Chapter 30.
“In this state the rate of interest is still low, although it rises above its minimum. This is, in fact, the only time that it can be said a low rate of interest, and consequently a relative abundance of loanable capital, coincides with a real expansion of industrial capital. The ready flow and regularity of the returns, linked with extensive commercial credit, ensures the supply of loan capital in spite of the increased demand for it, and prevents the level of the rate of interest from rising. On the other hand, those cavaliers who work without any reserve capital or without any capital at all and who thus operate completely on a money credit basis begin to appear for the first time in considerable numbers.” (p 488)
In the Summer phase as the benefits of new technologies begin to wane, any growth means that the demand for labour is more noticeable, and the relative surplus population begins to get used up pushing wages higher, a phase that could be seen in the Summer phase that ran from around 1962-1974, for example. It means that profit margins start to get squeezed, particularly towards the latter part of that phase. It means that in this phase, that Marx calls the boom phase, the need to keep accumulating capital, meets a problem of a relatively diminishing amount of money-capital to finance it, so interest rates are pushed up.
“To this is now added the great expansion of fixed capital in all forms, and the opening of new enterprises on a vast and far-reaching scale. The interest now rises to its average level. It reaches its maximum again as soon as the new crisis sets in. Credit suddenly stops then, payments are suspended, the reproduction process is paralysed, and with the previously mentioned exceptions, a superabundance of idle industrial capital appears side by side with an almost absolute absence of loan capital.” (p 488)
The Crisis phase, referred to here, is the same as the Autumn Phase of the long wave cycle. It is where that process started in the Summer phase is heightened. The benefits of previous technological developments in raising productivity, and creating new types of industries has disappeared; the relative surplus population has been used up, wages have risen, the rate of surplus value is falling, and profit margins are being squeezed, leading to those firms working at or below the margin going bust, capital tries to resist wage rises, whilst workers still relatively strong, as a result of low levels of unemployment, and a prolonged period of success and rebuilding of their organisations continue to fight for higher wages, and resist wage and job cuts.
It is a period that provokes revolutionary struggles. It was the period of the 1917, and subsequent revolutions; it is the period of the 1974-1984 miners strikes and other large scale industrial disputes across Europe and North America.
“On the whole, then, the movement of loan capital, as expressed in the rate of interest, is in the opposite direction to that of industrial capital. The phase wherein a low rate of interest, but above the minimum, coincides with the “improvement” and growing confidence after a crisis, and particularly the phase wherein the rate of interest reaches its average level, exactly midway between its minimum and maximum, are the only two periods during which an abundance of loan capital is available simultaneously with a great expansion of industrial capital. But at the beginning of the industrial cycle, a low rate of interest coincides with a contraction, and at the end of the industrial cycle, a high rate of interest coincides with a superabundance of industrial capital. The low rate of interest that accompanies the “improvement” shows that the commercial credit requires bank credit only to a slight extent because it is still self-supporting.” (p 489)
The new Winter period did not begin until around 1987. In short, the rate of profit rises during the Winter and Spring phases of the cycle, and this is the basis of the excess of loanable money-capital over the demand for that capital, which thereby causes the rate of interest to fall in the former, and not to rise much in the latter. The rate of profit starts to decline in the Summer phase as labour reserves start to get used up, pushing wages higher, and that assumes its more critical nature as the Autumn phase proceeds. It provokes repeated crises and battles between capital and labour, and results in capital engaging in a new innovation cycle, as it searches for new labour-saving technologies to reduce the need for labour, and thereby reduce wages, and that creates the conditions set out above for the Winter phase of the cycle.
It means the phases after WWII, were:
1974- 1987 Autumn
1987 – 1999 Winter
1999- 2012 Spring
2012 – Summer.
Marx also sets out how the consequent changes in interest rates affect the prices of fictitious capital, through the process of capitalisation. As interest rates rise, so this causes the capitalised prices of bonds, shares and property to fall. Removing the effect of inflation, that can be seen in the movement of stock markets during the periods set out above. I have set this out elsewhere.
