Archive for the ‘marxism’ Category

ASSA 2018 part 2: value, profitability and crises

January 8, 2018

At ASSA 2018, away from the huge arenas where thousands listened to the millionaire guru mainstream economists speak, were the sessions under the umbrella of the Union of Radical Political Economics (URPE), where just handfuls heard papers from a range of heterodox and radical economists.  These sessions were a mixture of debate on Marx’s value theory (among Marxists) and its dismissal by followers of Piero Sraffa.  But there was also some very interesting research on the nature of capitalist economic cycles and the causes of crises, including the 2008 crash and the Great Recession.

Supporters of ‘neo-Ricardian’ theorist, Piero Sraffa, had a session aimed at comparing Marx’s analysis of capitalism with their own hero.  In his ‘point by point’ comparison of Marx and Sraffa, Robin Hahnel explained that Marx was the “great grandfather” of the critique of capitalism, but a great deal has happened since Marx died in 1883”and it was time to acknowledge that “Marx’s attempt to fashion a formal economic theory of price and income determination in capitalism based on a labor theory of value, and elaborate a Hegelian critique of capitalism, can now be surpassed”.  Now “a number of distinguished Sraffian economists have used modern mathematical tools to elaborate an intellectually rigorous version of Sraffian theory which surpasses formal Marxian economic theory in every regard”.

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To justify this claim, Harnel then offers the usual set of neo-Ricardian arguments against Marx’s value theory (first raised by Ian Steedman in 1977): values are not necessary to explain prices or profit under capitalism, indeed they are redundant; Marx’s value and profitability theories are empirically refuted; and anyway, Okishio has completely rebutted Marx’s theory of crises based on the law of the tendency of the rate of profit to fall.

There is no room in this post to respond properly to these traditional arguments of the Sraffians.  Instead I refer readers to the battery of work done by Marxist economists over the last 40 years that show the logic of Marx’s theory, expose the unrealistic assumptions in Sraffa’s approach and provide empirical support for Marx’s laws of motion under capitalism.  I have only to mention but a few: the work of Husson, Carchedi, Freeman, Kliman and Moseley among many others.

Indeed, at ASSA, in other sessions Marxist value theory was convincingly expounded.  Riccardo Bellofiore took us carefully on a tour through Marx’s value theory from various anglesAnd see Bellofiore’s account of Sraffa from another session.

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And Fred Moseley recounted his important summary of Marx’s value theory and laws of motion in his book of last year, Money and Totality.  His book offers a firm critique of Sraffian theory as well as a convincing interpretation of the so-called transformation problem of ‘converting’ labour values into the prices of production – an issue that the Sraffians and all critics of Marx’s value theory latch onto.

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At ASSA, Moseley’s ‘macro-monetary’ approach to Marx’s value theory was criticised by David Laibman and Gilbert Skillman.

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But Moseley was firm in his view that Marx’s theory of capitalism is internally logically consistent.  The long-standing and widely-held criticism that Marx “failed to transform the inputs” in his theory of prices of production in Volume 3 is not a valid criticism. Marx did not fail to transform the inputs because the inputs are not supposed to be transformed. The inputs of constant capital and variable capital are the same actual quantities money capital advanced at the beginning of the circuit of money capital to purchase means of production and labor-power which are taken as given”.  So prices of production can be derived from total surplus-value and general rate of profit in a logically consistent way.  Marx’s value theory is both necessary and sufficient in explaining market prices, indeed better than mainstream neoclassical marginalist theory or the ‘physicalist’ production equations of Sraffa.

As I said, the debate between Marxists and the neo-Ricardians/Sraffians is now over 40 years old.  It boils down to whether you think Marx’s value theory and his critique of capitalism is logically valid.  Marxists have, in my opinion, conclusively won that debate.

But for Marxist economics in the last 15 years, and certainly since the Great Recession, the issue has moved on to whether Marx’s value and crisis theory is empirically supported.  There has been a mountain of studies on this – with work by Freeman, Kliman, Moseley, Carchedi (and myself).  And this year, Carchedi and I will publish a collection of research by young Marxist economists from all corners of the globe that help verify empirically Marx’s law of profitability and theory of crises.

And at ASSA, yet more convincing empirical work was presented.  In particular, David Brennan presented an analysis based, he said, on using Marx’s law of profitability and Michal Kalecki’s macro identities. Brennan offered “a new methodology based on the work of Kalecki to provide empirical estimates of profits and the various components of realization, profit rates, and the organic composition of capital. These estimates provide new insights into the Great Recession and the “recovery.”

