It’s all going pear-shaped

With perfect timing, just as the summit meeting of the leaders of the top capitalist economies (G7) met in Biarritz, France, China announced a new round of tariffs on $75bn of US imported goods. This was in retaliation to a new planned round of tariffs on Chinese goods that the US planned for December. US President Trump reacted angrily and immediately announced that he was going to hike the tariff rates on his existing tariffs on $250bn of Chinese goods and impose more tariffs on another $350bn of imports.

The US president also said he was ordering US companies to look for ways to scrap their operations in China. “We don’t need China and, frankly, would be far better off without them,” Mr Trump wrote. “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”

This intensification of the trade war naturally hit financial markets; the US stock market fell sharply, bond prices went up as investors looked for ‘safe-havens’ in government bonds and the crude oil price fell as China was going to impose a reduction on US oil imports.

These developments came only a day after the latest data on the state of the major capitalist economies revealed a significant slowdown.  The US manufacturing activity index (PMI) for August came in below 50 for the first time since the end of the Great Recession in 2009.

Indeed, the US, Eurozone and Japanese indexes are below 50, indicating a full-out manufacturing recession is here now.  And the ‘new orders’ components for each region was even worse – so the manufacturing index is set to fall further. Up to now, the service sectors of the major economies have been holding up, thus avoiding an indication of a full-blown economic slump. “This decline raises the risk that weakness in manufacturing may have begun to spill over to services, a risk that could generate a sharper-than-expected weakening in US and global labor markets.”  (JPM). Overall, JP Morgan reckons the world economy is growing at just a 2.4% annual pace – close to levels considered a ‘stall speed’ before outright recession.

Despite all his bluster about how well the US economy is doing, Trump is worried.  In addition to attacking China, he also launched again into criticising US Fed chair Jay Powell for not cutting interest rates further to boost the economy, calling Powell as big an “enemy” of the US economy as China!

Powell had just been speaking at the annual summer gathering of the world’s central bankers in Jackson Hole, Wyoming.  In his address, he basically said that there was only so much monetary policy could do.  Trade wars and other global ‘shocks’ could not be overcome by monetary policy alone.  Powell’s monetary policy committee is split on what to do.  Some want to hold interest rates where they are because they fear that too low interest rates (and everywhere they are going negative) will fuel an unsustainable credit boom and bust.  Others want to cut rates as Trump demands to resist the recessionary forces descending on the economy.  Powell bleated that “We are examining the monetary policy tools we have used both in calm times and in crisis, and we are asking whether we should expand our toolkit.”

The trouble is that the central bankers at Jackson Hole are realising, as had already become obvious, that monetary policy, whether conventional (cutting interest rates) or unconventional (printing money or ‘quantitative easing’) was not working to get economies out of low growth and productivity or avoid a new recession.

Many of the academic papers presented to the central bankers at Jackson Hole were laced with pessimism.  One argued that bankers needed to coordinate monetary policy around a global ‘natural rate of interest’ for all.  The problem was that there is considerable uncertainty about where the neutral rate really lies” in each country, let alone globally.  As one speaker put it: “I am cautious about using this impossible-to-measure concept to estimate the degree of policy divergence around the world (or even just the G4)”.  So much for the basis of most central bank monetary policy for the last ten years.

Another paper pointed out that “monetary policy divergence vis-a-vis the U.S. has larger spillover effects in emerging markets than advanced economies.”  So “domestic monetary policy transmission is imperfect, and consequently, emerging markets’ monetary policy actions designed to limit exchange rate volatility can be counterproductive.”  In other words, the impact of the Fed’s policy rate and the dollar on weaker economies is so great that smaller central banks can do nothing with monetary policy, except make things worse!

No wonder, Bank of England governor Mark Carney in his speech took the opportunity before he leaves his post to suggest that the answer was to end the rule of dollar in trading and financial markets.  The US accounts for only 10 per cent of global trade and 15 per cent of global GDP but half of trade invoices and two-thirds of global securities issuance, the BoE governor said. As a result, “while the world economy is being reordered, the US dollar remains as important as when Bretton Woods collapsed” in 1971. It caused too much imbalances in the world economy and threatened to bring down weaker emerging economies which could not get enough dollars.  It was time for a global fund to protect against capital flight and later a world monetary system with a world money!  Some hope!  But he showed the desperation of central bankers.

The impending global recession has also concentrated the minds of mainstream economics.  A division of opinion among mainstream economists has broken out over what economic policy to adopt to avoid a new global recession. Orthodox Keynesian, Larry Summers, former US treasury secretary under Clinton and Harvard professor, has argued the major capitalist economies are in ‘secular stagnation’. So he reckons monetary easing, whether conventional or unconventional, won’t work. Fiscal stimulus is needed.

On the other hand, Stanley Fischer, formerly deputy at the US Fed and now an executive of the mega investment fund, Blackrock, reckons that fiscal stimulus won’t work because it is not ‘nimble enough’ ie takes too long to have an effect. Also, it risks driving up public debt and interest rates to unsustainable levels. So monetary measures are still better.

The post-Keynesians and Modern Monetary Theory economists got very excited because Summers seemed to agree with them, finally, – namely that fiscal stimulus through budget deficits and government spending can stop ‘aggregate demand’ collapsing. It seems that the consensus among economists is moving to the view that central bankers can do little or nothing to sustain capitalist economies in 2019. 

But in my view, neither the ‘monetarists’ nor the Keynesians/MMT are right. Whether more monetary easing and fiscal stimulus, nothing will stop the oncoming slump. That’s because it is not to do with weak ‘aggregate demand’.  Household consumption in most economies is relatively strong as people continue to spend more, partly through extra borrowing at very low rates of interest.  The other part of ‘aggregate demand’, business investment is weak and getting weaker.  But that is because of low profitability and now, in the last year or so, falling profits in the US and elsewhere.  Indeed, US corporate profit margins (profits as a share of GDP) have been falling (from record highs) for over four years, the longest post-war contraction.

The Keynesians, post-Keynesians (and MMT supporters) see fiscal stimulus through more government spending and increased government budget deficits as the way to end the Long Depression and avoid a new slump.  But there has never been any firm evidence that such fiscal spending works, except in the 1940s war economy when the bulk of investment was made by government or directed by government, with business investment decisions taken away from capitalist companies.

The irony is that the biggest fiscal spenders globally have been Japan, which has run budget deficits for 20 years with little success in getting economic growth much above 1% a year since the end of the Great Recession; and Trump’s America with his tax cuts and corporate tax exemptions in 2017.  The US economy is slowing down fast, and Trump is hinting at more tax cuts and shouting at Powell to cut rates.  In Europe, the European Central Bank is preparing a new round of monetary easing measures.  And even the German government is hinting at fiscal deficit spending.

So we shall probably get a new round of monetary easing and fiscal stimulus measures, to satisfy all parts of mainstream and heterodox economics.  But they won’t work.  The trade and technology war is the trigger for a new global slump.

67 thoughts on “It’s all going pear-shaped

  1. Re. your chart: You can’t take corporate profits as a percent of GDP as your predictor variable of recession. Why? Because you are using recession levels of GDP to predict recession. You can’t use recession to predict a recession. What are the correlations then of absolute levels of profits as a predictor of recession? And in 2008 at least, what precipitated the abrupt fall in profits? It was the financial crash. Profits were rising before the crash. It was the crash that precipitated the profits contraction AND the recession. Now that’s not always the relationship between financial cycles and real cycle contractions, but it was in 2007-08. It may not be this time around. But it is pretty clear that business investment is the key to an eventual contraction and that is being driven by declining business confidence driven by the disruption of global trade due to Trump. Sharp contractions of business investment drive business cycles and recession, not changes in profits. Profit determines only 20% of total business investment decisions. Investment is determined by equity values and corporate debt even more so than by internal profits. Since profits are such a small share of investment causation, recessions are driven by other causes of investment downturn. Corporate after tax profits (which you ignore above and choose only to reference pre-tax profits and then as a percent of GDP) peaked last year in the US, and the current US investment collapse (and thus recession) really began first quarter 2019. So recession can’t be caused by profits if empirically they peak when the recession began. Marxist economists should be paying more attention to the various causes of investment–not profits.

    1. It’s one thing to argue against the reliability of one specific variable; it’s a completely different thing to try to disprove a theory.

      Profits were high pre-2007-8 because financialisation was at its apex, so financial profits were high. But financialisation is itself a symptom of falling profit rates: they are a zero-sum game at best, purely fraudulent at worst. The fact that profits were rising were indeed a sign they were falling precisely because they mainly happened in the financial(ized) sector: more leverage, more imaginary profits, more instability.

      And profit rates can rise through disinvestment according to Marxist theory: you just have to decrease wages in a proportion greater than the disinvestment while at least preserving labor productivity. Colonies were more profitable than the metropolis precisely because of that: capital was more labor-intensive in the colonies (less development of the productive forces; slave labor).

      So it is your profit indicator that is not reliable, not Marx’s theory. It can be demonstrated by how easily and fast those profits fell when the crisis burst at September 2008: they didn’t fall, they evaporated.

      So, again: variables are variables, theories are theories.

      “Sharp contractions of business investment drive business cycles and recession, not changes in profits. Profit determines only 20% of total business investment decisions. Investment is determined by equity values and corporate debt even more so than by internal profits. Since profits are such a small share of investment causation, recessions are driven by other causes of investment downturn.”

      But this is not the Marxist definition of profit. What you’re calling “profit” here is actually the Marxist equivalent “profit of enterprise” (I don’t know if I translated this correctly). Profit of enterprise is total profit minus what’s due to the “financial world” (i.e. what you listed). That may or may not include taxes (which, to be frank, are not actually paid if you’re a big corporation). If the date is collected based on the CEOs’ opinions, then it is obvious they will take profit as profit of enterprise; depending on the corporation, this can also be true for the shareholders; if the big corporation is, at the same time, financial and non-financial (e.g. Apple), then things indeed get complicated — but the principle remains true.

      1. “Colonies were more profitable than the metropolis precisely because of that: capital was more labor-intensive in the colonies (less development of the productive forces; slave labor).”

        No it wasn’t. And Marx explains why it was’t as a consequence of the role of capital in raising labour productivity and thereby making the labour employed in the more developed economy like complex labour compared to that in the less developed.

        Marx sets out in Capital I, comparing international wages and profits that wages in Britain were 50% higher than in Europe, where industry was less capital intensive, but precisely because British labour was more productive and appeared as complex labour compared to European labour, British firms were able both to out compete their European rivals, and to produce a higher rate of profit. The difference between British and European production and say Indian production, at the time, still based upon village handicraft production is even more stark.

        If labour intensive production, and low wages was the basis of higher productivity than, indeed industrial capitalism could never have existed, because replacing low productivity, low wage hand labour, with higher wage, higher productivity, higher profit making machine labour would never have been a viable option!

        That is why, if you look at the data, capital from the “imperialist” centres did not rush to invest hand over fist in “the colonies”. The vast majority of investment by capital in “imperialist” economies, has been not into the colonies, but into other “imperialist” economies, precisely because that is where the highest rates of profit are to be had.