The chart for the inflation adjusted movement of the DOW, there shows that it rises from the early 1930’s through to the early 1960’s. It falls from the early 1960’s through to the mid/late 1980’s, and has risen since then. I would suggest that it has stalled from around 2012, and is set for a prolonged period of real terms decline, as interest rates rise, and bond and property prices suffer a similar long term decline.
Boffy is back and he’s twice as hilarious.
First, Boffy would like to make believe that Marx was describing something even remotely akin to “long wave” theory, which he was not.
Says Boffy:”The Crisis phase, referred to here, is the same as the Autumn Phase of the long wave cycle.” Except Marx made no bones about what the “crisis phase” was in his own analysis– a short term disruption and always a short term disruption. There isn’t anything remotely connecting Marx’s analysis of crisis to Boffy’s nonsense “long wave” autumn, spanning according to Boffy 12-13 years.
Secondly, exactly how is Boffy distinguishing the “seasons” of his long-waves? Expansion, rates of expansion, profits, rates of profit, fixed asset growth, fixed asset investment? Who knows? Probably not Boffy.
Thirdly, look at Boffy’s “seasons” themselves– 1999-2012 is supposed to be a “spring” in a long wave upturn. Really? Well it’s been a really cold Spring, really, in that this is the only Spring or summer that has recorded a year over year DECLINE in per-capita GDP (see the Angus Maddison database project). Such declines have happened since 1949, but NEVER during one of Boffy’s annointed springs or summers.
Now maybe per capita GDP isn’t the best index to use, but since Boffy provides no other metric, I’m sticking with it.
All of which makes semyorka’s comment–“I am still waiting to see michael acknoledge that the TRPF. It should eventually make null the upward trends. TRPF should be more fundamental than the long cycles.” very very intriguing.
I think long wave cycles are pretty much irrelevant, but those who don’t need to answer him about how the TRPF– I can suggest a couple– that in fact the tendency of the rate of profit to decline acts not only as a limit and a ” depressant” on capitalism, but also as a stimulant, accompanied as it is in most cases, and most of the time by an increase in the mass of profit; or that the tendency of the rate of profit to decline might act within the “long wave,” achieving “criticality” for accumulation only under specific conditions; or that there is no decline in the rate of profit itself that means the “end” to capitalism, but there is also no decline in the rate of profit that the bourgeoisie can afford to ignore; or that “long waves” are a useless theoretical affectation.
I agree that Marx had no concept of long waves, when he referred to business cycles these were the typical 10 year cycles. From growth, prosperity, to crisis and stagnation.
How can Boffy impose a cycle theory onto Marx that is extended by 40 years and claim you can easily assume the Winter phase = Marx’s stagnation phase? If one cycle is 10 years and the long wave is 50 years they must have different dynamics or they would be the same length! So Boffy is being thoroughly intellectually dishonest.
That is not to say you can’t incorporate long wave theory into Marxism, but this is an addition to the cycles mentioned by Marx. We can think of Marx’s cycles as inner cycles within the Long wave. Assuming we believe in Long waves…
But picking up on Simon’s point, we have to fundamentally question cycle theory full stop. Are there recurring cycles which have common causes and common triggers or do we have a fundamentally chaotic system constantly undergoing historical development and transformation, to the point where cycles, as such, don’t really exist?
I am reluctant to pose that question because it is the sort of thing Bloomberg try to argue, they say capitalism is on a path of long term growth, interjected by ‘random’ blips.
At the moment I am happy to accept that capitalism is cyclical but I am not happy to commit to a long wave theory.
As an addition, it appears to me that according to Boffy in the comment above long waves have one underlying cause, technological progress.
Well, let’s just ask Michael: Michael how do you reconcile your acceptance of long-wave cycles with the overall tendency of the rate of profit to fall?
