US profits revision

Last Friday, the US real GDP growth figures for the second quarter of 2019 were released.  The annualised rate of real GDP growth slowed in Q2 to 2.1% from 3.1% in the first quarter.  This was the slowest growth rate since the end of 2016.

US real GDP was 2.3% higher than in the same quarter last year ie (Q2 2018), down from 2.7% yoy in Q1 2019 and recording the lowest yoy growth rate for two years.

So it seems that the boost to US growth, supposedly promoted by President Trump’s corporate tax cuts and exemptions, has run its course and US growth is back to the average of the last ten years, with the prospect of further slowing in the second half of this year.

And why is a further slowdown likely, perhaps even to the point of recession?  We can find clues in the second quarter data.  The main contributors to the slowdown came from weakening investment, particularly productive investment in equipment and structures; and from falling net exports or trade, as the trade war with China bites.

The 0.6% drop in business investment was the first decline since the first quarter of 2016. And that drop was led by a 10.6% decline in investment in structures, ironically the category of investment that should have received the largest boost from the tax cut.

Investment in new buildings and factories is now down by 4.6% from its year ago level. Equipment investment rose by just 0.7% after a 0.1% fall in the first quarter. The pace of investment in so-called intellectual products or computer software also slowed sharply, slowing to 4.7%, after double-digit increases in the prior two quarters (driven by Trump’s tax exemptions).  Exports fell at a 5.2% annual rate.

But the most interesting part of the GDP report was the revision to the past three years data.  The revised data showed that real GDP growth was substantially slower for 2018 than previously reported, with the growth from the fourth quarter of 2017 to the fourth quarter of 2018 just 2.5%, well below the administration’s projection at the time of the Trump tax cut.

But most important in my mind were the downward revisions to corporate profits.  Instead of corporate profits rising by some 20% in the last three years, it seems that profits have actually fallen and are now lower than they were in 2014!  Corporate profits were revised up $1.4 billion, or 0.1% for 2014, revised up $4.3 billion, or 0.2% for 2015, but revised down $23.5 billion, or -1.2%, for 2016, and a whopping $93.3 billion, or -4.4% for 2017, and $188.1 billion, or -8.3% for 2018.

Overall corporate profits have suffered two successive quarterly declines, both before and after tax up to Q1 2019 (the second quarter figures will be released at the end of August).  US corporate profits are now 2% below where they were at the beginning of 2018.

Even before these revisions, non-financial sector corporate profits have been falling over the last five years.  What this means is that while speculative or fictitious profits from investment in financial assets have increased sharply, especially with Trump’s tax cuts, profits in the productive sector of the US economy have stagnated at best.

Now I have argued in this blog and in many papers that there is a strong correlation between profits and investment in modern capitalist economies – after all, capitalist production is for profit not need and so investment in production must be profitable or it will eventually slow or stop.  And there is plenty of evidence that this simple idea is correct.  Not only is the correlation between profit growth and investment growth high, but the causal direction from profits to investment with a lag (on average of about a year) is also supported in empirical research.

When profits dropped in the ‘mini-recession’ of 2015-16 (mainly due to the collapse in oil prices), investment followed.

Now it seems that profits in unproductive sectors like finance and real estate are beginning to suffer.  Financial profits are about 25% of total corporate profits and they have been broadly stagnant over the last year.  If they should fall, as well as non-financial sector profits, that may well generate a stock market collapse in the second half of this year.

Up to now, the Trump tax cuts and the prospect that the Federal Reserve is going to cut its interest rate (probably this week) – the so-called ‘Powell put’ – has buoyed the US stock market to new record highs.

But the effect of that may wear over the next few months as investors begin to see the earnings results of the major companies.  And any stock market ‘correction’ typically leads the ‘real economy’ by up to three quarters.

44 Responses to “US profits revision”

  1. Boffy Says:

    But still no recession, and despite the slowdown in US and global growth due to the impact of Trump’s global trade war, and Brexit! Even the IMF puts the slow down (still no recession) in global growth down to those effects, mostly Trump’s global trade war, in its latest revisions.

    What happens when the effects of that trade war are removed, because either trade finds other routes to take from existing channels, or because, with 2020 approaching Trump is forced to do a deal with China?

    Moreover, even with slowing trade and growth, employment numbers continue to rise at a faster rate than workforce growth. That is because in modern service based economies accumulation of circulating constant capital (raw materials) plays little part – which is also why the LTRPF, which depends on the mass of raw materials processed growing at a faster rate than labour, is defunct – and instead accumulation of circulating capital takes the form of an increased quantity of contemporaneous labour being employed, whilst investment in fixed capital is lumpy, with it going through phases of accumulation followed by exploitation, where the same fixed capital is simply used more intensively by a growing amount of labour – the internet is a good example.

    Moreover, rapid technological development causes a more or less continuous and significant moral depreciation of that fixed capital stock, causing the rate of profit to rise, and creating repeated releases of capital into revenue.

    If you want to understand the current global economy and the political economy built on it, I suggest forget about looking at coal mines and steel mills and start looking at things like the millions of people that took part across the globe in the E-sports competition last weekend.

    • Anti-Capital Says:

      “If you want to understand the current global economy and the political economy built on it, I suggest forget about looking at coal mines and steel mills and start looking at things like the millions of people that took part across the globe in the E-sports competition last weekend”

      Hmmh……thought Michael was paying attention to profits and investment, or, in a word, capital, not coal mines or steel mills. That being said, it’s probably worthwhile to pay attention to steel mills, given the doubling of production capacity between 2000 and 2011.

      And this from Boffy- ” which depends on the mass of raw materials processed growing at a faster rate than labour”- is basically unintelligible. Depends on the mass of raw materials processed growing at a faster rate than labour? Than what, the mass of labour or the value of labour? Comparing mass to value gets us nowhere. Comparing mass to mass, volume to volume,might get us to the technical composition of capital, but since capital doesn’t exist in its technical composition without simultaneously existing in its value composition, that won’t be too helpful.

      And besides the tendency of the rate of profit to fall is not really dependent on the processing of raw materials, but rather on the accumulation of capital (a basic distinction Boffy for all his faux erudition has never grasped), particularly the accumulation of fixed capital.

      • Anti-Capital Says:

        PS: Forgot to add– While we’re ignoring steel and coal, two sectors of the “real capital” which Boffy described back in May as being represented by Donald Trump and locked in a struggle with “fictitious capital,” let’s also ignore automobile production. Let’s ignore that production capacity exceeds market sales by almost 50 percent.

        Let’s ignore that most auto plants are running at a rate below the “break even” rate of 80% capacity.

        Let’s ignore China, where today’s FT reports that Ford’s first-half sales decline 27%, that PSA’s joint venture China’s Chang’an produced only 102 units, running below 1% of capacity.

        Let’s ignore that PSA’s other joint venture with Dongfeng auto operated at 22% capacity.

        And don’t forget to ignore that in the first half 2019, China’s sales of passenger vehicles dropped 14% compared to the year earlier period.

        When we’re done ignoring all of that, we can then move on to Boeing, and ignore all the defects in the 737 Max. That will make for an exciting flight, won’t it?

        Brought to you as a public service….

    • vk Says:

      Labor is only labor when it transforms matter. It is imaterial if the commodity is a “service” or not.

      “Service” is a fantasy term to designate commodities that need to be consumed immediately in order to have a use value. The separate parts need to be assembled and spent through the immediate action of human labor over the final consumer.

      The fact that circulating capital needs to be used almost at the same time as its selling doesn’t disrupt the production process of capital. Needless to say, it doesn’t stop the automation process, so it doesn’t stop — let alone reverse — the rising of the organic composition of capital.

      And it’s a myth that we’re witnessing a new industrial revolution: just because some big corporations lay out a plan of moral obsolescence for their products doesn’t mean new technology is being created. And just because a commodity is technologically intensive doesn’t mean it is fixed capital: e.g. a smartphone is only fixed capital in some circumstances.

      • Boffy Says:

        “It is imaterial if the commodity is a “service” or not.”

        I agree, which is why the fact that 80% of new value and surplus value production now occurs in service industries, whilst only 20% occurs in material production industries, such as coal, or steel means that to understand the economy means understanding these new service industries such as computer games production, rather than the 20% of the economy involved in material production. Its like basing yourself on what was happening in agriculture long after manufacturing became the dominant sector of the economy.