        The majority of investment into “colonies” was actually undertaken prior to the dominance of large scale industrial capitalism. It was undertaken in the 17th., 18th, and early 19th century by the antediluvian forms of capital, of merchant capital, money-lending capital, in alliance with the European landed aristocracy that sought means of extending that own rents, by establishing additional land holdings.

        After the dominance of industrial capital, from the end of the 19th century, it has been circumspect about where it invests in production, for these very reasons. It only located production in those areas areas, where there already existed a minimum level of infrastructure and so on, required for efficient capital accumulation. The theoretical basis of that can be found in Chapter 9, of Theories of Surplus Value, where Marx discusses the long wave (though he doesn’t call it that), illustrating that, at certain points, capital has to engage in very large scale expansion into new production facilities, but that its precisely because it takes a long time for this fixed capital investment in the land, in infrastructure etc. to become embedded in natural fertility that it takes many years before it is reflected in lower market values, and higher profits.

        Whee industrial capital invested in developing economies it proceeded on exactly this basis. As Geoffrey Kay pointed out “Development & Underdevelopment, A Marxist Analysis” (1975) it confounded neoclassical economists who believed that based upon factor costs, firms would use labour intensive methods in developing economies, rather than labour intensive methods, which would quickly cause employment to rise. Instead the foreign industrial capital that located to these areas, simply transferred their existing mature production from the developed economies, which had become mature as it had become large scale, machine production, using unskilled labour, to the developing economies. They transferred all of the same fixed capital, and developed technologies, and simply used the available unskilled labour along with it.

        As a consequence, it created large scale unemployment in the developing economy, because this new more productive capital undercut the domestic production of the same kinds of commodities, which was inefficient and based on small scale capitalist, o even handicraft production that was simply unprofitable as against the large scale capitalist production. In fact, as Lenin describes in “On The So Called Market Question”, this kind of development is also what was seen in Russia, as capitalist production got under way, and this capitalist production based upon the use of additional fixed capital that raised productivity was far more profitable. Those peasant producers that could introduce such methods grew their farms and production, the majority that could not, became uncompetitive, went under and became wage worker employed by the former.

      2. “As a consequence, it created large scale unemployment in the developing economy, because this new more productive capital undercut the domestic production of the same kinds of commodities…….”

        And this from the person who claims that “capitalism is the best hope” of 80% of the world’s population.

      3. You argue rising financial profits are the cause of falling rate of profit on (productive labor?). Your point to a correlation between the two. I can argue that same correlation means that rising financial profits are the cause of falling real profit rates just as well based on that correlation. In short, you can’t argue a correlation proves causation. The causal relationship may be opposite your claim (which it is). Or it may be that another, third variable is determining the observable correlation. It’s so tiresome to read economists, Marxist and Bourgeois, argue correlations are causations! If you think you’re view of the corrrelation proves a causation, then you need to explain in detail the specific transmission mechanism(s) that support your view of causation. And provide quantitative evidence in support of your chosen transmission mechanism(s). Otherwise you’re just dealing with appearances not essences. So what do you say? Prove to me that it’s the falling rate of (real) profits that drives rising financial profits.

  2. Did you see Nouriel Roubini’s article on the Guardian. He is paralysed; he cannot provide a solution.

  3. I think we have to conclude that Trump is not just a moron, but is probably also senile. he didn’t seem to understand that Jackson Hole was not an FOMC policy setting meeting. He has no grasp of reality or basic elements of knowledge required to do his job.

    His attack on his own Fed nominee, Powell, accusing him of being a bigger enemy of he US than president Xi, was utterly bizarre, unless you accept that he is senile, or at least suffering from some other serious mental disorder. The same applies with his bizarre “instruction” to US companies to begin withdrawing their operations from China.

    Trump’s global trade war is in tatters, and his claim to be a brilliant deal maker has been shown up for the fantasy it is, if anyone ever doubted it following his advice to Theresa May that she should “sue the EU”.

    Trump’s tariffs are causing very real damage to global trade and global growth, along with the policy of Brexit being pursued by his fellow economic nationalists in Britain. Now Trump is proposing more swinging tariffs on EU goods, such as cars.

    His policies are already costing US households around $800 a year, now predicted to rise to $1500 as a result of the new tariffs. China ha plenty of ammunition yet, such as starting to sell some of its US Treasuries. Trump’s policies are causing concern amongst the representatives of big US capital, prompting the continued sell-offs in the stock market, for which Trump has had to find a scapegoat in the form of Powell.

    Another shot across US bows following EU proposals for circumventing US power and sanctions by establishing a new non-dollar global payments system was added to by the suggestion by Mark Carney that a new virtual global currency could be created for such payments so as to diminish the excessive influence that the US (read Trump) has on global trade and economies.

    Trump should be making sure he wears his bullet proof vest, and avoids rides in open topped cars.

    1. What Trump is doing, is what anyone in his position would do: he cannot anyone dispute the hegemony of USA. What use would it have if it cannot intervene? What is the point of US be an hegemony? US elites needs to put down China, much technological complex is heavily dependent on military.

      1. But what Trump is doing is undermining US hegemony. US hegemony has always been built on the basis of the US being able to draw along with it its allies – what has euphemistically been called “the international community”.

        Trump has deliberately smashed it up. In doing so he has destroyed US hegemony, because all of the elements via which it operated, US domination of the global monetary systems via the dollar, the IMF, World Bank and so on has been destroyed. It has encouraged others like the EU to hasten their development of other, non-US alternatives to them. In fact, Trump’s actions, and his manipulation of his fellow economic nationalists in Britain to push forward Brexit, has probably done more to bring about the opposite of what they intended – break up of he EU – as anything else, because it emphasises the different interests of the European economy as divergent to those of the US, not to mention divergent geo-strategic interests.

        Moreover, the US certainly did not need to put down China, even if it could do so, which it can’t. China provides vast amounts of cheap wage goods for he US, which keeps down the value of labour-power in the US, raising the US rate of profit. Multinational companies, operating in China often have links back to the US. Undermining China, including Trump’s idiotic instruction to US firms to pull out of China acts to damage those US firms, i.e. US capital and the US economy. In addition to the profits made in production by US corporations in China, there is also of the vast amount of US commercial capital that draws profits from China.

        70% of goods sold by Wal-Mart are produced in China. As Marx shows in Capital III Chapter 17, merchant capitals like Wal-Mart obtain the average rate of profit, because they share in the total produced surplus value. With all of the Chinese commodities that Wal-Mart sells, the surplus value contained in those commodities was produced by workers in China. Wal-Mart simply realises that Chinese produced surplus value as profit, when it sells the commodities, having also thereby financed the cost of its constant and variable-capital. In other words large numbers of workers employed in the US commercial sector are dependent for their jobs on the surplus value produced by Chinese workers, just as are US merchant capitalists like Wal-Mart for their profits.

        Trump’s actions, as with the actions of economic nationalists in Britain, in relation to Brexit, are rational only in the context of representing the interests of a certain section of capital, i.e. that section comprising its most backward elements, the small and very small capitalists, and the social layers associated with it. But trying to privilege that section of capital over its dominant, more mature forms is a fool’s errand. All of the forces of the dynamic of capital accumulation of concentration and centralisation, of the need to expand into markets beyond the nation state, to break down national borders that erect frictions in the free movement of capital, labour and commodities as described by Marx, and Lenin and others make it simply utopian to try to employ protectionist measures of economic nationalism in the hope of holding back the development of capitalism as an international system.

        But, even allowing for that element of rationality of narrow party political and class interest driving Trump and other economic nationalists of what has been called the Red-Brown coalition, which sees, for example, the Koch Brothers funding organisations of “communists” from the former RCP/Living Marxism in Britain, via their Spiked Online vehicle, and the alliance of those “communists” with the Faragist Brexit company, or has seen the “Communist” Morning Star, and former members of the SWP, also lining up with the Faragist agenda, Trump’s own actions are bizarre.

        Even given the bizzaro world of the economic nationalists, Trump’s actions are even more surreal, and suggest he long since lost the plot.

      2. The development of capitalism is self destructive. At the same time the surplus from cheap labor is profitable, it is also bad, as it increases the bargain power of the locals to such a degree that it starts damaging the way USA leads the world. For example, if China starts financing infra infrastructure in other parts of the world, it will get in the way of how business is made. It will starting eroding the means of USA using its military power, too. It will have to ask Chinese permission.

        This is similar to what happened during neo-colonialism. Europe couldn’t possibly dominate so much area with only military might, it had to bribe local leaders. In the end, the lost so much military and economic power, that they lost control of them. Either through assistance of the socialist block and/or their own efforts, they got rid of tight control from Europe. The locals could operate with much more freedom. See the oil sock: it was a reflex of the growing power of self determination of the local capitalists. The control over former had to be done through financial means, and that through a single superpower, the USA, who was not damaged by the world wars. Note that the world total debt has only increased since then. An impossible to pay debt is the way to submit other countries. Such is Keynesianism: feudalism within capitalism, after slavery within capitalism, such was neo colonialism.

        Now, this sole superpower is really being contested. The reason of existence as an intermediary between 3rd world capitalists and central capitalists is being contested by China. IMF, World Bank are useless to solve this, indeed. And the USA’s industrial military complex is harmed. If China does not abide to USA, they will have to feel the wrath of the latter’s army.

  4. Between 1933 and 1937 unemployment dropped from 25% to 9.6%, the reason was fiscal spending focused on job creation, the WPA. Economic growth was over 8% after 1933 until the war when GDP expanded by 75% in 6 six years. I’ve read that 1933 to 1937 growth was 8%. I went to the Fed’s FRED graphs and found GDP Growth. During those 5 years inclusive growth increased from $56 billion to $93, up $36, or 64% in five years, about 10% per year compounded. But then came the slowdown of 1937. The article by Marshall Auerback, “The Real Lesson of the Great Depression: Fiscal Policy Works” documents that unemployment dropped from 25% to 9.6%. Roosevelt even had worry in 1937 that the economy was over-heating, as did Marriner Eccles the head of the Fed. Probably the MMTs are right: just pump money into the hands of those who will spend and the corporations will expand production, and rehire workers. Mail a check to the lower-earning 42%, those with incomes below $25,000 a year, whose average income is around $10,500 per. If necessary cap price increases. William Lazonick says that the largest 1,900 corporations in the U.S., employing on average 25,000 employees, employ 34% of all workers (about 50 million workers), generate 44% of all sales. They haven’t given a raise in 54 years. The “average weekly earnings of production and nonsupervisory workers” or 80% of all workers, is lower today 2019 than in 1965, 54 years ago, says the web site “data bls”, Bureau of Labor Statistics. Yet the “per capita disposable (after tax) income of all Americans has tripled, from about $14,000 per to $44,000 per, in chained dollars adjusting for inflation. Many economists like Jeff Madrick advocate “wage led growth”. There are several bills out that would re-empower the labor unions and give workers power to close down corporations. We need higher wages. I just looked at Edward Wolff’s report from Dec. 2017, “Has Middle Class Wealth Recovered?” At Table 2 he shows income distribution, and the top-earning 5% earn 40% of all pre-tax income. I was shocked. The top-earning 10% earn 50%. In 1960 the top 5% earned 20%, not today’s 40%. This is where we went wrong. And we also lowered top tax rates, over $1 million, from 90% to 37%. We created this monster, and we have to starve it to death. My blog:

  5. Naturally I forgot something important. The top-earning 5% who earned 20% in 1960 and are earning 40% in 2015 have taken all their gain from the lower 80%. In dollars that is $3.1 trillion, today. Divide that among the 80% lower-earning households and it’s an income gain of over $30,000 per family. That’s the impact of policy that gives money to the rich — the economy stalls and most people fall into hardship if not poverty. The United Way charity released a study, the ALICE report, showing that 40% of U.S. households cannot afford seven basics: food, housing, utilities, phone service, transportation, medical care and child care. That’s where the richest nation on earth stands.