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Now readers of this blog and some of my research papers will know that I have serious criticisms of the Keynes/Kalecki macro identities as a useful tool in explaining crises under capitalism.  In essence, as Brennan also shows when he goes through the macro categories, the capitalist economy’s driver can be boiled down to profits=investment identity.

Why? Because if we assume workers in general consume all they get and capitalists save all they get, while governments balance their books and external trade is in balance, then all that is left is profits=investment.  The Keynesian/Kalecki conclusion is that investment drives or creates profits based on the view of the ‘effective demand’ of capitalists.  But this is back to front.  The Marxist view is that profits drive or create investment, not vice versa.  And there is plenty of empirical evidence to confirm the Marxist view.

But Brennan wanted to make the point that crises could not be caused by just a fall in the rate of profit; slumps also depend on the realisation of the mass of profit.  Marxian theory was not wrong about the causes of the Great Recession, although various Marxian theories emphasized different aspects of the crisis. In the end, the rate of profit matters for the trajectory of the economy. But to understand crises like the Great Recession, profit rates alone are not sufficient. Crises, unlike typical recessions, are sudden and often unforeseen. The Great Recession was both a profit rate and a profit realization crisis.”

Brennan sees the latter as the contribution of Kalecki.  Actually, Marx’s theory of crises has always taken that into account.  Indeed, when the rate of profit falls and is no longer compensated for by a rise in the mass of profit, a slump is set to come.  The Marxist economist, Henryk Grossman, particularly emphasised this aspect of Marx’s crisis theory.

As Marx put it: “the so-called plethora (overaccumulation) of capital always applies to a plethora of capital for which the fall in the rate of profit is not compensated by the mass of profit… and “overproduction of commodities is simply overaccumulation of capital”.  It is precisely when the mass of profit stopped rising that the Great Recession ensued.

And this is what Brennan finds in the US data using his combination of a Marxian rate of profit and ‘Kalecki’ profits.  The profit rate fell in the 1964-1980 period and then rose in the neoliberal 1980-2006 period, fell during the Great Recession and recovered subsequently.  These results repeat what a host of studies have already shown.

Brennan now adds the impact of the movement in the mass of profits (a la Kalecki) and finds that the Marxian profit rate peaked well before the global financial crash and then was followed a fall in the mass of profit and investment.  “It was the significant dip in total profit flows coupled with the low rates of profit, accumulation and exploitation that formed the Great Recession.” Exactly: below is my version.

Brennan adds a slightly different interpretation: “The rate of exploitation up to that time peaked during 2006Q1. Yet profit flows continued to rise until 2008Q3. Therefore, the financial sector was essentially trying to realize profit gains that were not there in real production. This is one reason why the housing boom could not continue much past the end of 2005. While the crisis was indeed precipitated by the housing collapse, the collapse was brought on by difficulties of both profit production and realization.”  Yet, Brennan’s Kalecki analysis confirms the Marxist analysis already presented by Carchedi, Freeman, Kliman, (myself) and many others.

Marx’s crisis theory stands out as mainstream economics flails about, unable to forecast or explain the global financial crash, the ensuing Great Recession and the Long Depression that has followed.

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Forecast for 2018: the trend and the cycles

December 29, 2017

What will happen to the world economy in 2018?  The global capitalist economy rises and falls in cycles, ie a slump in production, investment and employment comes along every 8-10 years.  In my view, these cycles are fundamentally driven by changes in the rate of profit on the accumulated capital invested in the major advanced capitalist economies.  The cycle of profitability is longer than the 8-10 year ‘business cycle’. There is an upwave in profitability that can last for about 16-18 years and this is followed by a downwave of a similar length.  At least this is the case for the US capitalist economy – the length of the profitability cycle will vary from country to country.

Alongside this profitability cycle, there is a shorter cycle of about 4-6 years called the Kitchin cycle.  And there also appears to be a longer cycle (commonly called the Kondratiev cycle) based on clusters of innovation and global commodity prices.  This cycle can be as long as 54-72 years.  The business cycle is affected by the direction of the profit cycle, the Kitchin cycle and and K-cycle and by specific national factors.

The drivers behind these different cycles are explained in my book, The Long Depression.  There I argued that when the downwaves of all these cycles coincide, world capitalism experiences a deep depression that it finds difficult to get out of.  In such a depression, it may require several slumps and even wars to end it.  There have been three such depressions since capitalism became the dominant mode of production globally (1873-97; 1929-1946; and 2008 to now).  The bottom of the current depression ought to be around 2018.  That should be the time of yet another slump necessary in order to restore profitability globally.  That has been my forecast or prediction etc for some time.  Anwar Shaikh in his book, Capitalism, takes a similar view.