        “The fact that circulating capital needs to be used almost at the same time as its selling doesn’t disrupt the production process of capital.”

        Quite true, which is precisely the point I was making, but the point is that this circulating capital for service industries comprises more or less entirely variable-capital. That is what distinguishes it from material production. Marx’s law of the tendency for the rate of profit to fall, as opposed to the laws proposed by his predecessors, such as Smith, Ricardo and Malthus, is based on the simple proposition that as labour productivity rises, a greater mass of raw material is processed by a given mass of labour, i.e. the technical composition of capital rises.

        If the value composition of capital remains constant, then this rise in the the technical composition results in a rise in the organic composition of capital. If, v and s, thereby remain constant, whilst c (the value of raw materials) rises as a result of the rise in productivity causing the given amount of labour to process a greater mass of material, then the rate of profit s/c + v must fall as a result of the rise in c.

        Marx says this fall is in reality much less than it was said to be by previous economists, and only detectable over very long periods, because the various countervailing forces he sets out in Capital III, Chapter 14, such as the rise in productivity reduces the value of constant capital (both fixed and circulating), it also reduces the value of labour-power and so raises the rate of surplus value (labour saving technologies are generally introduced, to counter a crisis of overproduction of capital, whereby capital expands at a faster rate than labour supplies, causing wages to rise and profits to be squeezed, so that when these new technologies are introduced, a relative surplus population is created, and wages themselves get reduced), as well as resulting in a release of capital and labour that then gets accumulated in new industries that have a higher rate of profit, which leads to the average rate thereby being raised, via the process of competition and formation of an average rate of profit.

        If we take the average annual rate of profit, the rise in productivity also results in a rise in the rate of turnover, and consequent rise in the annual rate of profit, which is what the average rate is based on.

        The point, here is that if raw material plays no significant part in service industry, which now constitutes 80% of the economy, and of new value and surplus value production, this mechanism for the operation of the LTRPF set out by Marx of rising productivity causing c to rise relative to v, a a result of an increased mass of material being processed by a given mass of labour cannot operate.

        Capital expands, more labour is employed, and thereby produces more surplus value, but there is no significant rise rise in raw material consumption relative to total output, and so c does not rise relative to v, and if anything a tendency for the rate of profit to rise rather than fall is established, as a result.

        Moreover, as Marx describes in Capital III, Chapter 6, when these technologies are introduced, the effect is to reduce the value of fixed capital as a proportion of output. Marx describes that process as a result of two factors. Firstly, the fixed capital raises labour productivity so that a given mass of labour processes a greater mass of material. We have now discounted that, because 80% of the economy is no longer characterised by this processing of raw material. The second factor is that as the technology improves, it results in a much greater volume of output, so that the unit value of fixed capital thereby progressively falls, i.e. a machine with a value of £1,000, which produces 1,000 units transfers £1 of its value into each unit, but a machine that produces 10,000 units transfers only £0.10 to each unit.

        Similarly, the development of technology brings about a moral depreciation of existing fixed capital, so that the rate of profit rises.

        Take computing. In the 1970’s, a mainframe computer cost around £2 million. It employed say 4 operators, 6 data processing (punch card) clerks, and 6 programmers. No more than 20 people in total, producing surplus value. Today, a PC will do the work of that mainframe computer. It costs £500. The PC may only employ 1 person, producing surplus value, but for the £2 million that the mainframe cost 4,000 PC’s can be bought, requiring 4,000 people, each producing surplus value.

        “doesn’t mean new technology is being created.”

        Really? So, we are not seeing a massive growth of new industries in DNA sequencing, gene therapy, space technology, the production of driverless vehicles and so on?

        “And just because a commodity is technologically intensive doesn’t mean it is fixed capital: e.g. a smartphone is only fixed capital in some circumstances.”

        It doesn’t mean it isn’t fixed capital either, does it?

      • Boffy Says:

        But most significantly, still no recession despite Trump’s global trade war and Brexit, still rising levels of employment.

      • vk Says:

        What you’re stating is merely an accountancy maneuvre: a “service” is merely the end tail of a long production process. More services mean more raw materials consumed and more fixed capital being depreciated.

        The fact that services in the USA is recording more growth than manufacturing simply comes from the fact that

        1) the international division of labor puts manufacturing at other countries and

        2) the profit rate is really falling, since the USA is now registering more growth at the less capital intensive part of the productive process than in the productive process “itself”.

        The irony here is that your argument — that the USA, by registering a fall in profits and GDP growth, is actually prospering, and not decaying — demonstrates the exactly opposite of what you want to demonstrate: that is, not only that the USA is failing, but that the TPRTF is indeed true.

      • Boffy Says:

        “What you’re stating is merely an accountancy maneuvre: a “service” is merely the end tail of a long production process. More services mean more raw materials consumed and more fixed capital being depreciated.”

        This is basically Physiocracy. It takes us back before Adam Smith, let alone Marx. You might as well say as the Physiocrats did that industrial production is really a mirage, and only possible because agricultural labourers produce the food that industrial workers and capitalists eat, and produce the raw materials that the industrial workers process!

        Moreover, the point is not whether more services means more raw materials consumed, and more fixed capital depreciated, but in what proportion to the new value created. You have completely eradicated the whole perspective of the Labour Theory of Value even as proposed by Smith and Ricardo, that new value is created by Labour. The point is how much new value is created by the immediate labour employed as service labour compared to the congealed labour required for their employment.

        Well we know the answer. The service industry requires material production, in the form of wage goods (the majority of which themselves actually now consist of services rather than material commodities), and requires other material production in the form of fixed capital, and circulating capital in the form of auxiliary materials (mostly things like energy). And, the answer is that all of this material production, required by the service industry amounts to less than 20% of new value value and surplus value production!

        The reason is quite simple that, as Marx says, when capital develops beyond a certain stage it uses fixed capital very flexibly to increase output. In TOSV, Marx points out that when an architect draws up plans for a new factory, one its done, he can roll out the same design for every subsequent factory, at little extra cost, and he says the same applies for the design of machines. That applies in spades today. And, what Marx says about the way machines that can be simply used more extensively and intensively in a factory once installed so as to increase output applies to a much higher degree to large infrastructure installations of fixed capital, and so on. What they don’t involve, in service industry is a corresponding rise in raw materials, because those industries do not involve the processing of raw materials into finished commodities, they use materials only as auxiliary materials.

        “the international division of labor puts manufacturing at other countries and”

        Do you mean like China? Well, the majority of new value in China (51.6%) also comes from service industry, compared to just 40.5% for industrial production. In South Korea, 58.3% Services to 39.3% industry, or India 61.5% Services to 23% industry, or maybe Brazil 72.7% services to 20% industry, or perhaps South Africa 67.5% services compared to 29.7% industry.

        The fact is that service industry is the largest sector in all developed, and most developing economies. And, it is becoming more so. The ILO in examining global employment growth, for example, noted that in the first decade of this century employment grew by around a third, most of that was coming from developing economies, and whilst the growth of industrial labour was around 30%, the growth of service labour was around 35%.

        I wouldn’t like to say whether the rate of profit is falling or not, because I don’t think its accurately measurable. What I will say is that employment is growing, and wages are also rising, which means that profits get squeezed. That profits get squeezed in this way does not at all prove he TFRPTF is true, because as Marx sets out a squeeze on profits is the opposite of his law! A squeeze on profits resulting from a rise in wages, fall in the rate of surplus value is the condition that was described by Smith (capital accumulates faster than labour supply causing wages to rise and profits to fall), and Ricardo (capital and labour both expand, but the growth in labour means a higher demand for food, which due to diminishing returns in agriculture causes food prices to rise, raising the value of wages and thereby squeezing profits.

        What Marx shows is that both these scenarios apply in the short term, on a cyclical basis, causing an overproduction of capital, i.e. additional capital cannot produce additional profits, but it is precisely in order to cure that crisis that capital engages in technological development, so as to create a relative surplus population, and thereby reduce wages, and releives the squeeze on profits.