    1. Benl8
      The 2 reports that he mentions in his commentary (Reports of the Bureau of Labor Satistics and Alice Report of the United Way charity) have been provided to a well-known Marxist economist (sin is said but not the sinner) that perjures and perjures REAL wages (in terms of Purchasing Power) of the working classes have not fallen in almost the entire World-System and since the 1980s. To support their bizarre and unreal thesis in the debate, this renowned author has indicated a certain Increase in salaries in the USA in a given year, when in fact what is happening in the USA (and in most countries), according to these reports, is that: 1.- ” The “average weekly income of production workers and non-supervisors “, or 80% of all workers, is lower today 2019 than in 1965, 54 years ago, says the website” data bls “, Bureau of Labor Statistics ” and 2.- The charity United Way published a study, the report ALICE, which shows that 40% of households in the United States cannot afford seven basic elements: food, housing, public services, telephone service, transportation, medical care and child care.
      His 2 reports have come to me as a finger ring to improve his data on this subject a bit.
       On his other crazy thesis that capitalist markets are not oligopolizing and concentrating, it is better not to say anything …
      No, I did not indicate to this author, that, in addition, children do not come from Paris.
      You see, dear benl8, that even the most basic and certain economic facts and facts MUST BE REPEATED AGAIN AND AGAIN for interested parties to be aware of them. No, don’t get tired of doing it.
      Yes, and as a possible explanation of the phenomenon, it may be that this problem is operating, the problem of the different knowledge of individuals, the Law of Labor Value and its different productivity.


  6. Jack I have to defend Michael. I have previously pointed out that the fall in the rate of profit (mark, not margins) has been continuous since 2014. Where you are right to point to, is the difference between pre- and post- tax enterprise profits. Post tax profits did peak nominally in 2018 but adjusted for inflation they were still significantly below their 2014 peak. Where I strongly disagree with you is over the link between profits and investment which you question. You say that this link only accounts for 20% of investment decisions. The bigger share is driven by confidence, debt and equity values. In reality you are saying that investment decisions are based on liquidity and the confidence to mobilise that liquidity. So your argument boils down to this, if capitalists can invest they will, when confident. But what is their confidence based on. There is only one answer, they must be confident of making a profit. So your argument amounts to no more than a tautology. Furthermore, because we can now distil circulating capital, which is more volatile and more spontaneous than fixed capital, it is much clearer to see the link between profits and investment. In all cases, in the period immediately preceding recessions, there is a sharp deceleration in the rate of turnover of circulating capital (what the capitalists superficially describe as the inventory turnover rate) or what is the same thing, the investment in circulating capital. So here we are. In 2018 as a result in the rise in post tax profits there was a nine month spurt in investment. When that subsided so did investment.

    What I find more interesting is why the rate of profit has fallen continuously for over four years. Something Michael has pointed to in his final graph. Some of this is due to the misstatement of depreciation but more has to do with the uncoiling of globalisation and the benefit it bequeathed US manufacturing. Whatever the case, with the actual rate of profit below 5% post tax and below 6% pre tax, the incentive to invest has been undermined. Michael, in previous postings has quoted Keynesians who claim a specific event triggers a crash. Here an analogy holds true. The fall in the rate of profit can be compared to thinning ice. Events that would have gone unnoticed earlier when the ice was thick and supportive, now have the potential of crashing the ice and accelerating the process qualitatively.

    For more on the current rate of profit visit

    1. “There is only one answer, they must be confident of making a profit.”

      Confidence of making a profit is not at all the same as making a LARGER rate of profit than was previously the case. It is obviously the case that if firms think that any investment will be loss making, then none of them will engage in it – actually even that is not necessarily true as Marx describes about investment of capital in unprofitable parts of farms, which when considered on its own might be unprofitable, but when considered in relation to the whole farm (what might be considered in accountancy terms making a contribution to fixed costs) increases overall profitability.

      But, so long as they are confident that an investment will be profitable whether it is more profitable or less profitable than their existing capital is a secondary issue. They are driven to make the investment, precisely because if they don’t their competitors will, so that they will then lose market share. Their competitors will then produce on a lager scale, and as Marx demonstrates, it is this producing on a larger scale that is the key to reducing the individual value (price of production), for each firm, and which thereby enables it to be more competitive and to make surplus profits.

      As Marx sets out in response to Ricardo, who made this argument that it is higher prices/profits that drives investment, even where a higher rate of profit may be available elsewhere, theoretically, it probably will not cause capital to invest in the theoretically higher profit area. Ricardo says, if a farmer has £1,000 of profit, which they could invest, but its investment would bring them a lower rate of profit than they currently enjoy, they will not invest it, because it would reduce their overall rate of profit.

      Marx says this is wrong. He asks what the alternatives are. The farmer could invest the £1,000 on some new piece of land rather than his existing farm. But the other land may be miles away, so that the costs involved in trying to operate on two farms so separated would likely cause the theoretically higher rate of profit on the second piece of land to disappear. he might invest it in some other line of business where the rate of profit is theoretically higher, but besides the fact that he might not know anything about this new line of business, a £1,000 investment might be too little to engage in that business on the minimum efficient scale. He could instead simply hold on to the money, and put it in the bank at interest, or in today’s terms he might buy a bond or a share. But, Marx says, the rate of interest is always less than the rate of profit, and so by simply turning it into interest-bearing rather than productive-capital he would immediately be reducing his return on it by a third, compared to use it himself, even where it produces a lower rate of profit than he currently enjoys.

      Of course, the point today is that the owners of loanable money-capital, including the executives of companies acting on behalf of the owners of loanable money-capital (shareholders) are not driven by that concern for revenues based upon interest/dividends (if they were they would not be buying bonds amounting to around $15 trillion globally that currently provide negative yields), but instead by the large capital gains that can be obtained from such speculation.

      It is that which trump’s for the time being even the high rates of profit available from productive investment, and drives those executives to use profits for financial speculation, buying back shares, issuing bonds, to buy back shares to inflate share prices and so on, rather than to invest in production. Indeed, the whole house of cards relies on them continuing to do that, because as soon as they begin to use profits for real productive investment, as soon as all of the liquidity pumped into the system by central banks to inflate asset prices, instead goes into buying new machines, buildings, materials, technologies as well as additional labour, all of that liquidity stops hyper inflating asset prices, destroying the paper capital gains on it, and instead inflates commodity prices (i.e. the commodities that comprise constant and variable-capital), which causes a huge spike in inflation and interest rates, which crashes asset prices even more decisively.

    2. Well what you don’t understand is that profit is a market concept as much as a productive labor exploitation concept. The falling rate of profit on productive labor (marx’s definition of profit) may be due to a higher profitability from financial asset investment. Money capital flows to the highest profit rate–and that’s from financial asset investing. But Marxists pooh pooh financial profits, call them ‘fictional’ and then disregard them as causes of destabilizing capitalist business cycles. I would add in reply to your comment that business confidence as determinant of investing includes confidence in financial asset price appreciation as it does to real assets. Business confidence may fail to result in investing, not only because the investment may not yield a profit but because of fear the investment may lead to a loss. It’s not a tautology. You can’t logically argue away the fact that 21st century capitalism now makes more money from money, than it does from exploiting productive labor (per Marx’s definition). Productive v. Nonproductive labor is a concept of Smith and classical economics and Marx allowed himself to get trapped by it, since he attempts to explain capitalist crises by exploitation. But he didn’t mean (as Smith and others didn’t mean) that exploitation theory (aka labor theory of value) explains capitalist business cycles. He meant it would in the long run result in capitalist system ‘breakdown’. You can’t explain business cycles with Marxist economic concepts. And that means you can’t use his falling rate of profit hypothesis to explain them either. Time for Marxist economics to grow up and recognize that classical economics’ conceptual framework, within which marx wrote, is deficient for explaining 21st century capitalist business cycles.

      1. Jackrasmus said: “Capitalist cycles must be explained using the investment (capital accumulation) variable, and that must include financial as well as real investment.”

        Yes, and I believe MMT has the antidote to both the damaging business cycle itself (with its JG), and the parasitic ‘financial engineering’ aspect of ‘money’ accumulation (eg, some derivatives are “financial instruments of mass destruction”: Warren Buffet).

        How? via CB account creation to fund desirable public services AND modification of undesirable behaviour eg, via taxation of non-socially productive financial transactions. MMT recognises currency issuing governments do not have to tax in order to spend; such governments can spend first, then tax as required.

        Note: MMT recognises nations are constrained by scarce (real) resources, not by purely financial considerations (since money does not have intrinsic value, like real resources).

  7. The data is irrefutable. Profits (let alone change in profits, i.e. rate) determine only 20% of investment in the 21st century post-2008. The empirical evidence is conclusive. That means investment decisions ARE determined by availability of credit (e.g. debt and liquidity) and equity and business confidence. Look, Marx’s economics is about capital accumulation. Profits are only one determinant. They were mostly the only determinant in 1850s England, when the banking and financial system was undeveloped. But not today. Capitalism has evolved and is doing so at an accelerating rate. Financial assets are sucking out money capital from real asset investment. That’s why the latter has been drifting down, as financial asset values have been rising. Where do you think the $1 trillion per year in US dividends and buybacks has been going? (Last year $1.2T. This year maybe $1.4T) Not into real investment, but into financial assets worldwide. The focus should be capital accumulation–both financial and real–as the driver of capitalist reproduction. Marxist economics needs a major upgrade. It is held back by the conceptual framework of classical economics, of which Marx is part though he tried to break from it (succeeding in part but essentially failing). You can’t explain 21st century global business cycles based on the classical concept of ‘productive v. nonproductive labor’ and exploitation cannot explain alone the coming crisis. It is an integral part. But capitalists can create money values from m oney and don’t need to do it from labor exploitation alone; and it is that former process that is causing disproportionality crises between financial and real investment, destabilizing the cycle of reproduction of capital.

    1. And credit and liquidity exist due an expectation of profit of bankers. This is a vicious cycle that must begin somewhere. The only thing that generates value is human labor. Domestic animals and robots do not resist command if they are given minimum conditions to function biologically or mechanically. They do not have imagination to crave for more. Only humans struggle against exploitation and thus are the only ones that can collectively conjure the existence of an abstract thing that represents labor, that is, money.

      You use money to force someone else to do labor. You get money because either you did labor or you have property.

      1. As Marx describes, slaves don’t produce new value or surplus value either. They are exactly the same in that regard as pack animals or machines.

      2. “As Marx describes, slaves don’t produce new value or surplus value either. They are exactly the same in that regard as pack animals or machines.”