Sartesian and others
I have explained in several places how I think long waves have a role in helping us understand the stage that capitalism is going through and why it helps show that capitalism is in a long depression right now. See my old book The Great Recession and see my paper Cycles in Capitalism, cited and referred to in this blog on several occasions. I even cited it in this post on Shaikh. It seems nobody went to read it. The paper deals with Marx’s view on cycles, on how the rate of profit cycle is part of other cycles, in my view, and why the cycle lengths are not as Boffy and others like Paul Mason reckon, leading them to misjudge the current economic conjuncture.
Long waves are controversial and have been rejected by the majority of Marxists, but then the majority of Marxists reject the law of the tendency of the rate of profit to fall as relevant to cycles of boom and slump or to the transient nature of the capitalist mode of production. Maybe they are right and I am wrong on the LTRPF and on long waves. But I try to analyse the evidence as best I can.
Thanks Michael, but that wasn’t the question: the question is how you can reconcile a long wave upturn, lasting at least 25 years with the tendency of the rate of profit to fall. Nowhere that I know of have you tackled that apparent contradiction.
In a number of places including the cycles of capitalism paper, I argue that the LTRPF has both a secular (downward) tendency and a cyclical (wave) operation. The latter being the result of tendency leading to crises and then after the devaluation of the value of capital, a period when the countertendency dominates for a while. The overall secular tendency continues to operate. That is how I ‘reconcile’ the ‘apparent contradiction’. Dare I say it, it’s dialectical. Anyway, it’s a thesis that I continually try to test with the evidence. Possibly, probably, I shall be proved wrong about waves and being the current ‘winter’ stage of the downwave of the Kondratiev and thus in a long depression (only the third in modern capitalism). At least, I’m offering a proposition that can and will be confirmed or otherwise by events.
I don’t see a real tendency in reconcile long waves and TRPF, just see this simple graph (there is a negative part, but the arguments holds, see bellow):
The problem, I see, it is then you have to somehow get rid of the oscillation to see the real tendency, in case you want to show that there TRPF upholds. In the case of this picture, you pass a curve a that fits in the local maximum and minimum of the curve. But this is a simple and smooth case, I don’t know how Robert would solve in the case of a very complicated curve.
Thanks, Michael. It was not meant as a “gotcha” question. I first “ran into” Kondratieff cycles” when looking into the long deflation app 1873-1898. The “K wave” advocates like to call that period a “long depression” and I don’t see how that period can be called a depression, given the accumulation of capital, in both mass and rate, that occurs in that period.
Made me doubt both the label and the theory.
I think this is a useful discussion. I got a different result for the 1873-97 period. In my book, The Great Recession, I calculated, using data from McCartney, that the UK ROP fell during that period (1871-84) and recovered afterwards. So it seemed to confirm my view about ‘waves’. Since then I have done some unpublished work using different sources that confirm the same. This work will be in my upcoming book, The Long Depression, out around May??. Also E Maito found a similar result for the UK in his work. We both find a fall in the ROP for the UK from 1871-1886. Of course, the evidence for K-cycles is limited as they are 54-72 years long and there are only three ‘depressions’. The evidence for profitability cycles of 16-22 years (depending on the country) is better. But the proof will be in the next pudding. And this discussion will be ongoing…
Certainly the rate of profit fell during the long deflation; that does not make it a “long depression.” In the US, between 1869 and 1889, the number of production workers in manufacturing doubled, and then increased another 20% to 1899. Contrast that to the period of the Great Depression 1929-1939 when the absolute number declined.
Indexes of Manufacturing production in the US show a quadrupling of production between 1870 and 1899, while registering a decline between 1929 and 1939. Book value of the capital in manufacturing shows a similar rate of increase during the long deflation, while in the Great Depression, the book value registers a decline of approximately 17 percent.