        Marx’s Law requires that these new technological solutions are being introduced to replace labour, that the mass of capital and mass of profits is rising, and that the rate of surplus value is rising as this new technology reduces the value of labour-power. But, it also, thereby requires that this higher level of productivity is manifest in a proportionately greater increase in c relative to s. For Marx that comes about because the mass of material processed increases faster than the fall in its unit value brought about by the rise in productivity. In TOSV, he sets out why he thinks that is, because, in his day, most of the raw material was the product of agriculture, mineral production, where productivity grew more slowly than in the rest of the economy.

        But, today, a) raw material does not play the same role, b) for Marx raw material includes intermediate production, and a large part of intermediate production today, is itself industrial production, including large amounts of synthetic materials, agricultural and mineral production, today, has been massively industrialised so that its not true to say that these values do not fall in the same proportion as the values of other commodities, c) the other element of c is the wear and tear of fixed capital, and Marx showed that this proportion, as with the proportion accounted for by labour also falls relative to materials. But, today, it falls even more dramatically, because of technological development.

        For example, the first DNA sequencing cost $3 billion. Today, it costs around $100, and a whole new industry based upon it now employs thousands of people creating new value and surplus value.

      • vk Says:

        Unless you’re talking about absolute collapse of capitalist civilization, services don’t stop the rising of the organic composition of capital.

        Yes, services sector tend to have lower OCC than manufacturing — but you don’t sacrifice manufacturing in order to build services. On the contrary, most services only exist because a manufacturing base is already consolidated (e.g. Uber and its dependency on the ubiquity of smartphones; Amazon and its dependency on the ubiquity of internet and internet access).

        A country may deindustrialize and see a growth in its services sector in order to keep its general profit rate from falling too fast — but that’s only an isolated country in the context of the international division of labor. It has nothing to do with services being the Deus ex machina against the LTPRTF.

        More importantly, a service is still a commodity, produced by capital. The fact that it appears to be detached from its industrial base (alienation of labor, commodity fetichism) doesn’t change the reality.

        The USA is known for changing the goalposts when the data doesn’t fit its narrative. It happened with the unemployment rates after the 1990s, and it happened recently, since the end of Obama’s second term, when it changed the methodology of GDP growth to include shady multipliers.

      • Boffy Says:

        “Unless you’re talking about absolute collapse of capitalist civilization, services don’t stop the rising of the organic composition of capital.”

        That’s a statement not an argument. Far from a collapse of civilisation, the rise of services is an indication of the opposite. The rise in the OCC as set out by Marx was about rising productivity meaning that a given amount of labour processes a growing mass of material. True that continues for the 20% of the economy that is based on processing materials, it does not apply to the 80% of the economy that is not now based on processing materials. So, for the economy as a whole, there is absolutely no reason why the OCC needs to continue rising, and in TOSV, Marx himself describes why that is, in his analysis of Hodgskin.

        “but you don’t sacrifice manufacturing in order to build services”

        Who is talking about sacrificing manufacturing? Economies did not sacrifice agriculture to build industrial production. As, Marx points out, what is correct in Physiocratic theory is that without agriculture reaching a level of productivity where not everyone had to be employed on the land, it would not have been possible for some in society to produce industrial products rather than agricultural products. Industry arises not by sacrificing agriculture, but because agricultural productivity enables society to produce other commodities in addition. Industrial productivity, like agriculture before it has seen productivity rise to a level, whereby society can produce other types of commodities, services, as well, not instead of.

        “On the contrary, most services only exist because a manufacturing base is already consolidated (e.g. Uber and its dependency on the ubiquity of smartphones; Amazon and its dependency on the ubiquity of internet and internet access).”

        As I said this is Physiocracy pure and simple. You may as well say “most industries only exist because an agricultural base is already consolidated” which provides the food required by industrial workers, and provides them with the raw materials they process.

        “A country may deindustrialize and see a growth in its services sector in order to keep its general profit rate from falling too fast but that’s only an isolated country in the context of the international division of labor. It has nothing to do with services being the Deus ex machina against the LTPRTF.”

        Makes no sense. If a growing services sector prevents the rate of profit falling too fast, you are admitting that the rate of profit in services is higher. The more the service sector grows, therefore, then as Marx showed in his critique of Ricardo, the more this drags the average rate of profit higher. Your account reads almost as though we are dealing with a planned economy whereby capital is directed to services to prevent the rate of profit falling too fast. In fact, capital accumulates faster in services precisely because the rate of profit there is higher!

        And, the examples above I gave show that it is not an “isolated country”. Services now form the largest sector of the economy in most economies.

        I’ve never said that services are not commodities. Quite the contrary. What does that have to do with anything?

        “The USA is known for changing the goalposts when the data doesn’t fit its narrative.”

        And it seems to me that you have changed the goalposts of your argument.

  2. ucanbpolitical Says:

    As Jim Cramer of CNBC said on July 25th, the US economy is schizophrenic with the industrial side in recession and the consumer side still growing. Hurrah the stock markets. In any case the first 1% of GDP growth in the USA is just statistical noise comprising imputed sales such as owner occupier rents, the miscasting of R&D and the growth of the budget deficit. As for employment still growing, hurrah for the BLS use of an adjustment based on how many new companies are being created as well as working four hours a week. What is true is that we are dealing with a new phenomena, the abnormal movement of interest rates. So despite a fall in industrial production and in construction the US economy is still afloat courtesy of the nearly $2 trillion rise in share prices annualised. Michael is correct, the downward revision of corporate profits is major. It realigns the movement in profit with the movement of the rate of surplus value based on the turnover of capital. This divergence has been a concern of mine for a year which is now resolved by the revisions made by the BEA. To use a Trumpism, they now fit together beautifully https://theplanningmotivedotcom.files.wordpress.com/2019/07/usa-first-quarter-2019-report-pdf.pdf

    • vk Says:

      It’s very simple to explain this “schizophrenia”: the USA issues the standard fiat currency (Dollar Standard).

      The USA “produces” money and “exports” it. Since money’s “use value” is to serve as a universal commodity (i.e. a commodity that can be exchanged by any other), the Americans can import everything they need to survive “in the real world” (“real economy”).

    • Boffy Says:

      “In any case the first 1% of GDP growth in the USA is just statistical noise comprising imputed sales such as owner occupier rents, the miscasting of R&D and the growth of the budget deficit.”

      But, as CNBC’s Steve Leisman and their economic team also stated this means that at any one time, the GDP figure could also be considerably higher than the reported figure. But, even taking the margin of error to always be on the downside, as is the wont of catastrophists, it still means that deducting that first 1%, the US is growing at 1.5%, despite Trump’s global trade war.

      And, the economy is growing despite the slowdown in the industrial sector, which is the worst hit, along with agriculture, by Trump’s trade war, because the economy is dominated not by industrial production, but by service industry production, which constitutes 80% of the economy. It is growing, and employment in it is also growing, not surprisingly, because service industries, by definition are labour intensive, and in many of these newer service industries, even relatively small amounts of labour in terms of workers amounts to much larger amounts of simple labour, because the labour that is employ is highly complex labour, and produces correspondingly larger amounts of surplus value too.

      Not only is employment rising, meaning that even were hourly wage rates constant, the total amount of aggregate demand from wages would be rising, but also wage rates are also rising, and rising at a faster rate than prices. So, it would be no surprise that profits get squeezed, as a result of those rising wages, which reduces the rate of surplus value.

      Of course, such a squeeze on profits is the opposite of the condition that Marx describes in relation to the tendency for the rate of profit to fall, which is premised upon a rising rate of surplus value, caused by rising productivity.

      “It realigns the movement in profit with the movement of the rate of surplus value based on the turnover of capital. This divergence has been a concern of mine for a year which is now resolved by the revisions made by the BEA.”

      This is pure Ricardianism of the kind that Marx critiques in TOSV, against Ricardo himself, and his followers such as J.S. Mill, who continued to tout these changes in the rate of surplus value as determining the changes in the rate of profit.

      There is no such necessary relation, as Marx is at pains to set out. A rising rate of surplus value is the basis of Marx’s tendency for the rate of profit to fall, because it is driven by rising productivity, which in his day was manifest in a rising proportion of raw material value in output. Similarly, the rate of surplus value may be falling but the rate of profit rising if the proportion of constant capital in output value is falling, which may be due to large scale moral depreciation of fixed capital, a move away from industries that process materials to service industries that don’t, more efficient use of materials, lower material values and so on, or simply a rise in the rate of turnover.