        Very interesting presentation, but exactly how does that square with Boffy’s prior assertions that the law of value has governed social production for thousands of years, in pre-capitalist societies, and will govern production in a post-capitalist society? How can a law of value operate when no new value is produced, when labor is not constituted as value-producing?

        That’s one problem.

        The other problem is that if no new value was being added to the cotton, where was the profit in slave-based cotton production? If the slave was equal to the pack animal or the machine, then how could slave production be anything but a zero-sum process, with no basis for expansion? But we know that cotton production in the southern US pre Civil War was profitable. We know that sugar production in Cuba prior to 1883 was profitable, to larger or smaller degrees.

        Or- if slave production produced no additional value, no surplus value, then if it was profitable, the profit had to be a deduction from the surplus value of the industrial capitalists who purchased the cotton for further production. In such a case we have to identify the mechanisms for such a transfer, such a deduction from the surplus value of the industrial capitalist. Were the profits of the slaveholders actually rents paid to the landholder? Interest paid?

        And if that’s the case, what was the basis for slavery’s profitability, and its expansion, prior to capitalism?

        Plantation slave production was always about producing exchangeable value. Slavery as a source of value, particularly when in juxtaposition with a value-producing mode of production, requires more thorough analysis than simply identifying the producers with, or as, machines or pack animals.

      3. Slavery monopolize the spending of the worker with the owner, where Capitalism free workers to spend with other capitalists. But slaves still struggle, with revolts, some get advantage over others, like living in the owners homes, running business, working and living comfortably as teachers or the aristocracy (like the philosopher Diogenes), or be a commander who conquer empires, like Malik_Kafur. They are in no way beasts, but, like in capitalism, they may be treated as such, like the Irish in England during the Industrial revolution.

      4. If you read a bit of Roman history, you will see that slaves acquired rights through revolts. At some point, it was so expensive to acquire rights, that the economy West Roman empire, that was based in cheap labor, collapsed in the 3rd century. People started migrating to the countryside to a more stable life, forming allegiances with local lords, thus leading to the formation of feuds. Cities were then so weak that they were conquered by those rulers. The East Roman empire survived for more 1000 as they didn’t rely much on slaves, but on despotism.

      5. @Boffy
        K. Marx states: “In the slave system, money capital, which is designed to purchase labor power, plays the role of a form of fixed capital that is only gradually replaced after the active life of the slave.” (Capital II, MEW 24 p 474 of the German edition)
        Nothing is said here about the value creation of slave labor.
        If a slave were to be regarded in terms of value as constant capital, then he would deliver no surplus value, but in the course of his working time only replace the value, which he had cost with the purchase. In short: According to this view, slaves would not be exploited at all. That’s obvious nonsense.
        The quote from Marx has a completely different meaning. Marx makes no statement here about the slave labor and its exploitation. He only makes a statement about “the role that money capital plays in the purchase of labor power …”
        The wage laborer’s labor is paid piecemeal – daily or monthly.
        The market value of the slave is paid for the purchase of the slave in one sum. This corresponds to the form of fixed capital. But that’s the whole analogy.
        For both forms of exploitation, the product value supplied by the wage laborer and by the slaves must be above or above their purchase plus the cost of reproduction by the slave and the cost of the reproduction of the wage laborer. That was usually the case. otherwise the wealth of the slave-holding society would be in mystery.
        W. Buchenberg, Hanover

      6. Wal,

        Here is what Marx says, making the situation crystal clear in The Grundrisse.

        “IN production based on slavery, as well as in patriarchal agriculture…..the slave does not come into consideration as engaged in exchange at all.” (419)

        and “in the relations of slavery and serfdom….The slave stands in no relation whatsoever to the objective conditions of his labour; rather, labour itself, both in the form of the slave and in that of the serf, is classified as an inorganic condition of production along with other natural beings, such as cattle, as an accessory of the earth.” (p 489)

        Marx makes the same distinction in TOSV, where to paraphrase, he says the distinction is only that in the case of the animal it is dumb, and in the case of the slave it isn’t.

        As Marx describes, the fact that the slave, like the pack animal acts only as means of production – what under capitalism constitutes constant fixed capital – means they do not create new value, or thereby surplus value, but that does not mean they do not produce a surplus product. If we take Marx’s thought experiment in The Fragment On Machines, also contained in The Grundrisse, then its quite clear that if we had a society in which a few people owned fully automated machines/robots that could repair and reproduce themselves, as well as produce all of the needs of the owners of these machines, they would be capable of producing huge amounts of surplus product, but because none of it represents any amount of free labour it would represent absolutely no new value, or thereby surplus value, only the value (ever diminishing) of the constant capital that comprises the robot, whose initial production at some point had required free living labour for its production.

        Put another way, if it was possible to train chimpanzees to undertake such production, they would do so, hand it over to their owners, who would hand back to them a part of the production required for their reproduction, whilst retaining the rest as a large surplus product. But, the chimps would have created no new value nor surplus value.

        As Marx points out it is only where such slave production exists alongside commodity production or is grafted on to it that the illusion is created that this surplus product also represents a surplus value. In other words, the slave producer as much as an independent peasant producer, or a capitalist producer sells their output in a market where selling prices are determined by the social or market value (or under capitalism price of production) and not by the individual value of the output of each producer.

        If we take the output of a capitalist producer that used no labour in their production, because they had trained chimps, or they had a fully automated machine doing the production, the individual value of their output would be that much lower as a consequence. It would contain only the value of the constant capital (raw materials, and wear and tear of fixed capital), and no surplus value. But, if all other producers of the commodity use labour in production, it is their production that determines the market value at which every producer sells, and that market value which includes the new value created by the labour employed by them (which is then divided into wages and surplus value) would necessarily be higher than that of the producer who employs no labour.

        But, the producer who employs no labour will sell at the market value, not their individual value. The differential value, as Marx describes it, is then the basis of the surplus profit they appropriate. As Marx describes it this is what happens when such slave production is grafted on to capitalist production as happened with the slave states in the US.

      7. Here, is what Marx says, in Theories of Surplus Value, Part III, Addenda.

        “This implies: first, that the producer still works independently with his own means of production, and that the means of production do not yet work with him (even if slaves form a part of these means of production, for in these circumstances slaves do not constitute a separate economic category any more than draught animals do; there is at best a physical difference between them, i.e., dumb instruments, and speaking and feeling instruments); secondly, that the means of production belong only nominally to the producer; in other words, that because of some incidental circumstances he is unable to reproduce them from the proceeds of the sale of his commodities. These forms of interest-bearing capital occur, consequently, in all social formations which include commodity and money circulation, whether slave labour, serf labour or free labour is predominant in them.” (p 487)

      8. Couple of things– first, I don’t know how anybody else feels, but I think Boffy’s use of chimps as identical to slaves is at the very least, a very poor choice, at the worst… it’s something very much worse than worse.

        Secondly, just as the wage obscures or veils the unequal exchange between worker and capitalist, the slave relation certainly eliminates the so-called “free exchange” component of wage labor, but does not eliminate the “exchange” where the slave works x number of hours to reproduce his/her means of subsistence and x number of hours for the sole purpose of enhancing the power of slavery; for reproducing the slave relations of production. Surplus product does not exist without surplus labor. Now the labor may not take the form, and it is a form, of wage-labor, and thus not the form of surplus value, but it is never the less “valorized” by the pricing mechanism of the market. As a consequence, the slaveholder engaged in plantation production engages in commerce, and is “market dependent” from the getgo.

        All the appeals to authority, in this case Marx, don’t change the fact that Marx’s identification of slave labor with the labor of oxen, or whatever, does not account for the valorization of the product and the contribution of that value to capital accumulation.

        Finally, the careful reader will note how Boffy appeals to authority and only appeals to authority rather than attempt to reconcile this notion of “non-valorized” slave production with his early arguments that the law of value is near-eternal.

      9. A slave or a serf is indeed fixed capital, like cattle or horses, but it doesn’t mean it doesn’t yield surplus. In capitalism, a worker is variable capital, , like electric energy or coal, but it doesn’t mean it doesn’t yield surplus.

        The difference here it is that there isn’t a turn over defined as wages for someone that is bonded to lord or a master. For example, you pay wages as someone pays for electricity, at regular prices, while for a slave or a bull or machine, it’s a one time pay.

    2. Jack if anyone has brought Marxism into the 21st Century, I have. But everything I have done, only confirms all of Marx’s original assumptions. Which means I have to trip you up once again. Above you say the focus should be on accumulation. But accumulation is a function of the rate of profit or the rate of return if you want to include financial assets. Only if the rate of profit exceeds the cost of capital can accumulation take place. With an after tax rate of profit of 5% and AA corporate bonds currently yielding 2.35% (and with inflation at 2%) there is hardly any scope for accumulation, let alone a residue to act as a buffer against risk.

      I kept the last element of the analogy about thin ice for just such an occasion. When the ice is thin skaters know to beware. When the rate of profit is low, the accumulators do not venture their capital because that would mean ignoring the sign that says, danger profits are thin and not worth the risk.

      1. No once again investment (accumulation) is not just a function of the rate of profit. Profits influence only of investment decision. (Rate of profit most likely far less). That’s a fact.That’s data. And once again, profits (and rate of profit) are market concepts as well as exploitation of labor concept. The data on profits (before or after tax) referred to by Michael and others include profits from market speculation and other financial operations. There’s no way you can separate out what’s called ‘portfolio profits’ of large corporations, which are from financial asset investment, from the total profits reported which you and others then use to support Marx’s falling rate of profit hypothesis. If you do, you are including profits from fictitious capital, and marx said you can’t do that. So your data showing profit rates is ‘corrupted’ by the very un-Marxist fictitious capital profits (e.g. financial asset speculation). Studies estimate that nearly one third of US multinational corporations’ total profits are from portfolio investments–i.e. financial investing. This fact alone means you should abandon trying to explain capitalist cycles by using profits data of any kind. It also means there is no way at all to identify and quantitatively estimate profits as only exploitation of productive labor–i.e. Marx’s logical but unsubstantiated quantitative hypothesis. Capitalist cycles must be explained using the investment (capital accumulation) variable, and that must include financial as well as real investment.

      2. Not true. I regularly scan the trading accounts of the top corporations when they are released every quarter. I can assure you that GAAP rules state that trading profits have to be separated from “other income” and that no corporation, not even Apple, has “other income” which exceeds 5% of their trading profits. Admittedly, capital gains which are a cash flow item, and which tend to be one offs, are treated differently, but correctly, this is not recorded as income. In some of my postings I have listed the largest corporation by “other income”.

    3. “You can’t explain 21st century global business cycles based on the classical concept of ‘productive v. nonproductive labor’ and exploitation cannot explain alone the coming crisis. It is an integral part. But capitalists can create money values from m oney and don’t need to do it from labor exploitation alone; and it is that former process that is causing disproportionality crises between financial and real investment, destabilizing the cycle of reproduction of capital.”

      It seems to me that the the conclusion, beginning with “But the capitalists can create money values from money.. and it is that…process that is causing disproportionately crises…” is really another iteration of the “classical concept” of “productive v. non-productive labor” as an explanation for crisis, rather than a refutation.