This time last year, in my forecast for 2017, I said that 2017 will not deliver faster growth, contrary to the expectations of the optimists.  Indeed, by the second half of next year, we can probably expect a sharp downturn in the major economies …far from a new boom for capitalism, the risk of a new slump will increase in 2017.”

Well, as we come to the end of 2017 and go into 2018, that prediction about global growth proved to be wrong. Global real GDP growth picked up in 2017 – indeed, for the first time since the end of the Great Recession in 2009, virtually all the major economies increased their real GDP.  The IMF in its last economic outlook put it like this: 2017 is ending on a high note, with GDP continuing to accelerate over much of the world in the broadest cyclical upswing since the start of the decade.”

The OECD’s economists also reckon that “The global economy is now growing at its fastest pace since 2010, with the upturn becoming increasingly synchronised across countries. This long-awaited lift to global growth, supported by policy stimulus, is being accompanied by solid employment gains, a moderate upturn in investment and a pick-up in trade growth.”

Alongside the (still modest) recovery in global growth, investment and employment in the major economies in 2017, financial asset markets have had a great year.

The IMF again: “Equity valuations have continued their ascent and are near record highs, as central banks have maintained accommodative monetary policy settings amid weak inflation. This is part of a broader trend across global financial markets, where low interest rates, an improved economic outlook, and increased risk appetite boosted asset prices and suppressed volatility.”

So all looks set great for the world economy in 2018, confounding my forecast of a slump.

But it is sometimes the case that when all looks rosy, a storm cloud can appear very quickly – as in 2007.  First, it is worth remembering that, while world economic growth is accelerating a bit, the OECD reckons that “on a per capita basis, growth will fall short of pre-crisis norms in the majority of OECD and non-OECD economies.” So the world economy is still not yet out of the Long Depression that started in 2009.

Indeed, as the OECD economists put it: “Whilst the near-term cyclical improvement is welcome, it remains modest compared with the standards of past recoveries. Moreover, the prospects for continuing the global growth up-tick through 2019 and securing the foundations for higher potential output and more resilient and inclusive growth do not yet appear to be in place. The lingering effects of prolonged sub-par growth after the financial crisis are still present in investment, trade, productivity and wage developments. Some improvement is projected in 2018 and 2019, with firms making new investments to upgrade their capital stock, but this will not suffice to fully offset past shortfalls, and thus productivity gains will remain limited.”

The IMF’s economists make the same point.  The latest IMF projection for world economic growth is for 3.7% global GDP growth over the 2017-18 period, an acceleration of 0.4 percentage points from the anaemic 3.3% pace of the past two years.  But this is still less than the post-1965 trend of 3.8% growth and the expected gains over 2017-2018 follow an exceptionally weak recovery in the aftermath of the Great Recession.

The OECD also thinks that much of the recent pick-up is fictitious, being centred on financial assets and property. “Financial risks are also rising in advanced economies, with the extended period of low interest rates encouraging greater risk-taking and further increases in asset valuations, including in housing markets. Productive investments that would generate the wherewithal to repay the associated financial obligations (as well as make good on other commitments to citizens) appear insufficient.” Indeed, on average, investment spending in 2018-19 is projected to be around 15% below the level required to ensure the productive net capital stock rises at the same average annual pace as over 1990-2007.

The OECD concludes that, while global economic growth will be faster in the coming year, this will be the peak rate for growth.  After that, world economic growth will fade and stay well below the pre-Great Recession average.  That’s because global productivity growth (output per person employed) remains low and the growth in employment is set to peak.

Former chief economist of Morgan Stanley, the American investment bank, Stephen Roach remains sceptical that the low growth environment since the end of the Great Recession is now over and the capitalist economy is set for fair winds.  Such growth as the major economies have seen has been based on very low interest rates for borrowing and rising debt in the corporate and household sectors.  “Real economies have been artificially propped up by these distorted asset prices, and glacial normalization will only prolong this dependency. Yet when central banks’ balance sheets finally start to shrink, asset-dependent economies will once again be in peril. And the risks are likely to be far more serious today than a decade ago, owing not only to the overhang of swollen central bank balance sheets, but also to the overvaluation of assets.”

Stock markets are hugely ‘overvalued’, at least according to history.  The cyclically adjusted price-earnings (CAPE) ratio of 31.3 is currently about 15% higher than it was in mid-2007, on the brink of the subprime crisis. In fact, the CAPE ratio has been higher than it is today only twice in its 135-plus year history – in 1929 and in 2000. “Those are not comforting precedents” (Roach).   One measure of the price of financial assets compared to real assets is the stock market capitalisation compared to GDP (in the US).  It has only been higher just before the dot.com bust of 2000.