      Nor given those conditions is there anything abnormal as far as the movement of interest rates are concerned, which is driven by the demand and supply of money-capital. The main source of new supplies of money-capital as Marx describes, is realised profits. As profits increased considerably in the late 1980’s and afterwards so that resulted in a large rise in the supply of money-capital pushing interest rates down. The demand for money capital comes from the needs of capital accumulation. But, with the technological developments of the 1970’s and after slashing the value of fixed capital, not only was vast amounts of capital, thereby released as revenue, which also flowed into money markets, but less money-capital was required relatively to finance capital investment.

      The fall in the rate of interest does not affect the rate of profit, which is calculated prior to the deduction of interest. The inflation of asset prices as a result of the low interest rates, and the actions of central banks to keep them inflated by printing money and buying assets with it, rather than boosting the economy, is a major cause of it being constrained, because it means that money-capital is being drained away from real capital accumulation into a search of short term capital gains from asset price rises, and because money is being drained as currency from circulation, for the same purposes, as consumers are encouraged to use money to speculate in shares, property and so on. In fact, Michael did some work on just how much bank lending in Britain went to such speculation rather than in loans to finance real investment, a few years ago.

      That is being done precisely to try to prevent the kind of economic growth seen prior to 2008, which led to interest rates rising, which led to the financial crash.

      Add to that the effects of austerity in the UK, Europe, and Republican controlled parts of the US, after 2010, its no wonder that the economic recovery has been held back.

  3. Carlos Says:

    Immaterial production like this one:

    In 2012 Raghavan and Ma estimates about internet use of energy included:

    750 million desktop computers
    750 million laptop computers
    1 billion smartphones
    100 million servers
    They also included other Internet infrastructure elements. They weighted each category of device with a minimum and maximum value to create a range of energy requirements because one computer might require less energy to produce and run than another. They also took into account the average life cycle of each piece of the infrastructure.

    Ultimately, Raghavan and Ma estimated the Internet uses 84 to 143 gigawatts of electricity every year, which amounts to between 3.6 and 6.2 percent of all electricity worldwide. Taking emergy into account, the total comes up to 170 to 307 gigawatts. That’s a lot of energy, but amounts to just under two percent of worldwide energy consumption.

    • Boffy Says:

      And all of the computers, servers etc are material production. In my opinion, the energy production should also be considered material production, because it involves processing of material in one form to produce a commodity in another form.

      But, all of that material production that is essential to providing the fixed capital (hardware and software), and circulating capital (energy) required by service industry, is already included in the new value created in the economy, in other words in the 20% of GDP that comprises material production. It does not change the fact that 80% of production is service production, any more than when agriculture became more technological, labour that might once have been employed on farms repairing ploughs, or packing foods, and churning butter, was instead employed in large factories that produced farm equipment on a large scale, in large industrial dairies, food packing and processing plants etc.

      Moreover, as Marx says, once capital develops beyond a certain point its ability to use existing fixed capital so as to increase output becomes extremely flexible. Once a road is built, the marginal costs of additional vehicles travelling along it becomes zero, and the same applies to telecommunications networks, the Internet and so on. For things like software, when highly complex computer programming labour has created one version of a new programme, that programme can be replicated at near zero marginal cost. That was true even when the programme was distributed on disks/CD’s, it is even more true now that you simply download it from a server, or increasingly its provision itself becomes a service which you pay to access via a subscription.

      • vk Says:

        There’s no concept of “marginal cost” in Marxist theory. I think you’re confusing things here.

        Once a fixed capital is built, a depreciation process begin, it being worn out as it is being used. This cost does go to the commodity produced with it (including roads).

        But this cost is never zero, since that would violate the second law of Thermodynamics (Entropy). Marx, who graduated specialized in Logic, would never commit such an error — and he didn’t.

        The division between manufacturing (what you call erroneously “material production”) and services is not ontological, but merely definitional: the capitalists, for managerial purposes, segment the productive process between the manufacturing per se (use of the industrial park) and the process of delivering the product in semi-finished state to the final consumer (“end user”, if you want to use IT terminology). When the commodity is already finished from the manufacturing process, it’s called commerce (which is indeed special, since it doesn’t create value).

        You can easily visualize the absence of ontological difference between the two in the military-industrial complex, where very sensitive and complex commodities are made and sold. An S-400 system is made of two radars, a command post, eight launch vehicles with four missiles each, and various loader and other support vehicles. When you purchase one, you’re not only purchasing the missiles, but a whole team of Russians to train your personnel (dozens of them) to make it operational. The same is true for the American F-35 jet: you’re not only purchasing the jets, but also a permanent team of American engineers and software engineers to make periodical assistance, update and maintenance.

      • Boffy Says:

        Here is what Marx says, in TOSV, Chapter 24, citing Richard Jones, who was quoting Ure.

        ““The astonishing expedition with which a great cotton factory, comprehending spinning and weaving, can be erected in Lancashire, arises from the vast collection of patterns of every variety from those of gigantic steam engines, water wheels, iron girders and joists, down to the smallest member of a throstle or loom in possession of the engineers, mill-wrights, and machine makers. In the course of last year Mr. Fairbairn equipped water wheels equivalent to 700 horses power and steam engines to 400 horses power from his engineer factory alone, independent of his mill-wright and steam-boiler establishment. Hence, whenever capital comes forward to take advantage of improved demand for goods, the means of fructifying it are provided with such rapidity, that it may realise its own amount in profit, ere an analagous factory could be set a-going in France, Belgium or Germany” (Andrew Ure, [Philosophy of Manufactures, London, 1835, p. 39,] Philosophie des Manufactures etc., tome I, Paris, 1836, pp. 61-62). “ (p 442)

        In other words, as I have said, once having produced a design, that cost of the design labour is sunk. It costs nothing to use that same design over and over again, and it is as set out here, immediately available,i.e. the marginal cost of design is zero, after the first design is produced. Moreover, as Marx sets out, in terms of the actual production of the factory or machine, this cost also declines as more are produced.

        This represents one form of depreciation, for example, as Marx sets out in Capital III, Chapter 6.

        “Appreciation and depreciation are self-explanatory. All they mean is that a given capital increases or decreases in value as a result of certain general economic conditions, for we are not discussing the particular fate of an individual capital. All they mean, therefore, is that the value of a capital invested in production rises or falls, irrespective of its self-expansion by virtue of the surplus-labour employed by it.”

        In other words, appreciation arises if a particular commodity that comprises constant or variable-capital requires now more labour for its production than it did previously, and vice versa. But, as Marx also says, depreciation can arise for other reasons. A commodity only has value so long as it also has use value. A commodity is depreciated if it suffers damage, for example. A ship, may have an exchange value of £5 million, but if it sinks, it has no use value, and thereby no exchange-value, and none of its exchange-value is thereby recovered as wear and tear. Cotton held in stock may have an exchange value of £1,000, but if half of it is eaten by mice, its exchange-value falls in half, and the other half is not recovered as wear and tear.

        Or, it might simply deteriorate as a result of time. For example fruit put out on a stall, may have lost use value by the end of the day, and has to be sold off cheaper, the depreciation in each case being simply a capital loss, compared to the situation with wear and tear, as explained by Marx, where it is a function of use in production, whereby the exchange value is transferred to the end product, and thereby recovered.

        As, Marx says,

        “They decay, and finally they disintegrate. If their use-value is destroyed, then their exchange-value goes down the drain and that puts an end to their reproduction. The final limits of their circulation time are therefore determined by the natural times and periods of reproduction proper to them as use-values.” (TOSV, Ch 24, p 438)

        That is why firms attempt to utilise fixed capital as intensively and extensively as possible, so as to minimise the potential for capital losses due to depreciation, particularly from moral depreciation. As Marx says, in TOSV, Chapter 23, making this distinction between wear and tear, which is a function of use, and the labour process, and depreciation, which is a function of time and occurs outside the labour process. Marx describes a coal producer with £50 fixed capital and £50 variable capital, producing £50 profit. The rate of profit is 50%, but the fixed capital loses 10% in wear and tear, so that the following year, the capital advanced is £95, so the rate of profit rises to 52.63%, and continues to rise each year as a result of the wear and tear reducing the value of fixed capital.