  8. I’d be interested in seeing more discussion on Jack’s point, but here is my 2 cents, beginning with assumptions:

    1) We are debating the question of US profits and accumulation;

    2) I’ll assume Jack’s empirical references are correct, and leave it to specialists to question them.

    What Jack describes is what “late classical” Marxism, i.e. Lenin and Trotsky, described as capitalist parasitism and decay. This characterization, made in the early 20th century, is today being validated in spades. And of course the USA, to which this discussion has limited itself, is by far the largest parasite of them all, as its distended role in trade and securities finance, indicated by Carney, shows. Indeed the four of the entire “Five Eyes”, the other former Anglo settler colonies + Mother in deep dotage, array themselves about the Cyclops at the center as its privileged inner periphery, and with privileged participation in this parasitism.

    This Five Eyes complex now experiences a deep political and social crisis of unprecedented scope.

    I’d agree with Jack that Marxist critical political economy sorely needs sound theoretical extension to the area of capitalist accumulation. I don’t think that requires throwing out the classical theory of profits of *productive* industrial enterprise. Rather, it requires understanding how it is that money capital – “financial capital” – can *relatively* extend the accumulation of money capital beyond the theoretical limits that one can logically deduce from Marx’s classical schema. Some historical observations on the theory of capitalist decay and parasitism:

    1) The trend towards capitalist decay was on clear display during the period of the two world wars;

    2) The US reorganized the entire advanced imperialist sector of the world capitalist system, while the USSR and China exited that system and the remainder of the decolonizing and semi-colonial world orbited in a historical anomaly. This was the “golden age” of capitalism that for Baby Boomers was the only “capitalism” they ever knew in their youth. In retrospect now it is clear that this was a *counter-tendency* that came to an end in the 1970’s. Nevertheless, Lenin and Trotsky’s theory appeared discredited and became a laughing stock. That is why it has not been further developed, as even Marxists abandoned it.

    3) Capitalist decay reasserted itself from the 1980’s until the present in the imperialist zone, especially in Anglo-America, but they were kept laughing by the relative successes of the Anglo-American zone in monopolization of financial parasitism; by the dissolution of the USSR; and most of all, by the enormous expansion of the accumulation of *productive* industrial capital by a capitalist-roader China. Indeed China is the principal reason for the unbroken extension of capitalist parasitism over four decades now. Note that China cannot reorganize the capitalist world system as the US did after WW2. I predict China will never be able to do so. China lacks political clout within imperialism, is eccentric to and Clausewitz’s maxim on war and politics has been negated: war has been neutralized as an effective policy tool, as the US invasion of Iraq has demonstrated.

    Hence China has only served to prop up Anglo-American parasitism at the center of the imperialist system. It is in this center that the decay of capitalism is most advanced.

    To conclude, here is what I believe to be the basics of the theory:

    1) “Decay” is the decay of the capitalist *mode of production*. This mode of production is dissolving before our eyes, in lounge duree terms. This is true even if world capitalist production and the proletariat has grown over the last 40 years (it has). For it has not in the imperialist core, and so long as it is the political core (who are the G7 after all), the whole world system is accurately described by the same decay.

    2) “Parasitism” is formally the movement of money capital -“finance” – into sectors organized around the simple *appropriation* of its share of the total social surplus value, rather than into the *production* of surplus value. This has been sustained not only by the rise of Chinese capitalist production outside the imperialist zone (putting aside the subimperial character of the BRIC states themselves, seen in Kashmir, Tibet, Xinjiang, Crimea/Ukraine, and now the Amazon(!)) , but also by superexploitation by “non-capitalist” means – by coercive means as well as manipulation of the global states system by commercial arbitrage. The original accumulation of money capital in the 17th-18th centuries rested upon noncapitalist modes of production – farmer households, artisan production, and most of all, slavery. In its decay, senile capitalism relives its childhood. It’s most important state has even installed a child in the highest office in that land.

  9. Michael writes:

    “But in my view, neither the ‘monetarists’ nor the Keynesians/MMT are right. Whether more monetary easing and fiscal stimulus, nothing will stop the oncoming slump. That’s because it is not to do with weak ‘aggregate demand’.

    Your view is incorrect.

    MMT offers money creation in the public, as well as within the private sector. eg, a central bank can create money for public policy delivery, such as a JG (guaranteed above poverty employment).

    Michael: “Household consumption in most economies is relatively strong as people continue to spend more, partly through extra borrowing at very low rates of interest.”

    “Through extra borrowing….that is the problem. Households are trying to save at present to gain control of their excessive debt levels – as CB governors are finding out (monetary policy isn’t working). So household spending is constrained by current debt levels, and fear of unemployment in a possible recession – despite the fact there is no reduction in real resources available to capitalists to make stuff to sell at a profit.

    “The Keynesians, post-Keynesians (and MMT supporters) see fiscal stimulus through more government spending and increased government budget deficits as the way to end the Long Depression and avoid a new slump”

    Of course, especially if this fiscal policy occurs in the context of MMT’s JG. And btw, the entire globe is now in “a war economy” ie a war on climate change – or at least a war on the environmentally unsustainable filthy fossil industry, so there’s your evidence that fiscal policy can work. OTOH, monetary policy is just fiddling around with the “invisible hand”, free-market neoliberal orthodoxy.

    In short, if Marx was alive today, he would be an MMT’er.

    The flaw in Marx’s proposition, namely: is that it fails to take into account the role of *unconscious, self-interested survival instincts* in human behaviour.
    MMT allows a synthesis of these instincts (and the resulting “invisible hand” nonsense of neoliberalism) with government designed to .

    IOW, we should not reject personal profit-seeking per se, we should ensure it operates alongside government, via money creation in the public sector, as stated above.

    1. “The flaw in Marx’s proposition, namely: is that it fails to take into account the role of *unconscious, self-interested survival instincts* in human behaviour.
      MMT allows a synthesis of these instincts (and the resulting “invisible hand” nonsense of neoliberalism) with government designed to”

      You know what I like about our modern critics of Marx? Besides nothing, I mean? Just that the more “modern” they pretend to be, the more they repeat age-old banalities as unique, contemporary insights. So what is this MMT “critique” of Marx’s analysis but the old humbug of “Marx ignores human nature” dressed up in pseudo-darwinian language. Ain’t a thing new or modern in this. It’s the same old same old retreat into pop psychology.

      If Marx were alive today he’d be an MMT’er? Nothing says pop psychology like a arrogance and ignorance combined.

      If Marx were alive today– he’d be exactly what he always was: a communist revolutionary, and not a pop psychoeconomist with an analysis based on magical, and fraudulent, thinking.

      1. Ok. MMT supporters (at most socio-liberals, halfway between private property equal to privatization of benefits and social property with socialization of losses) only say: hey, I am already receiving my ” interested (and interesting) personal benefits ) ”. And for the benefits of others? They answer: we go to the massive QE with J.G (that is the NMT really) with public property funds. They don’t care to know that that JG will never come true in capitalism, and to know that a JG is really a measure of that socialism that they don’t want to mention because it won’t happen that they get lost along the way. personal ” inherent to the ” instincts of human nature ”. Magical and fraudulent thinking? Yes, sure and FEAR.
        On the ‘​​personal benefits’ and ‘unconscious, self-interested survival instincts’ in socialism. Socialism does not reject personal benefits, but EXPANDS THEM. It extends them to society as a whole. Collective subjects (family-company-country) do not minimize the individual, but instead, develop their capacity on a larger scale. This is an ABC of economics, sociology, biology, etc .

      2. Antonio, it’s MMT. You need to do some research on the topic before you criticise it. btw, Michael Roberts himself has misunderstood the MMT concept of account creation in central banks, though not to the degree of neoliberal orthodox economists who mindlessly conflate MMT with “money printing”.

      3. Anti Capital, please calm down – I would expect your emotional response to my observations about the *reality* of unconscious (instinctive-survival) motivation on human behaviour, from a Randian Libertarian, not from the Left. In fact Marx predated Darwin and Freud so I ‘cut Marx some slack’ with his ‘from each according to his ability, to each according to his needs’ dictum, a dictum that I regard as completely admirable – and on the side of the angels.

        BUT we have to deal with human nature, which also includes motivation by blind (instinctive) self interest. Not banal but real.
        I’ve got to ask: do you want an international rules based system? Obviously that’s a Marxist concept (even if he envisioned it occurring under international communism).

        Hove you stopped to think why we don’t have an international rules based system? Have a deep look at yourself, and you will know why! (In fact, if we are to survive as a species we must achieve international rule of law eventually).

        Now, back to MMT: it offers a synthesis of ‘invisible hand’ markets driven by profit seekers (the neoliberal model), with government facilitation of the common welfare (the Marxist model). In short, MMT allows for account creation in the ‘public sector bank’ (central bank) IN ADDITION TO account creation in private (commercial) banks – as at present – when banks write loans for credit worthy customers.

        We are on the same side; the goal is universal above poverty participation in the economy, not “revolutionary communism” per se, if by that you mean equality of outcome, since as I said, humans don’t have unconscious ‘justice based’ communist instincts* – instincts which would necessary for ‘equality of outcome’ to work.

        *humans do have a vestige of a reptilian brain embedded in the evolved cortex/thinking/self-aware brain; the former is not concerned with ‘justice’, which is a concept emanating from the latter. So you ignore brain structure at your peril- as demonstrated by your misplaced remarks about ‘pop psychology’.

      4. ’ We are on the same side; the goal is universal above poverty participation in the economy, not “revolutionary communism” per se ’’.

        You are wrong. Communism is not on the same side as the NMT (social democracy) is one step ahead. Human history does not move sideways, it only moves forward or backward. Yes, true, the goal is not communism by itself, and if it is a fair and comprehensive income for the majority. For this problem, the NMT provides a partial, precarious and reversible solution (as well as impossible to bring to reality in capitalism because of the current relationship of forces) with its J.G. The difference between NMT and communism is that, in addition to the construction of a J.G., it aims to eradicate cancer, the root and nuclear problem of capitalism: the private ownership of the means of production. Private ownership of companies that is the true and only engine of the creation of inequality, as economic science and empirical evidence demonstrate. And private property that the NMT cannot and does not want to eliminate. However, democratic communism does aspire to create a social property with command, control and control of its workers (workers’ democracy). You go behind. It’s just that.

        On ‘personal benefits, self-interest, survival instinct’ in socialism. Socialism does not reject personal benefits, but EXPANDS THEM. It extends them to society as a whole. Collective subjects (family-company-country) do not minimize the individual and his personal interests, but instead, develop their ability to obtain them on a larger scale. This is an ABC of economics, sociology, biology, etc …

      5. “BUT we have to deal with human nature, which also includes motivation by blind (instinctive) self interest. Not banal but real.”

        What is human nature? The whole point about the materialist phsychology is that like Marx it recognises that phsychic processes are not some subjective series of accidental unrelated phenomenon, but are as Marx points out in relation to Darwin’s theory of evolution the consequence of objective material conditions and reality. That is why Marx in comparing his theory of historical materialsm to Darwin’s theory of Evolution says that its basis, the analysis of social development is also a process of the unfolding of a natural law.

        I suggest reading The Poverty of Philosophy, and Marx’s examination of this human nature, and why it is different for different human in the same society, and why it is different in different societies, precisely because “being determines consciousness”.