Annual production of railroad freight cars increases from 2000 in 1871 to 100,000 in 1898. In 1929, annual production was 85,000 falling to 26,000 in 1939— and on and on it goes.
Deflation? Mos def. But depression, meaning the inability to accumulate capital? Don’t think so.
I find both Michael Roberts and Boffy’s account of the long wave both interesting and thought provoking. One of their key strengths is to show that there is no mechanical link between profitability and the tempo of economic production, but in line with all things complex there are mediating factors. Having said that I am always cautious of applying templates to history. Periods have to be dealt with concretely and theory advanced to deal with new phenomena. In my view the long wave began in the early 1980s and ended in 2015 when any momentum gained had petered out. This long wave was based on concrete features, some of them specific to this period, others shared. One of the essential features, was the difference in class relations. In the previous long wave of expansion that began with WWll a number of concessions were made to the working class due to the cold war. In the 1980s the process of removing these concessions began with Reagan and Thatcher, culminating inter-alia in the thirty year plus wage stagnation in the US despite the four economic cycles that occurred over this period. Secondly the extension of the market into COMECON and particularly China. Thirdly the technical ability to outsource manufacturing which had not occurred hitherto. Fourthly the seismic shifts between industrial and financial capital that occurred after 1996. In other words, in a brief manner, I am describing strategic structural changes that characterise an economic period. Why then do I see this period as ending. The contradiction can best be described as follows. Globalisation has led to profits becoming global but investment still remaining national. This has manifested itself as rising corporate surpluses. Cash flow defined as depreciation (the bigger element) and corporate profits has increasingly exceeded corporate investment. This is the primary reason for the unprecedented thirty year decline in interest rates which have again transcended the business cycle, though not unaffected by these cycles.
This surplus capital is the basis for the financialization boom, for the crisis in the banking system including 2008 and for the crisis of realisation that is now developing (which is also why productivity is flatlining). These growing surpluses date back to 1996 and were first commented on by the BEA in 2004. This phenomena is unprecedented, demanding that theory keep up. The growth of this surplus capital is an obstacle to reproduction but on its own will lead to only deflation and low growth. What is required to turn this into a fully fledged recession, that is to move the world economy from relative decline to absolute decline is the fall in the rate of profit that is now occurring. This explains why the world economy
Imminent in all capitalist crises is its solution which is always and everywhere explosive. If capitalism is to restore itself, it has to internationalise investment. It has to resolve the contradiction between globalised profits but nationalised investment (nationalised used in the sense of nationally limited investment). And for that to happen it needs single markets, it has to actually transcend national markets as has been the case with the EU but this time globally. This is what TTP and TTIP potentiate. And this must take place in the face of a rising China. It is at this point I become cautious. Creating single markets in the face of growing headwinds is problematic as the EU shows. I will conclude by saying that until the conditions for investment are globalised, that is barriers are removed and enforcement made homogenous, a period of contraction of indeterminate length lies ahead for capitalism.
Final sentence in para 2 should read: This is why the world economy continues to eke out some growth.
Okay we need to be 100 percent clear here, Boffy’s post is completely useless. Why? because he mentions Marx but Marx had nothing to say about Long Waves! Long Wave theory only developed after Marx’s death. Marx’s views on the business cycle can’t be used because a Long Wave is not just a longer business cycle. He has a mechanical view on this issue, completely ignoring the subjective element in history. Although even looking at regular business cycles we can see variations throughout history, recessions occurred more frequently after WW2. In my own country of Australia there hasn’t been a recession in about a quarter if a century. Yet on a scale of centuries Boffy thinks you can predict down to the exact year when a Long Wave will start or finish!
Re: UK rate of profit graph in the Cycles of Capitalism paper.
“The up phase of 1885 to 1871 was followed by a down phase from 1871 to 1884”
Shouldn’t it be “The up phase of 1855 to ….”?
“The paper deals with Marx’s view on cycles, on how the rate of profit cycle is part of other cycles, in my view, and why the cycle lengths are not as Boffy and others like Paul Mason reckon, leading them to misjudge the current economic conjuncture.”