        Marx then notes,

        “This extra profit may be equalised also as a result of the fact that—apart from wear and tear—the value of fixed capital falls in the course of time, because it has to compete with new, more recently invented, better machinery. On the other hand this rising rate of profit, which results naturally from wear and tear, makes it possible for the declining value of the fixed capital to compete with newer, better machinery, the full value of which has still to be taken into account.”

        In other words, if a machine has a normal lifespan of 10 years, and has been in use for 5, so that half its value has been recovered in wear and tear, then if a new machine is introduced that causes a 50% moral depreciation of such machines, the owner if protected against this capital loss, because their machine has already been depreciated by 50% as a result of wear and tear recovered.

        In Capital II, Marx sets out an exception to this situation where depreciation causes a capital loss that is not recovered in the value of the end product. It arises in agriculture, where the nature of production is such that machinery stands idle for long periods of the year, and so suffers such depreciation as against wear and tear. The prices of agricultural products must then recover this cost in the same way that cotton waste is recovered in the price of cotton products even though the waste itself never enters the final product.

        In Capital II, Marx sets out that a similar situation exists in relation to other necessary costs that reduce the diminution of use value, which do not enter into the value of output, but which the producer must recover in order to obtain the average profit. Similar situations exist in relation to the so called “Grounds for Compensating” set out by Marx, which are addressed by various means including insurance.

  4. Boffy Says:

    “There’s no concept of “marginal cost” in Marxist theory. I think you’re confusing things here.”

    Not true. Neither Marx nor Ricardo use the term marginal productivity, nor marginal cost, but their analysis of rent is based precisely on an analysis of marginal product. Marx’s distinction between Differential Rent I and Differential Rent II, is essentially a distinction between the marginal productivity of different types of land, determined by their relative fertility, and the marginal productivity of capital as it is applied to the land.

    Moreover, the point made earlier that Marx sets out that an architect who draws up plans for a new factory, thereby significantly reduces the cost of all future plans for factories of that type is based upon the concept of marginal cost. In fact, the whole of Marx’s analysis of why capital attempts to produce on a larger scale, to obtain what orthodox economics calls “economies of scale” is based upon falling marginal costs of production, as the level of output expands!

    “Once a fixed capital is built, a depreciation process begin, it being worn out as it is being used. This cost does go to the commodity produced with it (including roads).”

    This is wrong on several counts. Firstly, what you are discussing is wear and tear not depreciation. As Marx sets out these are two completely different concepts, most clearly illustrated in the case of moral deprecation. A machine with a value of £1,000 today, might never be used, and so has never transferred any of its value via wear and tear. Yet, if a new machine, which is twice as efficient, and costing £1,000 is introduced, the first machine is depreciated immediately to a value of £500. Marx sets out the consequences of this in TOSV Chapter 23.

    Secondly, Marx also sets out the situation in relation to something like say a ship. Suppose a ship costs £5 million. It has a lifespan of say 10 ten years, and so loses £0.5 million per year, but this depends upon the ship being adequately employed. If the ship is fully employed, so that each year it does 100,000 miles/tons of business it transfers £5 per mile/ton, but if it only does 10,000 miles/tons it would have to transfer £50 per mile/ton. The value of the ship does not rise because it shifts more cargo.

    A road that costs £1 million to build costs £1 million, whether i vehicle a year uses it, or 1 million, and consequently, the marginal cost of its use is near zero.

    “The division between manufacturing (what you call erroneously “material production”) and services is not ontological, but merely definitional: the capitalists, for managerial purposes, segment the productive process between the manufacturing per se (use of the industrial park) and the process of delivering the product in semi-finished state to the final consumer (“end user”, if you want to use IT terminology).”

    If you want to view it in those terms fine, but that does not change the fact that in terms of the total production on this park, the largest portion is now accounted for by those engaged in labour that does not process material into some other finished product, but where it involves mostly the new value added by their labour. Its true for example that if you take a movie it involves the use of cameras, computers, and other equipment, but by far the largest component of the value of the movie is the actual labour of the actors, the CGI technicians and so on.

    Given that Marx himself made the distinction between industrial production and labour services, I am quite happy to stick with it ontological or not.

    • Anti-Capital Says:

      Boffy: “This is wrong on several counts. Firstly, what you are discussing is wear and tear not depreciation. As Marx sets out these are two completely different concepts, ”

      Simply not true. Once again Boffy distorts Marx to suit his own purposes.

      Marx: “One portion of the value of the constant capital, which consists of instruments of labour in the strict meaning of the term (as a distinct section of the means of production) is transferred from the instruments of labour to the product of labour (the commodity); these instruments of labour continue to function as elements of the productive capital, doing so in their old bodily form. It is their wear and tear, the depreciation gradually experienced by them during their continual functioning for a definite period which re-appears as an element of value of the commodities produced by means of them, which is transferred from the instrument of labour to the product of labour.”

      —Capital, Volume 2, Chapter 20

      • Anti-Capital Says:

        Boffy: “A road that costs £1 million to build costs £1 million, whether i vehicle a year uses it, or 1 million, and consequently, the marginal cost of its use is near zero.”

        And here’s where Boffy and the marginalists differ from Marx, because

        a) NO capitalist will use his or her own money to build a road for just 1 vehicle…. Capitalists might use other people’s money to build such a road, as part of a scam, as a real example of the “fictitious capital” Boffy is so fond of mentioning, but no capitalist uses his or her own money to build a road for just one car….

        b) A road just doesn’t “cost 1 million.” The cost is based on the capacity: building a road for a million cars does cost more than building a road for one car as additional lanes have to be added, a larger number of access points have to be added, additional services have to be added,

        c) Boffy is assuming the road is essentially built for free, thus assuming what he needs to prove. In colonial times in the US (and after) privately-owned turnpikes were indeed constructed. These turnpikes charged a toll for use. It made every bit of difference whether 1 vehicle or 100 vehicles used the turnpike, as the only way for the capitalist to recapture his/her sunk capital was through increased traffic

        .d) the difference always and also appears in OPERATING COSTS: again, roads, canals, railroads, are not just built, they are built to certain capacities, to handle certain loads. It costs more to build AND OPERATE and maintain a railroad that handles 50 million ton-miles of traffic a year than it does to handle 2 million ton-miles. It costs more to build and OPERATE and maintain railroads where the headways between freight trains are ten minutes rather than 120 minutes. When traffic drops, maintenance will be deferred, speeds will be lowered, signal systems decommissioned, all adjustments made, determined by the drop in revenue. The myth that “marginal costs remain the same” has nothing to do with Marx in that “marginal costs” ignore two critical relations of capital– organic composition, and turnover.

        e} The increased traffic is the only way to circulate, to REALIZE the value embedded in the fixed capital.

        f) does it cost more to operate an auto production plant 3 shifts a day rather than 1 shift? Of course it does. It is however, the only way to realized the investment– to realize value. Value dictates use in Marx’s critique of capital, not “marginal cost” which, like the rest of political economy, is a rationale, an ideology, for maintaining the capitalist mode of production

        Nothing that is built is plastic enough, in value terms, or in physical capital terms to accommodate the volume change, in either direction, from a single vehicle to a million vehicles.

        The “marginalist” never asks himself/herself: Why is this road built for 1 million vehicles a year, while this other road is built for 500,000 vehicles a year?

  5. Boffy Says:

    According to CNBC yesterday, with about 75% of US company earnings now in, the majority have been above expectations.

    • michael roberts Says:

      I take it this point is a dig at my forecast.

      Earnings reports are nearly always ‘above expectations’ as analysts lower their forecasts and companies ensure by accounting methods that they do better.

      But if you are trying to suggest that S&P earnings will not fall in Q2, as predicted by many and noted by me, then so far you are wrong.
      We now have Q2 results from 305 S&P 500 members that combined account for 72.6% of the index’s total market capitalization. Total earnings for these 305 index members are down -3.5% from the same period last year on +4.7% higher revenues.

      https://www.zacks.com/commentary/455332/making-sense-of-q2-earnings-results?art_rec=home-home-top_stories-ID02-txt-455332

      • ucanbpolitical Says:

        And that is before the adjustment of 3% for share buy backs and 2% for inflation plus the adjustments. My latest posting shows the collapse of profits since 2014 based on the latest revisions. In the case of manufacturing which provides up to half the revenue and profits for the S&P it is down over 50% in real terms since 2014. So I endorse what Michael is saying.