      6. Boffy says:
        “That is why Marx in comparing his theory of historical materialism to Darwin’s theory of Evolution says that its basis, the analysis of social development is also a process of the unfolding of a natural law”

        Looking at nature, I have a problem with the concept of ‘natural rights’ of classical Liberalism, and also perhaps the ‘natural’ law’ alluded to above. To what extent does Marx rely on the concept of Natural Rights, to conceive this ‘natural law”?

        In my observation, Rights do not exist in the natural world, but emanate from the cortex brain, which has evolved within the natural world, In other words, natural rights did not exist before humans were able to conceive them. [OTOH an eternal God, beyond space/time, might be the source of ‘universal justice’]

        No doubt alpha males and females will always exist, who will feel entitled to flout ‘natural law’? Better to accommodate these individuals in an economic system devoted to promote the common welfare?

      7. True, it is MMT and not NMT. My reptilian brain, that which according to you Marxism and socialism do not take into account ¿¿¡¡, and brain that according to Daniel Kahneman (in his work ‘Think fast and think slowly’) only makes short language (even acronyms) , fast and emotional has defeated my frontal neocortex. Although he did not do it in my first paragraph.
        On the other hand, the important side of this debate, if your criticism of my criticism is just that, your slow, deep and non-emotional thinking seems to agree that my point of view on MMT is correct.

      8. Antonio says:
        “NMT provides a partial, precarious and reversible solution (as well as impossible to bring to reality in capitalism because of the current relationship of forces) with its J.G”

        I admit at first I read this and dismissed it out of hand, because the first proposition is not correct, ie, MMT’s JG policy itself is sound both from a practical and theoretical viewpoint. However the second proposition is not so easily dismissed; indeed MMT is currently disputed by ‘luminaries’ such as Krugman and Summers (who haven’t bothered to study MMT), and even some US Senators have introduced a Bill condemning MMT as ” a danger to the US economy…..” So we will have wait and see whether MMT is impossible in the present circumstances.

        Yet a possible ray of light: last night on radio, a well-known financial commentator in Australia said :”there’s this new thing called MMT (!) which might mean it’s possible to simply write down the massive global accumulated government debt” in a discussion about CB’s and negative interest rates, etc etc, and he also noted “neoliberal governments (and CB’s) appear ready to anything to avoid recession”…..
        So the threat of a looming recession might be the way in which MMT becomes mainstream economic orthodoxy!

        Antonio says
        “The difference between NMT and communism is that, in addition to the construction of a J.G., it aims to eradicate cancer, the root and nuclear problem of capitalism: the private ownership of the means of production. Private ownership of companies that is the true and only engine of the creation of inequality,”

        No, inequality ALSO has more fundamental causes…. but then I don’t want to bore you (again) with the reality of the human psyche, especially its (unconscious, *instinctive*) self-interested, competitive component, honed over eons in a predatory competition for vital resources (within and between individuals and tribes), in the natural world.

      9. “To what extent does Marx rely on the concept of Natural Rights, to conceive this ‘natural law”?”

        Not at all! Natural Rights, as Marx sets out in The Critique of The Gotha Programme are an illusion. All human rights only exist to the extent that those that claim them can enforce them. More importantly, as Marx points out in the COGP,

        “Right can never be higher than the economic structure of society and its cultural development conditioned thereby.”

        And that economic structure and cultural development is determined by the development of the productive forces, which proceeds as much as a consequence of materialist laws as does evolution by natural selection.

        That is precisely the point of Marx’s Historical materialism, the laws governing social development are materialist laws, laws of Nature, the most fundamental of such laws in regard to the social development being the law of value, whose material basis is precisely that beyond a minimum level, where humans can subsist on the free gifts of Nature, in order to live, humans must produce in order to consume. The labour that is undertaken to produce their requirements constitutes the value of that production. It first takes the form of individual value, as the primitive commune, and then the family which emerges along with private property out of the commune, produces use values for its own direct consumption, and so measures the time take to produce each type of product against the utility it derives from each kind of production.

        It is this basic material need to live that conditions production, and it is again material conditions that determine how long labour must take for each type of production, what must be produced to live (for example, in cold climates primitive peoples must devote labour-time to find shelter, to producing warm clothes etc. These varying conditions, and choices forced upon humans in different conditions also force them into different thought patterns, cultures, morals etc.

        This same material condition, means that the commune or peasant family seeks to raise its productivity via division of labour. The specialisation arising from it, also means that a social division of labour arises, so that trade begins and expands. Products begin to be produced not to be directly consumed, but to be exchanged for other products to then be directly consumed. This means that a these products appear in the market place, instead of their individual value, it is a market value that emerges, as a result of competition between different peasant producers. The market value of each type of product determines the ratio of its exchange against other products, and the more these products become the focus of production for each household, the more they take the form of commodities.

        This same process means that the producers of the commodities, in search of the most efficient means of producing them look to develop or acquire new tools, or to acquire animals to assist in the work and so on. Material conditions again determines the facility of some producers, their ability to produce more easily, and to acquire money, which acts as capital.

        As Lenin points out, none of this evolution of social development requires any subjective sociology to explain it. It can all be explained purely on the basis of these laws of nature relating to material conditions, laws of physics and anatomy and so on. It is those natural laws that result in commodity production arising as a consequence of competition between individual peasant produces, as each seeks to maximise the use value it obtains for any given amount of value/labour-time. And it is natural laws that determine that some will thereby be more efficient than others, and thereby accumulate capital, whilst others will lose their own independent means of production, and become wage workers, who thereby become employed by the former, which means that the interests of these two different groups become contradictory, increasingly dividing them into two antagonistic social classes.

        For a really good analysis of that, read the other of Lenin’s critiques of the moral socialists in What The So Called Friends of The People Are

      10. Neil Halliday Says
        ’No, inequality ALSO has more fundamental causes…. but then I don’t want to bore you (again) with the reality of the human psyche, especially its (unconscious, * instinctive *) self-interested, competitive component ’’,
        It does not matter what other causes you designate as causes of inequality (e.g. those cited by “ unconscious, instinctive * self-interested, competitive component ”), but you could also cite the primary and various natural and climatic resources existing in hunting geographical area, etc …, because these causes will not be different and will not be outside the Capital Ownership factor All these causes are included in the analysis of the Capital Property and its distribution. Why? Why the structure economic and the science that studies it (the Economy,) is the dominant social structure, and it is the structure from which the rest derive (although there is some feedback and feed-back): ideology, politics, cultural, religious, sexual, … and the psyche, said with a simple example: it is the economic need to provide yourself and your group and personal environment with the corresponding food, clothing, home, health, safety etc … that created a and explains the instinctive, self-interested and competitive desires of the individual and the groups. The human psyche comes out of the human economy and NOT REVERSE. And the psyche evolves and varies as the economy does. At the core of that economic structure (equity and income) what is known today that exists in it only has the name of Capital Property. Capital and its property
        The empire, its imperativity, of the economic structure over everything human, I have not discovered, of course. He did K. Marx (structure and superstructures) and today is a dominant paradigm admitted by all economic science. On the right and on the left. An IMF former director, Banco Milanovic, for example, admitted it without a doubt recently.

      11. NH writes: “We are on the same side; the goal is universal above poverty participation in the economy,”

        No, we’re not on the same side. In practice, whenever a movement emerges that challenges the foundations of capitalist power, you will work to undermine that challenge and the possibility of overthrowing that power. For example, and this is at your best, you’ll support Syriza. or Corbyn. or a Hollande in France in 2012.

        That’s not my side.

      12. Anti Capital writes:
        “In practice, whenever a movement emerges that challenges the foundations of capitalist power, you will work to undermine that challenge and the possibility of overthrowing that power. For example, and this is at your best, you’ll support Syriza. or Corbyn. or a Hollande in France in 2012”.

        Wrong; there is no way I will work to undermine any challenge to the foundations of capitalist power. I may posit the reality of instinct as an explanation of the immovable attachment that some individuals have to private property and along with it capitalism, but that is another thing altogether. (Indeed I quite like owning my own house… but I grant it’s not a necessity, if other housing arrangements can be established).

        I’m here to say MMT offers a way around this immovable self-interested attachment that many individuals have to ‘invisible hand’ free-market capitalism, WITHOUT the necessity for a – violent – revolution and compete overthrow of the neoliberal system.

        The problem for Corbyn is he has no way, in a neoliberal economy, to pay for desirable public programs, last of all an above-poverty JG (not to be despised – 38 hrs in the MMT JG program earns an above poverty wage, allowing for financial and social freedom}.

        In fact Corbyn’s only option is to tax the rich, which MMT shows is not necessary as the initial option. MMT economist Stephanie Kelton puts it this way (very amusingly): “money doesn’t grow on rich people”.

        Syriza is a worst case example of all Left parties attempting to govern under the rules of neoliberalism; eg, Hollande, and Clinton would have been just as bad….but here is the sad bit, Bernie Sanders would also face overwhelming opposing forces of self-interest that would make a Bernie Sanders government unviable, in the current neoliberal system.

        So….I’m on Marx’s side: his vision is universal above poverty level participation in the economy. MMT acknowledges Marx as its inspiration; how we achieve the goal in the *modern world* is the significant point, and might not necessarily accord with every idea that Marx posited nearly 200 years ago, during the maturation of the industrial revolution.

        Michael Roberts stuff about falling profits causing recessions is nonsense; it’s loss of consumer purchasing power that causes recessions (apart from ‘casinos’ set up by sycophantic bankers (ie draining the real economy) with their fancy derivatives.

        ie what causes the loss of consumer purchasing power, when there is no loss of available real resources at the beginning of a recession? (surely costs outstripping wages, personal indebtedness reducing discretionary spending etc etc).

  10. I’m currently in South Asia, and I can report that the world downturn is hitting India (one sixth of humanity) very hard. India’s two-decade boom in autos, real estate, telecom, and consumer goods, powered by migrant labor remittances, extreme labor exploitation, and self-colonization (the debt-based immiseration of hundreds of millions of rural farmers), has crashed into a wall. Also, it’s worth noting plutocrat-controlled India has been faking GDP growth (Bloomberg: since 2014, just like plutocrat-controlled China (see Michael Pettis:

  11. @Robert
    One question.
    How do we know that the profit recession doesn’t have to do with the trade war?

    Because if that’s the cause we should expect a deal to solve the problem and delay a recession

    Sorry if it’s a stupid question.
    I’m not an economist and although I understand your logic cant really judge it.

      1. I could argue and I think is technically true that.

        Sure there is a top there but it is a clear drop because of the trade war talks that happened before and after the us elections.

      2. Let me be clear.
        I think Robert’s is probably right. What I’m trying to do is exclude other scenarios to explain the graphs.

  12. “The flaw in Marx’s proposition, namely: is that it fails to take into account the role of *unconscious, self-interested survival instincts* in human behaviour.”

    Says someone who skipped volume 3 altogether. Marx who refused to bow to the empirical form of appearance of social relations like Smith and Ricardo actually addresses the unconscious manner in which agents of production engage phenomena like competition and equalization of profit. Precisely because their selfish behavior they can’t realize that value regulates prices or profit is only an empirical manifestation of surplus value.