Obviously I think that its you that is misjudging the current conjuncture. Time will tell. The problem with trying to determine that at the moment is partly to do with the data itself as I have set out elsewhere. Not only is the data for GDP only data for the consumption fund, and not for output, but the work done by CNBC indicates that US GDP could be nearly double what the current figures suggest!
But, the fact remains that it makes no sense to suggest that the rate of profit moves up and down in alternating phases of the long wave. Then there is the question of which rate of profit you are referring to, i.e. the rate of profit meaning essentially the profit margin, or the general annual rate of profit, which often moves up when the former is moving down, and so on.
Then there is the question of whether you are describing a period when the rate of profit is falling as a consequence of the LTPRF, (when the rate of surplus value is rising) or a period when the rate of profit is falling because the rate of surplus value is falling because wage share is rising. All of these different conditions and scenarios arise during different phases of the long wave, and interact on each other.
For example, in Chapter 6 and Chapter 15, Marx discusses the boom conditions during which time the demand for labour is high, unemployment is low, wages rise reducing the rate of surplus value, which then causes the rate of profit to get squeezed. Crises of overproduction can arise during such periods, because with low profit margins any rise in wages or input costs, causes each unit of output to become unprofitable. The higher costs cannot be passed on, because during the latter part of such periods, in particular, high levels of wages and other revenues mean that many markets for consumer goods are saturated, as living standards have risen. It means that the price elasticity of demand for many of these items is high, so that any rise in the market price causes a large fall in demand, but producers can only produce profitably by producing on a large scale, and cannot afford any such reduction in demand.
As Marx sets out, during such periods, the crisis of overproduction that results is not caused by the LTPRF, there is no gradual fall in the rate of profit, but rather a collapse in the rate of profit, resulting from the crisis.
Its those conditions, which prompt capital to look for new technologies to reduce labour, lower wages and raise the rate of surplus value. But, its those measures to deal with overproduction, which then cause the LTPRF to come into operation, so that the rate of profit falls not because the rate of surplus value is falling but because it is rising, productivity is rising along with it causing a greater proportion of circulating constant capital to be consumed, and thereby resulting in a greater mass of profit, but a lower rate of profit.
This initial fall in the rate of profit, when during the start of the Winter phase, these new labour saving technologies are being introduced creates the conditions for the rate of profit to rise during the rest of the Winter period, as wages fall and the rate of surplus value rises, and the value of constant capital is reduced.
That creates the conditions for the new expansion in the Spring phase, but the rate of profit continues to rise in the Spring phase, because there is still abundant labour supplies, and new technologies mean that labour is used more effectively. So, the rate of profit rises during most of the Winter phase, and the Spring phase, and then starts to fall in the Summer Phase, and more sharply in the Autumn phase, when workers continue to defend their higher wages.
That is why I think that characterising the period that starts with the crisis of 1974, and goes though all of the various big industrial battles through to the mid 1980’s, culminating with the defeat of the Miners in 1985, as classically that of the Autumn Phase, is quite clearly defensible.
Similarly, I think that the period of class defeat for the workers that begins in the late 1980’s and is also reflected in the collapse of the Warsaw Pact, and end of the Cold War at that time, is typical of the conjunctural shift that would be expected to go along with the commencement of the Winter Period. Its rather like the period that started with the defeat after defeat that workers suffered from the mid/late 1920’s.
But, similarly I don’t think that you can characterise the period after 1999 as anything other than the start of a new Spring Phase. Its marked in the figures for the increase in world trade, in global GDP, in fixed capital formation, in the growth of the global working-class, and in fixed capital formation and volume of output of goods and services. It is marked in the rise in primary product prices from gold to copper to oil, to food, which in turn sparked a rash of investment in all those things, which in turn has led to the massive increase in output of those commodities, leading to current levels of overproduction and falls in global market prices of oil, copper, milk and so on.