      • Boffy Says:

        Michael,

        “I take it this point is a dig at my forecast.”

        Not really. I agree that analysts always lower forecasts, on the basis of company guidance designed to flatter figures when they are released.

        What I was suggesting is that there is a lot of forecasts of downgrades, mostly based on the effects of Trump’s trade war, which is indeed having a real effect along with Brexit, but that even with all of that effect and the rising costs, hit to profits, that goes with it, the actual data continues to be better than the forecasts. As you say, for example, despite Trump’s trade war, US company revenues rose 4.7%, indicating that the lower earnings are indeed due to a squeeze due to rising costs, which is what you’d expect if tariffs are increasing the cost of constant capital, and wages are rising faster than prices causing wages also to squeeze profits.

        And, you’ll note that both those conditions are the opposite conditions to that described by Marx as being the basis of his law of the tendency for the rate of profit to fall.

    • vk Says:

      Besides the fact that expectations are not necessarily science-based, you have the fact that, in capitalism, you don’t just have the trade balance, but also the capital balance.

      Many people treat capitalism as simply a big free market between nations. But that isn’t true: it’s also about command over production (for profit).

      What differentiates capitalism from, say, Late Bronze Age civilization or the Roman empire, is that, in capitalism production is completely subordinated to commerce. For this the capitalists use the financial sector.

      See this link from a liberal vulgar economist for more information (since you seems to not believe in Marxism):

      Powell put peters out: https://www.asiatimes.com/2019/07/article/powell-put-peters-out/

      • Boffy Says:

        “Besides the fact that expectations are not necessarily science-based, you have the fact that, in capitalism, you don’t just have the trade balance, but also the capital balance.”

        I don’t see what the last part of this sentence dealing with the Balance of Payments has to do with the first part of the sentence dealing with company profits!

        Most of the rest is waffle, but this is particularly wrong.

        “in capitalism production is completely subordinated to commerce.”

        Quite the opposite. Marx makes clear that it is commerce including commercial capital and financial capital that is necessarily subordinated to productive-capital. He sets out, for example, how capital, when it gets control of the state acts to control usury, and so on. Moreover, his analysis of commercial profit shows why it is dependent upon the average profit created by productive-capital, and his analysis of interest shows why the vulgar economists who saw it as something separate from and not dependent upon profit were putting forward an absurd proposition.

        “See this link from a liberal vulgar economist for more information (since you seems to not believe in Marxism):”

        Is just the kind of insult as an alternative to an argument that I would expect from a troll. Unfortunately, because you seem to take your interpretation of Marxism from vulgar economy, and not from Marx, its no wonder you don’t recognise Marxism when you are confronted by it.

      • mandm Says:

        Boffy, you seem to miss the point of Marx’s critique of political economy: that investment is driven, not by the laws of motion of the capitalist mode of production in which they are as trapped as is labor (as labor power), but by greed–and fear when capital’s actual (as opposed to idealist) laws of motion lead to yet another crisis.

      • Boffy Says:

        Mandm,

        There is nothing specific in the words you have written, but in general, if capital and capital accumulation is not driven by the laws that Marx described, then there seems little point in him having spent the time analysing them does there.

        Moreover, in examining the conditions of crisis, in Capital III, Chapter 15, Marx specifically rejects the subjectivist argument in relation to greed that you have cited, and states,

        “Given the necessary means of production, i.e. , a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e. , the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given. And the capitalist process of production consists essentially of the production of surplus-value, represented in the surplus-product or that aliquot portion of the produced commodities materialising unpaid labour. It must never be forgotten that the production of this surplus-value — and the reconversion of a portion of it into capital, or the accumulation, forms an integrate part of this production of surplus-value — is the immediate purpose and compelling motive of capitalist production. It will never do, therefore, to represent capitalist production as something which it is not, namely as production whose immediate purpose is enjoyment or the manufacture of the means of enjoyment for the capitalist. This would be overlooking its specific character, which is revealed in all its inner essence.”

      • mandm Says:

        Correction: I meant “capitalists’ mode of production in the above comment…

      • mandm Says:

        In answer to vk you are correct in pointing out that “commerce…is necessarily subordinated to productive capital”. But capitalists as such don’t think like marxists. For a capitalist, every investment is commerce.

        That shouldn’t be surprising. Capitalists are motivated by profit, which political economy and their own experience tells them is made in the market place. They don’t know or want to know that surplus value is the basis of profit and is produced by exploiting living labor (living mostly in the “global south” these days) during the working day. The educated bourgeois knows that profit is created by the marginal utility of capital.

        You seem to believe that yourself in your need to present a rosy picture of late capitalism’s choice in favor of the production of services and soft ware (and hot air rather than material goods. You tend to forget 80 percent of the human race.)

        But eventually the laws of motion of the capitalist mode of production catch up with these capitalist illusions in the form of crises that desperately need solutions–but illusory market based (not revolutionary) solutions ….that subjective choice leads to deeper crises ….which to date have not been solved by the endless wars on humans and nature by finance/monopoly/imperialist capitalism.

        Of course, this catastrophic evolution was predicted by Marx–as an argument for socialism, rather than for hot air and barbarism.

        Check out book 7, page 750 of Grundrisse.

      • Boffy Says:

        Mandm,

        Whatever capitalists might believe is the source of their profits does not change the actual objective reality of the course of those profits, which is why commerce and interest-bearing capital is always ultimately subordinated to productive-capital, as Marx describes.

        For example, the top 0.01% hold their wealth today in the form of fictitious capital (shares, bonds, and their derivatives, as well as other revenue producing assets such as property and its derivatives). As Marx points out, in Capital III, and TOSC Addenda, they think that this fictitious capital is the real capital, and the real capital – productive-capital – is nothing more than commodities used in production. They think that the real return to capital, therefore, is not profit but interest – profit becomes simply a product of the guile of the individual functioning capitalist and so nothing more than a wage for their specific entrepreneurial labour.

        They then see interest being produced naturally by capital in the same way that a pear tree produces pears, completely separate from the need for real capital o produce profits. On the back of it is also the mystic surrounding the magical properties of compounding, and also the nature of capital gains, as asset prices are inflated, on the back of capitalised revenues.

        But, as Marx says, eventually reality bites, whatever they might think. As he says in Capital III, Chapter 23, if on this basis they think that they can avoid all of the unpleasantness of engagement in productivity activity – which the very big capitalists did from the late 19th century onwards, when they become shareholders, and leave the job of business to professional managers, then if they think that they can simply rely on a life of coupon clipping, without the need for capitalist production and investment they are mistaken, because if the supply of money-capital continues to rise whilst the demand for money-capital ceases to exist, then the money capital itself becomes massively depreciated – a process we have seen with the inflation of asset prices – and he says the yield the money lenders obtain then collapses, and large numbers of them can no longer survive on the revenue they obtain from their assets – a phenomenon seen by pension funds amongst others – so that they have to turn themselves back into productive-capitalists so as to produce profits.

        “present a rosy picture of late capitalism’s choice in favor of the production of services and soft ware (and hot air rather than material goods. You tend to forget 80 percent of the human race.)”

        I’m not presenting a rosy picture. I am doing the same thing that Lenin did when faced by the continual catastrophism presented by the Narodniks, in relation to the actual development of capitalism in Russia. I am rejecting those same ideas of Sismondism and catastrophism, and presenting the facts as I see them, on the basis of the same method of analysis, and world view as expressed by Marx in his theory of historical materialism.

        Other than the potential for “a destruction of the contending classes” as Marx refers to it in the Communist Manifesto, Marx most certainly did not predict catastrophe, still less was such catstrophe his basis for the argument for socialism. Quite the opposite.

        Marx’s theory of historical materialism demonstrates how one mode of production develops the forces of production to a point where the productive relations themselves undergo a revolution, and new social relations are developed upon them. Marx outlines that in Capital III, Chapter 27 where he describes how the process of concentration and centralisation of capital undertaken by capitalism leads to the ending of capitalist private property within the framework of capitalism itself, and the creation of socialised capital in the form of cooperatives and joint stock companies. These he says are the transitional forms of property between capitalism and socialism, and that other creation of capitalism – credit – is the means by which these transitional forms of property are gradually spread across the economy, to become the dominant form of property.

        As he puts it in Value, Price and Profit.