    Lacan and those associated with the social form of value know this very well. But unlike economists who keep falling in the trap of empiricism, they know well that Marx was way ahead of Freud and others who studied behavior in modern capitalist society.

    This is not formal logic but rather dialectical logic which contains the former.

  13. “A slave or a serf is indeed fixed capital, like cattle or horses, but it doesn’t mean it doesn’t yield surplus.”

    I didn’t say it doesn’t yield surplus, but the question is what kind of surplus? It yields a surplus product, but a surplus product is not a surplus value. A surplus product is a surplus of use values, i.e. more use values are produced than were consumed in the production of those use values, but as Marx demonstrates this Physiocratic notion of value and surplus value is wrong, and does not at all mean that there is a surplus value produced.

    Suppose I require 10 kilos of corn to reproduce my labour, and it takes me 10 hours to produce this corn The value of the corn is 10 labour hours. Now, suppose, I have an ox, which requires 10 kilos of corn to reproduce itself. With the aid of the ox, I now produce 30 kilos of corn. My output of corn has risen by 10 kilos after I have accounted for the 10 kilos I must now feed to the ox. I have produced a surplus of 10 kilos in terms of use value. But, the value of my output has not changed one jot. It remains 10 labour hours. And, if I must exchange the corn for other commodities required for the reproduction of my labour-power, I will now find that because the unit value of the corn has fallen, I must exchange more of it to acquire these other commodities, i.e. their corn price will have risen, which raises the value of my labour-power, which may now mean that although I produce a surplus product, I produce a negative surplus value, i.e. the value represented by my end net product, is less than the value of my labour-power.

    The same applies if I use a machine rather than an animal. If I used a robot, the surplus product could be even greater still, but if the robot was fully autonomous, absolutely no new value would be produced by it at all, despite it producing a huge surplus product. Or, as I said, if I could train chimps to do this work rather than a robot, the same would apply. Use value is not the same as value, as Adam Smith set out, even before Marx, and a surplus of use values is not, therefore, the same as surplus value, which is equal to surplus labour, just as value is labour.

    Labour as Marx describes is free labour and has to be so for the Law of Value to operate, and is so because of the Law of Value. The Law of Value as set out by Marx in Capital I, and in his Letter to Kugelmann, as well as in The Grundrisse, and elsewhere is based upon a simple set of propositions. It is a necessary consequence of Marx’s Historical Materialist theory. Firstly, it states that value is free labour, and the amount of value that any product, and so subsequently any commodity, contains is determined by the labour required for its reproduction. Secondly, because labour itself is constrained – we each and collectively have only a given amount of time during which we can perform labour – we act to allocate this available labour-time, either individually, or collectively, so as to maximise the use values that we can obtain from the application of this labour.

    As Marx says, in Capital I, the clearest example of that is Robinson Crusoe, who notes how much time it takes him to produce different products, and then allocates his available labour-time to maximise the use value he can obtain from it. Engels in Anti-Duhring says that this same method of allocating available labour-time so as to maximise the use value produced, is precisely what also a communist society would do, via collective decision making. Marx makes the same comment about value becoming even more important under communism, and the need for such calculation of expenditure of labour-time that much more important as a result. But, as Engels describes in The Origin, this is also what occurs in the primitive commune where its members make collective decisions on how to allocate available labour-time so as to produce the greatest use value, and its precisely that which leads the primitive commune to engage in the division of labour so as to raise productivity, and thereby reduce the unit value of its products, as they increase the quantity of use values produced in a given amount of labour-time.

    But, that requires that those involved in this calculation of value are themselves free labourers, able to make these choices about how to allocate their available labour-time. The slave or serf is not. As Marx puts it in the Grundrisse they do not constitute independent centres of production and exchange. The slave or serf does not have the freedom to decide how to allocate their labour-time, to labour or not labour and so on, nor in what to consume. The slave owner tells the slave how long they will work, what they will produce, and it is similarly not the slave, just as with the machine or the pack animal, that then subsequently enters the market to buy the commodities required for their reproduction, but the slave owner, just as it is the machine owner, or the owner of the pack animal that buys the commodities required for the maintenance of their machines and animals.

    Incidentally, your comment that a worker is variable-capital is also wrong. Variable-capital is the wage goods required for the reproduction of the worker, or their money equivalent paid as wages.

    I would recommend reading Lenin’s On The So Calld market Question in relation to this, because its also very relevant to other issue raised in this discussion. In it Lenin confronts the ideas of the Narodniks, whose petit-bourgeois moralism led them to bemoan the misery that capitalist development was producing in Russia, as it displaced the independent peasant production, resulting in the peasant producers becoming unemployed on their way to becoming wage workers, as I previously referred to in relation to the work of Kay. The same petit-bourgeois moralism can be found amongst the so called “anti-imperialist” left today, who like the Narodniks, and Sismondi before them, seek to hold back capitalist development in less developed economies, especially where that development arises on the back of foreign investment by “imperialism” (another gripe raised by the Narodniks in Russia) as their preferred method of avoiding the misery that capitalist development also brings with it. But, as Lenin sets out, what Marx had shown was that the two things are inseparable. The process by which the peasant producers lose their means of production, and become unemployed is precisely the process of primary accumulation that Marx describes, and which Marx says is historically progressive and revolutionary, because without it there is no accumulation of capital, and so no development of the productive forces on the back of it, no production of surplus value, and secondary accumulation of capital, raising of living standards for all, including workers, no development of an industrial working-class, and prospect, therefore, for the development of Socialism.

    Lenin describes this process in relation to Russia, of how what starts of as the individual value of products, produced by peasant households, becomes transformed into a market value, of these peasant producers send a portion of their products to market as commodities, where competition average out these individual values to an average market value, i.e. the average labour-time that all producers of that type of product require for its production. And, on the basis of these average or market values for each product, as it becomes a commodity, so the relation in which these different commodities exchange for each other, their exchange value is established.

    The Law of Value, continues to operate here then. The free labourer, engaged in direct production allocates their available labour-time so as to maximise their production of use value. It is only the free labourer that can do this. The slave or serf cannot because they are not free to choose how to allocate their labour-time, and they do not make choices about how best to maximise their own use value. They do not represent an independent centre of production and consumption, which is required for the determination of value. When the free independent labourer begins to produce products to exchange for other products required for their direct consumption, which increases as the division of labour in society increases, and artisan produces in towns specialise in the production of certain of these products, the decision of how to allocate labour-time by the individual producer, now becomes one in which they consider how to use their labour-time to produce products which will have the greatest exchange value, in other words, what products can they produce which will enable them to obtain the maximum number of other products in exchange for them to meet the needs of their own consumption. That encourages them to engage in a further division of labour themselves so as to specialise in producing those products in which they feel they have a comparative advantage. It is a process, which inevitably leads to generalised commodity production by these independent, and peasant producers, and, as Lenin describes, precisely because of this dynamic, some peasant producers will have advantages over others. Competition between them enables those with advantages to accumulate excess money, which then becomes capital in their hands, used to buy additional fixed capital, to raise their productivity, and so on, which leads to the less advantaged producers losing their means of production, an becoming wage workers.

    All very distressing as this process unfolds, which is what leads to the outrage of the Sismondists, and other petit-bourgeois moralists, the subjectivists, like the Narodniks who wished that only history unfolded by more kind processes, and today’s petit-bourgeois “anti-capitalists” and “anti-impeialists”, whose approach is like that of Proudhon thaat sees dialectics as simply cutting out the “bad” aspects of social devlopment so as to leave only the “good”. Yet, as Marx and Lenin describe this process, however distressing, is the necessary corollary of capitalist primary accumulation and development, and as such is historically progressive, and revolutionary, providing the basis for the lifting up of the whole of humanity, and the creation of the required conditions for Socialism.

    1. One other point on the question of slaves. I previously referred to Marx explanation of how the surplus product of slaves becomes manifest as a surplus value where slave production exists alongside or is grafted on to commodity production. I pointed out, that as Marx says, if the individual value of the slave production is lower than the market value of the commodities produced, the surplus product appears then as a surplus value.

      But, Marx also notes that slave production is very inefficient, and so often this may not be the case. The slaves cannot be given sophisticated technology to use, they frequently misuse the tools they are given, including animals, as Marx cites from various sources in Capital, as a means of sullen rebellion. They have to be given far more basic, and resilient tools to avoid such misuse, and so on. The consequence is that the level of productivity can be much lower, so that the unit value of output, even allowing for the fact that the slave produces no new value is higher than production by capitalist producers. As Marx and Engels describe, this is actually why slave production dies out, a point also noted by Nicholas Taleb in “The bed of Procrustes”.

      The same kind of phenomena was seen in the USSR and other Stalinist states, where workers increasingly denied freedom, and thereby turned into more like slaves, resisted by breaking machines, refusing to operate more sophisticated machines that had to be slowed down, and modified and so on.

      1. August 27, 2019 at 11:31 am | Reply
        One other point on the question of slaves. I previously referred to Marx explanation of how the surplus product of slaves becomes manifest as a surplus value where slave production exists alongside or is grafted on to commodity production.”

        Can you provide a reference for this clearly important analysis? I think Marx greatly underestimates the extent of commodity production in the Roman economy. For example the great landowner Cato’s motto was: ”Sell, don’t buy.”

      2. While I agree that Boffy has accurately reproduced Marx’s ideas, there is one aspect of slavery that I do not recall Marx addressing, namely the silver mines of ancient Athens worked by slave labour, which silver of course was instrumental in making Athens the great entrepôt of its time. Now surely such silver immediately has a value? This would be because, extending the argument Boffy above adduces from Marx, such production is already embedded in a network of commodity exchange.

        I think when Marx says slavery produces no new value he is thinking of patriarchic slavery where the slave households reproduce themselves.

    2. The surplus I mentioned is that one based that can be exchanged for money, in the exact the same as an industrial worker. A serf in a feud indeed cannot be subjected to the law of value because what the excess he produces goes directly to the master.

      This is not the case of a slave in the Americas working in a plantation field. Just like an industrial worker, the excess goes to circulation in the market. Unlike an industrial worker, he just gets what it is needed for survival, like a machine or cattle. Like an industrial worker he doesn’t choose where his production is traded. Unlike a peasant in Russia, who can, in theory, decide with whom the trade will proceed.

      Observe that the fact that a slave can be considered constant capital means that it will be a more expensive type of labor, in principle. If you can just subtract it, the rate of profit will increase. Slavery is a burden within the capitalist system.