Yes, if you take an average figure for GDP growth or other metrics up to today you get a not very impressive figure, but such an average figure is highly misleading, because it includes the effects of the slowdown following the financial crash of 2008. Take the data up to 2008 and the figures show a completely different picture. If you took a picture in 1847-8 when the effect of the financial crisis then caused UK economic activity to decline by 37% according to Marx, you would get a different picture than if you looked at GDP growth up to that point, or if you took it over the whole upswing cycle that ran from 1843-1865.
The long wave is not some kind of mechanical model which operates on the basis of dates on a calendar. It has regularity because of the objective laws that underpin it. For example, it takes around 12 years to explore for and then develop to an optimum level a new copper mine, and the same is true for other such large capital investments. Marx points to the fact that fixed capital such as machines had a life of around ten years, as an explanation of the cycle due to the time when they come to be replaced. In his own work on investigating the idea of a long wave, Marx was exploring the effect of even larger capital expenditures such as the time to develop new factories and so on.
Similarly, it is when labour supplies have run low and wage are moving high and squeezing profits that capital begins to search for new labour saving technologies, and it again takes time for such innovation to be undertaken, and new inventions to then be introduced.
In the same way, the 1847 crisis was largely caused by the effects of the 1844 Bank Act, which created a credit crunch and financial panic. Without the Act, the trajectory of the economy during that period would have been different, as witnessed by the fact that the crisis was quickly ended when the Act was suspended. Marx points out that it was not even necessary to put more liquidity into circulation from the Bank of England, because the suspension of the act, led to lots of hoarded money simply going into circulation.
Similarly, the actions of central banks during the 1990’s and early 2000’s conditioned the nature of the 2008 crash, and the continued us of QE to reflate asset bubbles, alongside the introduction of austerity in the UK and EU after 2010 has conditioned economic conditions now, because it has sucked liquidity out of general circulation. I suspect that as that works its way out of the system, it will simply mean that the current phase of the long wave has simply been prolonged.
For the sake of not feeding the trolls and pedants it should read “but the work done by CNBC indicates that US GDP growth could be nearly double what the current figures suggest!”
Well somebody ought to give the good news to the Fed and the US Dept of Commerce so they can correct their mistakes. Oh yeah, and the IMF, and OECD, and BIS– and be sure we get the word to those who are about to lose food stamps.
What else does CNBC tell us? That it’s a good time to buy Valeant?
Would it not be a better idea, that instead of arguing about where we are in the abstract, we examine the data. I have not published a lot of the research on the USA as it is being compiled for a more substantial presentation on the US economy. But I think everyone will be interested in two graphs made possible by the turnover formula. First five industry rate of surplus value 1987 – 2014. These industries are total Private Industry, Corporate sector, goods producing sector, manufacturing and non-durable manufacturing. You would be quite astounded by when the growth occurred, by how much and how the growth differed because of the rise in duplication. The second graph that would be of use is the growth in the value composition of capital covering the same period and industries. Again a number of surprises. I cannot commend the turnover formula enough. Without the reduction of annual compensation to variable capital nothing can be determined. The rate of surplus value requires variable capital as does the value composition of capital. It is quite astounding. The rate of exploitation in total private industry exceeds that in manufacturing, but the rate of surplus value in manufacturing is nearly twice as high as that of total private industry because its turnover of capital is so much higher. Similarly in the 1950s, variable capital was about 20% the size of constant capital making a C/v of 500%, this fell to 8% by 1987 making C/v of 1250% and only 4.2% by 2014 making the ratio 2380%. More importantly as both C and v make total capital, the lower growth in v relative to C meant that the growth of total capital fell behind the growth in constant capital which countered the tendency for the rate of profit to fall. Between 1987 and 2014 this decline in variable capital allowed the rate of surplus value to grow faster than the value composition of capital which is
(I really hate computers, not really) why the rate of profit INCREASED over these years. If Michael will provide me with an email address I will forward these graphs and sources. I believe this will help move the debate on to more substantial foundations.