        “They (the workers) ought to understand that, with all the miseries it imposes upon them, the present system simultaneously engenders the material conditions and the social forms necessary for an economical reconstruction of society.”

      • Boffy Says:

        And incidentally, on the point that,

        “You tend to forget 80 percent of the human race.”

        Quite the opposite! And again for the same reasons that Lenin opposed the Sismodism of the Narodniks. The best hope currently for that 80% is the most rapid development of capitalism, it certainly is not to have more catastrophes bestowed on them, as you seem to require for your vision of socialism, presumably so as to bludgeon them into opening their eyes and become revolutionary socialists.

        The trouble with that subjectivist and anti-materialist approach is precisely what Marx and Lenin outlined. It assumes that the ideas in peoples heads have nothing to do with the material conditions in which they exist, and it assumes that they can also thereby somehow create socialism by a pure act of will irrespective of whether the material conditions that confront them are conducive to such a transformation or not.

        In fact, the problem with that approach was demonstrated by the catastrophes that actually did befall the workers and peasants in Russia under Stalin, China under Mao, in Vietnam under Ho, and so on.

        And, of course, the fact is, in relation to that 80% it is precisely the effect of globalisation in bringing more rapid economic (capitalist growth) to large parts of the world that were still suffering under the yoke of peasant production, that has acted to lift living standards, to massively increase the size of the working-class in those economies, and thereby to create the possibility of the development of labour movements and socialism, in thee same way that Lenin welcomed the development of capitalism in Russia for that purpose, and mercilessly attacked the Sismondism and catastrophism of the Narodniks whose subjectivism could only see the negative aspects of capitalist development.

        It is precisely amongst that 80%, for example, that we have seen the largest increases in living standards across the globe over the last 30 years.

      • mandm Says:

        Ignorance isn’t always bliss, but sometimes embarrassment. Kautsky died in 1938!

      • Anti-Capital Says:

        Boffy: “Quite the opposite! And again for the same reasons that Lenin opposed the Sismodism of the Narodniks. The best hope currently for that 80% is the most rapid development of capitalism, it certainly is not to have more catastrophes bestowed on them, as you seem to require ”

        Priceless. El Bofferino out of the closet. Capitalism is the best hope for 80%…. Just like it has been for those 80 or 90 or 95 percent ever since 1820, right?

        Just like it was the best hope for Mexico in 1910 and beyond;
        and the best hope for Ireland in 1916; and the best hope for China in 1927; and Spain in 1936-39; and Bolivia in 1954; and Nigeria in 1959 and like it still is today for Egypt, Libya, Iraq, Iran, South Africa, Zimbabwe, Algeria, Brazil, Venezuela, Zambia… yeah sure thing, because you see just like the free-marketeers claim, what the people in those areas have experienced hasn’t really been the acute antagonisms and limitations of modern capitalism, it’s been the lack of capitalism.

        Best hope?

        There’s more than a little bit of dishonesty in citing Lenin’s “welcoming” capitalism in Russia in 1898 and NOT mentioning Lenin’s OPPOSITION to capitalism in Russia in 1917, unless of course you consider All Power to the Soviets to be a bourgeois demand.

        This praise of “capitalist developmentalism” has been the song and dance free marketeers and social democrats have foisted on the oppressed and exploited of the world for over two centuries, ignoring of course how the “progressive” element of capitalist development was revealed to be a hollow sham by the bourgeoisie themselves after the US Civil War and the abandonment of Congressional Reconstruction.

        The best hope of the poor and oppressed isn’t socialist revolution according to our sage of Albion, but rather capitalism.

        There was a well-known capitalist in the US, the owner of Coors Breweries back in the day, as conservative a capitalist as you could find who, in a meeting with African-Americans told them they, the African Americans, should thank the slave-traders who ripped their ancestors out of Africa and brought them to the US where they could experience all the benefits of capitalism. True story.

        The arrogance and blindness of that bourgeois is perfectly matched by Boffy’s.

        Best hope? Priceless, for everything else there’s Boffy’s pre-funded Mastercard.

      • mandm Says:

        Addendum to the above:

        Best think before responding. I meant WW2.

        As for your rosy picture of rapid ex-colonial development under a benign late (imperialist?) capitalism, I’ll spare you a bloody litany of well known US led imperial direct and proxy global interventions after WW2 to re-establish economic and political dependency throughout the global south and even in the Balkanized Balkans and privatized Eastern Europe. If you believe these wars and fascist-colored revolutions are in the interest of the people they’ve impoverished or killed and uprooted, and that they have have resulted or wiil result in raising all boats, even ones filled with starving and dead bodies, when every statistic shows increasing inequality–even in the digitalized belly of the benign imperial (virtualized) beast, we have nothing more to say to each other.

        But thanks for taking the time to educate me. You obviously know, but seem not to understand, your Marx. I actually learn something each time.

      • Boffy Says:

        Mandm,

        “As for your rosy picture of rapid ex-colonial development under a benign late (imperialist?) capitalism, I’ll spare you a bloody litany of well known US led imperial direct and proxy global interventions after WW2 to re-establish economic and political dependency throughout the global south and even in the Balkanized Balkans and privatized Eastern Europe.”

        Typical Sismondism. Who said anything about imperialism being benign? Marx certainly didn’t see the industrial revolution and capitalist development as being benign in its effects on workers and peasants. But, he did believe a) that it was historically necessary, and thereby historically progressive in its effects on the path of human development. Marx did not believe that British colonialism was benign in its effects on the Indian village communities, but he did believe and state that it had brought about the only social revolution that the subcontinent had ever seen, and its impact in creating capitalism in India was thereby historically progressive.

        That is the difference between a Marxist that bases their analysis on historical materialsm, and the Sismondist who bases their politics on moralism and outrage, and who thereby, as Marx says in the Communist Manifesto, is always led to become a reactionary, by trying to hold back the necessary development of capitalism so as to avoid its less benign features.

        As Lenin put it, in Two Tactics of Social Democracy

        “And from these principles it follows that the idea of seeking salvation for the working class in anything save the further development of capitalism is reactionary. In countries like Russia, the working class suffers not so much from capitalism as from the insufficient development of capitalism. The working class is therefore decidedly interested in the broadest, freest and most rapid development of capitalism. The removal of all the remnants of the old order which are hampering the broad, free and rapid development of capitalism is of decided advantage to the working class.”

        Or as Marx himself puts it in the Preface to Capital,

        “Intrinsically, it is not a question of the higher or lower degree of development of the social antagonisms that result from the natural laws of capitalist production. It is a question of these laws themselves, of these tendencies working with iron necessity towards inevitable results. The country that is more developed industrially only shows, to the less developed, the image of its own future.

        But apart from this. Where capitalist production is fully naturalised among the Germans (for instance, in the factories proper) the condition of things is much worse than in England, because the counterpoise of the Factory Acts is wanting. In all other spheres, we, like all the rest of Continental Western Europe, suffer not only from the development of capitalist production, but also from the incompleteness of that development. Alongside the modern evils, a whole series of inherited evils oppress us, arising from the passive survival of antiquated modes of production, with their inevitable train of social and political anachronisms. We suffer not only from the living, but from the dead. Le mort saisit le vif! [The dead holds the living in his grasp. – formula of French common law]”

        Every economy in a global capitalist economy is dependent to some extent, which is why the idea of socialism on a national basis, such as some of those that support Brexit propose, is necessarily reactionary and impossible. But, would you say that China and its capitalist economy is more or less today than it was a century ago, or South Korea, or India?

        “when every statistic shows increasing inequality–even in the digitalized belly”

        Again, more Sismondian moral outrage that has nothing to do with Marxism. The industrial revolution in Britain, if anything created even greater inequality, but Marx saw it as having produced perhaps the most revolutionary role ever seen in history, precisely because it mobilised and developed the productive forces, not to mention the working class required for the creation of Socialism.

        And, in practice of course, Lenin himself applied that very principle. He realised that a revolution in backward Russia that lacked that necessary development of the productive forces could never be sustained. Its why he introduced the NEP, which he foresaw as lasting for at least 25 years, during which capitalism and the market would have to be allowed to operate. Read his pamphlet on Left-Wing Infantilism (not to be confused with Left-wing Communism) where he destroys the kind of idealist, subjectivist and voluntarist agruments that arise from your approach, and which were being promoted by the ultralefts in Russia. Its why he said that even state capitalism would be a step forward in Russia at the time.