  14. For the main controversy, Roberts-ucanbpolitical vs Rasmus (excuse my English)
    a) I don’t think Roberts or any other economical site I’ve studied, Marxist or not, including Rasmus’s is making a specific prediction for the next recession or crisis or intends to. Certainly not in the above article. By “specific” I mean two things: a certain time-span in which the next crisis will hit with a given possibility (6 months, 6 years or what?) and an estimation of the depth, of how serious the incident will be (like 1929 and 2008 or the Asian crisis in 1997 or rather a more shallow incident like the early 1980’s?). Providing graphs like the ones both Rasmus and Roberts do provide can only help saying “something is going worse and worse in capitalism” but does not help reaching a specific prediction (not a prediction at all, in my opinion).
    So has anybody out there actually produced a prediction of that sort? That is a real question to the experts, ‘cause I am not one of them, although I’ve studied many articles and books, old and contemporary (including “Das Capital”). Because, that is the aim, to predict. (Even regardless of the POLITICAL initiatives that I understand are completely unpredictable and can indeed accelerate or postpone –though only for SOME time- the outbreak of a crisis, e.g. starting a war now or later, bailing out or not this or that corporation etc).

    b) IF such a prediction is to be reached, then there is the controversy on the tools to be used, the criteria, the indexes. The heart of the matter is mentioned in Rasmus’s last comment, about the distinction between fictitious/speculative capitals/profits and non-fictitious/”productive”/non-financial capital/profits. I think Marx is still very valid in making the distinction, not for explaining the “final breakdown” of capitalism (Jack, no way Marx had such a deterministic line of thought, after all, he is referring to crises of his own time when elaborating his theories in Capital and he is referring to a TREND with contrary trends too, even on the fall of the rate of profit…), but for the real capitalist crises that occur.
    That is because ULTIMATELY all claims-for-value (real or not, such as money) that are produced must correspond to real produced values, real human exploitation. If they do not, they will collapse. You can’t fool everybody for too long. Because ULTIMATELY all values and claims-for-value are to be consumed for a meaningful (for the organizers of production) purpose, may they be bread or tanks and may the purpose be protection of the capitalists by competitors or plain human survival/reproduction. So new claims-of-value must correspond to new human exploitation coming in circuit. That is why e.g. MMT is just silly juggling and you can’t keep everybody happy, both capitalists and workers, by printing free money FOR A LONG PERIOD OF TIME (not even for a short period if you refer to a closed economy or the planet, maybe I’ll refer to this in a later comment). You can print new money or new loans for some time even without new human exploitation/profits flowing in the system, but that is just a loan of time. This way you have governments winking at the capitalists “don’t worry, I give these to the workers for now, to quell their rebellion, but I’ll take it back as soon as possible and with profits for you”.
    So one would expect that a prediction of a crisis should be based (among other things perhaps) upon the discrepancy between fictitious and non-fictitious profits and capitals, like the ones Marxist writers make (Brenner and Harman among my reads). But Rasmus (and others) claims that this is impossible in reality, because studies estimate that nearly one-third pf corporations’ profits are fictitious. These estimates are valid of course, I can see them everywhere. So HE IS RIGHT if this is criticism for Roberts’s graph which shows TOTAL profits instead of NON-FINANCIAL ones. That is another reason the graph/article does not make a prediction (or intends to, I defend Roberts), but instead merely says “sthing is wrong here”. After all, if these “profits” have been falling for 4,5 years, why didn’t we have a recession last year? Maybe there will be another 4 years for the next recession -or maybe not…
    On the other hand, Rasmus is wrong if this is intended criticism to the marxist methodology of trying to make the distinction anyway. And I think he CONTRADICTS HIMSELF. These SAME STUDIES that estimate the one-third ratio MUST HAVE ALREADY employed a method to distinguish between financial and non-financial profits. So why is it impossible and not just extremely hard to employ these methods for as many corporations as possible, even the whole western or global economy? I know it is TECHNICALLY very difficult to discriminate between “real” and financial profits, but it is THEORETICALLY imperative. And it must be technically feasible too.
    Besides this, there is a better-than-nothing approximation to non-financial profits. That is the profits of at least the non-financial corporations. I understand that non-financial corps do have financial profits, although financial corporations have only financial profits. It is not perfect, but it is an easy start. Anyway, I’ve seen graphs of both categories in books and essays. They are still NOT sufficient to PREDICT a crisis (time and depth). But essential. Meaning if you have NON-FINANCIAL profits increasing, then it’d be bizarre to have a crisis. Now, in 2007 was it financial or non-financial profits increasing before the crisis? Or both? Naturally, before a financial bubble bursts, a financial bubble inflates to its local maximum. Thus I’d expect financial profits to be on the rise right before the 2007 crisis. Paraphrasing what Marx had easily noted, about all (almost all) appearing just fine EXACTLY RIGHT BEFORE a major crisis of overproduction erupts.

    c) And finally, what about the rest of the factors that are significant to actually predict a crisis? The REAL rate of profit is basic. If crisis is the VISIBLE event of decline in production (let’s say GDP) that induces rapid deterioration of living conditions for the masses -rise in unemployment and fall in wages; then one should indeed take into account NOT just the deeper cause of a crisis to predict one, but the secondary SYMPTOMS, however paradoxical this may sound. The underlying cause is the contradictions innate in capitalism: of trying to get a stable rate of profit regardless of human needs while at the same time it remains a system based on free wage labour and therefore the satisfaction of human needs; the contradiction between the properties of the working man as a labourer and as a consumer; if it tries to circumvent the above contradictions at the expense of “others” (virgin areas or markets, competitors), the contradiction between a wishful ever-expanding market and a finite planet with finite population and area. In other words the tendency of the rate of profit to fall in any closed system (it doesn’t fall if you have an ever-expanding market with new masses of workers flowing in the system ad infinitum). But this tendency cannot make any specific predictions, although it does inform that in capitalism crises are both inevitable and worsening (in the long term) demanding more and more capital and lives to be destroyed for the economy to recuperate after each. I’ll elaborate only to explain theoretically.

    For specific predictions of when the production is going to start falling you’d need other variables. And indeed you’d have to take into account BOTH financial/fictitious and non-financial sectors. As capitals do not find profitable enough outlets in the industry, they flow into the financial sector (I don’t think it’s the other way around as Rasmus suggests). And although this doesn’t help them find a solution to the falling profitability in the real sector, the transfer of capitals from the productive sphere to the fictitious one (that is, the sphere of promises of real profit sometime in the future) DOES help them to buy TIME. And it does affect whether real people will or won’t lose their real jobs in this decade or the other. So it IS crucial for a PREDICTION of the time a crisis actually strikes. I repeat, prediction of a CRISIS, not deduction of the underlying causes, which may be present for decades with no crisis appearing at all.
    If you have a failing industrial sector but there is still room for financial bubbles, you’ll probable get no crisis for the time being. Although WHEN the crisis arrives, it will be even worse, with even more businesses failing and even more capital being depreciated. Since production falls when capitalists realize they cannot sell products of EITHER sectors with the previous profits, the question becomes when will THEY realize it. In BOTH sectors.
    So I suppose it is reasonable to watch the capacities of both fin. and non-fin. markets to absorb fin. and non-fin production. (That is production of loans and stocks in the first case). I am not an expert I repeat, so I do not know the exact available indexes that measure these, but I presume it’s something like the disposable income of both consumers and corporations for the non-fin. markets. And similarly the creditworthiness of these two, for the fin. markets. But how do you measure creditworthiness? Not by the Moody’s evaluations, for sure. Probably by something like a ratio of debt to disposable income. These are the first symptoms that would flare up in case of a future crisis. As these indexes would shrink you’d expect the warehouses, the inventories, to soar. (What would the respective “inventories” of the fin section be? I can think only of non-performing loans.) With markets contracting (smaller disposable income and debt to income ratio) you have inventory indexes and non-performing or delaying loans increasing. And then you have a fall in production and a fall of profits (total profits). (In this symptomatic analysis the deeper cause appears as a symptom. Because even if non-fin profits have been falling beforehand, they were replaced by fin. ones for some time –even decades in our case of post ‘70s financilization.) And you have unemployment rising, wages falling. With no new markets on the horizon or competitors to drop dead, this creates a vicious circle with contracting market, until the economy is transformed to more export oriented (IF international competition allows so), so that fallen wages do not affect production as much.
    And what about predicting the DEPTH of a crisis, besides the time. Those who talked of an imminent new crisis in 2016 must have been somewhat disappointed by the mild fall in GROWTH that occurred. I suppose the depth is equivalent to the quantity of capital that must be destroyed for the overproduction to be healed –that is with no state intervention taken into account. So you’d need an index related to the growth of inventories and non-performing loans, at least on the brink of the crisis, for the minimum capital to be destroyed. If the state intervenes (e.g. with bail-outs) it only temporarily postpones this destruction, on the promise it will find other sources of real value/wealth in the meantime: at the expense of workers or foreign competitors or both.
    All this was to eventually find that Rasmus and ucanbepolitical are both right in a way –for different questions. Marx’s falling rate of profit tendency DOES explain major capitalist crises, but it cannot predict them on its own. It’s too historical for that.
    d) About the pre-tax and post-tax profit graphs. I think the pre-tax profits so a better image of the actual capabilities of the economy (in BOTH sectors), since taxation is something arbitrarily decided be the state. It’s a kind of maximum for the corporate profits. So if a Trump lowers taxation, he only gives a little more time for the consequences of falling profits to raise their heads. This does not compensate for the fact that Roberts’s graph refers to profits/GPD instead of profit rate or total profits instead of non-fin and fin profits separately taken.
    e) I’d like to ask Rasmus to provide the sources, the data, that proves that availability of credit and confidence cause investement, in a way that:
    -it proves it is not just correlational but causal
    -it defines what the heck “confidence” is.
    Because I fear we are starting to fall at the “psychological” interpretations of charlatans like MMT’s and liberals and neoliberals when evoking such terms.
    Investment must be dependent on profit rates and debt too. Otherwise, why do you have so little investment now, even though public debt has been on the rise almost since ever and corporate debt since the early years of the recent crisis –and not specifically now.

    1. The fact that the investments are high now is not quite an exception to the rule of profit falling before. In the 2008 crisis, investments were high before 2007 for 2 years, even though the rate of profit was low. But they were slowly decreasing, as they are now. A huge crisis is eminent within months, in the side of the rate of profit, if the pattern is the same.

  15. Last week the bond market went into reverse. A sure bet that rates would continue to fall fell over. Interest rates for the key 10 year US reversed from 1.42% to 1.75 then to 1.79% This has caused tens of billions of losses to the speculators and presumably to the banks that allowed them to leverage their bets. Equivalent to a crash on the stock exchange. This did spill over to the stock market provoking a quant quake, because those speculators had to offload momentum shares, most probably used as collateral. This was followed by liquidity draining from the market. This exacerbated the dollar shortage caused by the burgeoning budget deficit and the surge in new bond issuance. The overnight borrowing rate shot up to 10% forcing the New York Fed to inject $75 billion into the markets which was oversubscribed. Interest rates thus remained elevated just as the FED reduced its rate. The word in the market was that the FED had lost control of the money markets. Then Fedex brought out its outlook saying effectively the world economy was on its knees. It shares plunged 14%. The discussion in the markets then moved on. The view hardened that the only way out was for the FED to relaunch a new round of quantitative easing to pump liquidity into the markets. This was not denied by the FED chairman after the conclusion of the rate setting meeting today. Worse, Friday is witching hour when derivative trades have to be settled. Shades of 2008!!!! It is not only going pear shaped but pawpaw shaped.

  16. It appears the blockage in the financial plumbing in the USA is not a passing phenomenon. Daily cash injections to reduce REPO rates to continue until mid October. Two senior New York FED officials have been sacked presumably because of lax oversight of regional banks (ones considered non-systemic risk). There appears to be a growing liquidity crunch in this layer of banks, especially Texan banks with exposure to the oil industry.

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