A quick reply to comrade Artesian. I could also attach the graph comparing the growth of domestic industry (68% of GDP) to total private industry (total economy less government about 87%) of GDP. In 1977 private industry (TPI) was 10% bigger than domestic industry. By 2014 it was 21% bigger. TPI is home to most of the duplicated value in the economy, vis the household sector, non-profit organisations and imputed rents for owner occupiers. The reason TPI has grown relatively faster than the real economy is the growth of duplicated value, and duplicated value has grown because of the rise in inequality, more servants and more charities. So we could say that at least 11% of the growth between 1977 and 2014 is due to the increase in duplicated value. If it were not for this then the US economy would be 11% smaller and its annual economic growth one quarter to half a percent lower. Interestingly enough, the same device is being used to pump up China’s growth rate. The biggest driver for the Chinese economy of the last twelve months was the growth in the financial sector. Clever little Stalinists learning from their capitalist masters. But as we know, money changing hands may make some people richer and others poorer but it does not produce exchange value. In sum, capitalist growth figures are never understated but overstated because of duplicated value.
I am really happy to learn about Anwar Shaikh and his work. I continue to find myself in need of a place where similar minded people talk about their work on economics. Michael, you have managed to become a curator for this type of content.
Could it be possible to have a systematic analysis of the methods used in an economic model?
Apo I’m going to a post on economic modelling in the next month or so – too much else to do first.
So long waves are regular over centuries because…. of the time it takes to mine copper? Let’s forget everything else and focus on the lifespan of machines show we? Is the reason why my country hasn’t experienced a recession in a quarter of a century because Australian machines are really durable?
Anyone read this: “Abstraction, profit and the declining profit rate in Marx’s political economy” by James Doughney
Click to access doughney-paper.pdf
Has plenty to say on stock vs flow, and turnover (Engels additions in Volume III).
looks interesting, thanks
I suggest the author James Doughney, has a Hypospadias repair. He throws quotes from Marx like a man throws confetti at a funeral. Impressive, wrong location, and omitting several colours. Great prose. Fundamentally wrong.
He has either read Marx thoroughly or made copious notes while reading Marx in order to assemble quotes for every occasion. The second is more probable as he omits whole steps and categories in his exposition. Pivotal is his erroneous assertion that Marx had a one year rule (para 4 page 5). No he did not. The tenor of the opening section of Part 2 of Volume 3, the very section that marks the traversing from an average abstract capital to many capitals all different, is to avoid two traps. Firstly to avoid taking value as embodied rather than reproduced. Secondly to avoid consuming the entire constant capital within one cycle. As Marx says on the second page of Chapter 9 “Yet in order not to arrive at totally incorrect conclusions, we must not take all the cost price as 100” (page 255 Penguin Edition). Marx never confused flow and stock, Von Bortkiewicz did, as did his critics.
This misconstruction of Marx is not accidental for the author does not even understand the distinction between the annual rate of exploitation and the annual rate of surplus value. As he states in the concluding sentences of paragraph 3 of page 6 there is no difference between the rate of exploitation and s/v. What a golden shower! The rate of exploitation, expressed concretely, is annual net surplus divided by annual compensation. It is equal to a single period rate of surplus value. But as the turnover formula has shown, every industry has its own turnover of capital. Variable capital is annual compensation deflated by turnover. It yields a much higher rate of surplus value than would be the case with the rate of exploitation. How much larger, that depends on the number of turnovers.
Later on the author quotes Engels to show how small a fraction of total capital variable capital really was despite Engels using anecdotal evidence. And even here circulating capital is misunderstood because variable capital is only one component of it.