        Its why he tried with all his effort to get large western businesses to invest in Russia to provide the necessary capital and expertise. Its why he made a deal with Armand Hammer of Occidental to try to get that kind of investment. As Trotsky wrote in relation to the similar ultralefts who demanded that Mexico go straight to socialist construction,

        “Turning one’s back on foreign capital and speaking of collectivisation and industrialisation is mere intoxication with words…

        “Despite all these advantages (enjoyed by the USSR, AB) the industrial reconstruction of the country was begun with the granting of concessions. Lenin accorded great importance to these concessions for the economic development of the country and for the technical and administrative education of Soviet personnel. There has been no socialist revolution in Mexico. The international situation does not even allow for the cancellation of the public debt. The country we repeat is poor. Under such conditions it would be almost suicidal to close the doors to foreign capital. To construct state capitalism, capital is necessary.”

        (On Mexico’s Second Six Year Plan)”

        “But thanks for taking the time to educate me. You obviously know, but seem not to understand, your Marx. I actually learn something each time.”

        I’m afraid that the education you need is extensive, because its obvious that you neither know nor understand the basic principles of Marxism, and you are mired in the ideas and moralism of Sismondi.

      • michael roberts Says:

        Guys time to end this endless debate this time – no?

      • Anti-Capital Says:

        Sure thing, Michael. We can be sure Best Hope Boffy will bring it up again in some future comment.

    • vk Says:

      Another interesting take from the same vulgar economist who has a career working in the financial sector. This came out today:

      Trump risks recession with tariff hike: https://www.asiatimes.com/2019/08/article/trump-risks-recession-with-tariff-hike/

      This is the interesting part:

      “Equity investors don’t mind a mediocre economy, or even mediocre profits. On a GDP basis, US profits have been falling since 2014.

      But the prospect of an actual recession terrifies investors, who have rewarded companies for levering up their balance sheets to the highest gearing in US history. If growth falls below some hard-to-specify threshold, credit will dry up in the leveraged loan and high-yield bond markets, and highly-levered corporations will struggle to pay their coupons.”

  6. ucanbpolitical Says:

    What has been missing in this discussion is the role of interest rates in the equation of recession. Marx made the point that cause and effect are not linear, direct, but indirect, it proceeds not as a straight line, but as a zig zag. The premise that falling profits undermines investment which causes recessions holds true. But the effect can be delayed, in this case, by abnormally low interest rates, or more to the point, interest rates that are not responding to demand and supply because of quantitative easing which is ongoing. I am addressing this issue in my next posting which is imminent. Suffice to say, that with the exception of China, all key 10 year rates, adjusted for inflation, are now either negative or about to become negative. Additionally over 25% of global commercial and sovereign bonds are negatively yielding. This phenomenon is normally only associated with the phases of crisis and stagnation as defined by Marx, not with an expanding economy. Are we heading for the mother of all crashes. Probably.

  7. Boffy Says:

    “The premise that falling profits undermines investment which causes recessions holds true.”

    The problem is that that was the argument that was put forward by Ricardo, not Marx, and Marx specifically contradicted Ricardo’s argument in that respect. Marx makes clear contra Ricardo that what promotes additional investment is expansion of the market, which is taken as happening naturally as a result of population growth, which, for example, causes increased demand for food, which requires additional land cultivation, additional capital employed on the land, additional labour to be employed etc., and in this way, Marx explains, the anticipation of a growing market drives additional investment (expanded reproduction), and this expanded reproduction, by providing additional employment for labour, additional surplus value from that employment of labour, additional demand for constant capital, also provides the monetary demand for the to then expand.

    A large and sudden fall in profits, Marx explains may cause investment to be held back, and similarly a large rise in profits may cause investment to be increased more rapidly, but the normal variations in profits do not have that effect, of preventing the normal process of expanded reproduction and capital accumulation. Nor does the consequence of a falling rate of profit have that effect, as Marx explains, because what determines capital accumulation is a) this normal expansion of the market – which as Marx explains occurs not just as a result of population growth, but of rising living standards (Lenin deals with this also in On The So Called Market Question, explaining this process as set out by Marx, whereby the market expands not just in breadth, but in depth, Marx gives a further illustration also in The Grundrisse) – b) the growth in the mass of profit, even if the rate of profit is declining.

    If the rate of profit is declining because profits are getting squeezed by rising material costs, capital may engage in technological development to find cheaper materials, or more efficient ways of using materials, if they are squeezed due to rising wages, a similar technological development is undertaken to introduce new labour-saving technologies, and investment switches to intensive accumulation from extensive accumulation.

    “interest rates that are not responding to demand and supply because of quantitative easing which is ongoing.”

    In TOSV, Marx shows that this is impossible. Interest rates are a funttion of the demand and supply for money-capital. Money printing, i.e. QE does not produce more money-capital, it simply produces more money tokens, each of which thereby become devalued. In the case of QE that devaluation has been expressed in the hyperinflation of asset prices. If as Marx says, the additional money tokens actual go into circulation, which is what would have to happen if they were used for to finance actual capital accumulation, the consequence is similarly an inflation of commodity prices, and because the elements of capital are comprised of those same commodities, the additional supply of money tokens is simply soaked up by these higher prices of the commodities that comprise the constant and variable capital. In other words, as Marx puts it quoting Massey, the effect of the depreciated currency is simply to inflate the figure for the supply of money-capital on one side of the equation by the same amount of the inflation of the figure for demand for money-capital on the other side of the equation, with the rate of interest remaining firmly fixed in place at the same pivot point.

    “all key 10 year rates, adjusted for inflation, are now either negative or about to become negative”

    But that is simply a reflection of the inflation of asset prices, which a Marx says has nothing to do with the actual rate of interest faced by businesses in their day to day activities – just ask small businesses who can’t get loans, or who have to resort to personal credit card debt at 30% p.a., for example. It is simply a reflection of the fact that QE has inflated huge asset price bubbles, which sucks in available money-capital to obtain capital gains guaranteed by the state, rather than being invested in productive activity.

    Michael wrote an analysis on precisely that some years ago.

    “This phenomenon is normally only associated with the phases of crisis and stagnation as defined by Marx, not with an expanding economy.”

    Totally wrong. In his analysis of the rate of interest in relation to the economic cycle, Marx points out that it is precisely during the crisis phase that interest rates hit their peak, because firms demand money not as money-capital, but simply as currency to pay their bills and stay afloat. As Marx says, they are prepared to pay almost any rate of interest to be able to do that. During the stagnation phase interest rates are low, because the rate of profit starts to rise, as wages are squeezed, and new technologies are introduced to replace labour, which also means that the value of fixed capital is reduced. So, the demand for money-capital to finance accumulation is reduced, because of lower values for the commodities that comprise the productive-capital, and because higher profits creates a larger supply of money-capital.

    In the expansionary phase, or prosperity phase as Marx calls it, the rising rate of profit together with rising economic activity further increases the supply on realised profits, moreover, commercial credit expands, reducing the demand for money-capital, so although the demand for money-capital to finance accumulation rises, the supply of money-capital rises fast too, so that interest rates remain low. Its only in the next phase, Marx says, the boom phase that the demand for money-capital to finance expansion rises faster than the growth of money profits, and so where the rate of interest begins to rise.

    I do agree, however, that the QE and massive expansion in asset prices created on the back of it, and at the expense of real capital accumulation – enhanced since 2008 – will result in the mother of all financial crashes, but the cause will be economic expansion continuing to reassert itself, having had to navigate arpund the obstacle create by Trump’s global trade war and Brexit, which will again cause interest rates to rise, just as it was the rapid economic growth prior to 2008 that caused interest rates to rise, that burst the asset price bubbles at that time.

  8. mandm Says:

    Boffy, thanks for all that obvious stuff. “Catastrophism” is your term, not mine. I was being ironic about your rosy late Kautskyist view of imperialism. At least he died before the outbreak of WW1. You seem dead to all that has happened since (except for the immaterial wonders of the digital age).

  9. jlowrie Says:

    ”More Fake News and US Statistics About Payroll Jobs. The Trend Towards Part-Time Employment”

    By Dr. Paul Craig Roberts
    Global Research, August 05, 2019.

    ”At least he died before the outbreak of WW1.” WW2, surely?

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