In any case in the era of the National System of Accounts (NSA) why use Engels’ figures 150 years ago particularly when Engels admits his information was patchy and incomplete. And pray do tell, is Engel’s figure of 2.5% set against industrial capital or merchant capital, because they are different. As it happens, variable capital varies from industry to industry. Total US private industry in 2014 registered 10.7% (v/c) the corporate sector registered 6.5% and manufacturing 4.0%. More interesting is the relative fall. In 1987 total private industry registered 11.1% (barely a fall in nearly 30 years), while the corporate sector registered 8.3% and manufacturing 7.4%. This gave relative changes of -3.6%, -22% and -46%.
Isn’t this a lot more interesting than dredging up figures that are 150 years old and partial. Marx and Engels would be most distressed if they could see the theorists they inspired still pissing around with interpretations and re-interpretations rather than applying their methodology and categories to the vast volume of data today in order to verify their theory and refine it. I can only repeat, the turnover volume is the Rosetta stone, for in allowing us to distill variable capital from annual compensation it allows us to determine the rate of surplus value, the value composition of capital without which there can be no interpretation of the forces pushing and pulling the rate of profit. Is there a tendency for the rate of profit to fall? Of course. The rate of profit is the balance of the forces acting on it.
Is it falling today? That is not a metaphysical question. In the USA it is falling, because despite stagnation in the value composition of capital in a number of industries, the rate of surplus value is now falling quite sharply. Will it continue to do so? That requires constant monitoring of the various ratios which the turnover formula allows for. I look forward to the time when we are discussing these ratios and there significance, rather than trying to interpret and re-interpret what Marx said or even meant.
I agree that the rate of profit is again moving down, but not sure that it is because of a stagnation in the value composition of capital. Using data from the US Dept. of Commerce Annual Survey of Manufacturers, and its Quarterly Financial Report, Manufacturing — the items of significance are that production worker hours in all of manufacturing and mining in 2014 are about 18 percent less than in 2004, and only about 7% above the trough of the recession in 2009. Net property plant and equipment has increased about 26% since 2009..
Compare that to the recover from the 2001-2003 recession when net property plant and equipment utilized in production was below the 2001 mark for 6 consecutive years. Draconian controls on capital spending, and the actual consumption of capital at greater than rates of replacement fueled the “recovery.”
In this current situation, in the US at least, the bourgeoisie have not yet been able depress the accumulation of fixed capital. The “boost” given to rates of surplus value, through driving down production worker wages, which in 2014 were still below the 2007 mark, has played itself out. The bourgeoisie are in the “classic” dilemma, of being all machined up and with no place to go. The rate of surplus value for manufacturing in the US increased 14% from 2007 to 2011, and has declined 9% since 2011.
“They”– the bourgeoisie have to do more than simply devalue the accumulated capital embedded in the productive apparatus, they have to physically liquidate it. And they can’t do that without also launching another wave of attacks on workers living standards to drive the price of labor power below its cost of reproduction.
Haven’t used the turnover method in these calculations. But I would certainly be interested in ucanb’s calculations and if they are in any sort of proximity to mine.
In response to the above comment by cde Sartesian, I would be most interested to find out how other theoreticians have calculated their turnover times.
I am a mere amateur economist so have no wish to plough through 900+ pages. My partner, who is a serious economist writing his own magnum opus, has the book to read. Rather than wait for him I wonder if you could tell me whether there is any consideration of the role which land plays in the economy since you say that it is based on classical economics.
I campaign for Land Value Tax – nationalisation of the rent of land, supported in the Communist Manifesto.
With regard to business cycles/waves, I would just like to mention this book: Boom Bust, House Prices, Banking and the Depression of 2010, written in 2005 by Fred Harrison. I’m no fan of the guy and don’t think much of his analysis, but Fred was the only economist to my knowledge who accurately predicted the top of the house price bubble as end 2007. He predicted the previous peak in 1983 in The Power in the Land.
I wonder whether Anwar conflates land and capital like Piketty and the rest of the economic world.