And I don’t need to tell readers of this blog that any economic recovery for world capitalism since 2009 has not been shared ‘fairly’.  There has been a host of data to show that the bulk of increase in incomes and wealth has gone to top 1% of income and wealth holders, while real wages from work for the vast majority in the advanced capitalist economies have stagnated or even fallen.

The main reason for this growing inequality has been that the top 1% own nearly all the financial assets (stocks, bonds and property) and the price of these assets have rocketed.  Corporations, particularly in the US, have used any rise in profits mainly to buy back their own shares (boosting their price) or pay out increased  dividends to shareholders.  And these are mainly the top 1%.

Companies in the S&P 500 Index bought $3.5 trillion of their own stock between 2010 and 2016, almost 50% more than in the previous expansion.

There are two things that put a question mark on the delivery of faster growth for most capitalist economies in 2018 and raise the possibility of the opposite.  The first is profitability and profits – for me, the key indicators of the ‘health’ of the capitalist economy, based as it is on investing and producing for profit not need.

In this context, let’s start with the US economy, which is still the largest capitalist economy both in total value, investment and financial flows – and so is still the talisman for the world economy.  As I showed in 2017, the overall profitability of US capital fell in 2016, making two successive years from a post-Great Recession in 2014.  Indeed, profitability is still below the pre-crisis peaks (depending on how you measure it) of 1997 and 2006.

As far as I can tell, in 2017, profitability flattened out at best – and still well down from 2014.

The total or mass of profits in the US corporate sector (that’s not profitability, which is measured as profits divided by the stock of capital invested) has recovered from the depths of the Great Recession in 2009.  But the mass of profit slipped back sharply in 2015 (along with profitability, as we have seen above). This fall stopped in mid-2016.  The fall seemed to coincide with the collapse in oil prices and the profits of the energy companies in particular.  But the oil price stabilised in mid-2016 and so did profits (although profitability continued to fall).  Profits rose again in 2017, but, after stripping out the mainly fictitious profits of the financial sector, the mass of profit is still well below the peak of end-2014 (red line below).

As I have shown in other places when profits fall back, so will investment within a year or so.  On the basis of the data for the US, 2017 produced flat profitability and a very small recovery in profits.  That suggests that, at best, investment in productive capacity will grow very little in 2018, especially as much of these profits are going into unproductive assets, property and financial.

What about the rest of the world?  Well, it is clear that the European capitalist economies (with the exception of post-Brexit Britain) have recovered in 2017.  Real GDP growth has picked up, led by Germany and northern Europe, although it is still below the growth rate in the US.  Japan too has recorded a modest recovery.

When we look at profitability, however, in core Europe it rose only slightly and fell in Japan in 2015 and 2016, as in the US.  Indeed, only Japan has a higher rate of profit compared to 2006.

When we look at the mass of global corporate profits (using my own measure), there has been a modest recovery in 2017 after the fall in 2015-6.  But remember my measure includes China, where profits in the state enterprises rose dramatically in 2016-7.

On balance, if profits and profitability are good indicators of what is to come in 2018, they suggest much the same as 2017 at best – but probably not provoking a slump in investment.

The other question mark against the overwhelming optimism that 2018 is going to be a great year for global capitalism is debt.  As many agencies have recorded and I have shown in this blog during 2017, global debt, particularly private sector (corporate and household) debt has continued to rise to new records.

The IMF comments “Private sector debt service burdens have increased in several major economies as leverage has risen, despite declining borrowing costs. Debt servicing pressure could mount further if leverage continues to grow and could lead to greater credit risk in the financial system.”

Among G20 economies, total nonfinancial sector debt (borrowing by governments, nonfinancial companies, and households from both banks and bond markets) has risen to more than $135 trillion, or about 235% of aggregate GDP.  In the G20 advanced economies, the debt-to-GDP ratio has grown steadily over the past decade and now amounts to more than 260% of GDP.

The IMF sums up the risk.  “A continuing build-up in debt loads and overstretched asset valuations could have global economic repercussions. … a repricing of risks could lead to a rise in credit spreads and a fall in capital market and housing prices, derailing the economic recovery and undermining financial stability.”

The IMF economists do not see this risk of a new debt bust happening until 2020.  They may be right.  But the policy of low interest rates and huge injections of credit by the main central banks is now over.  The US Federal Reserve is now hiking its policy interest rate and has stopped buying bonds.  The European Central Bank will end its buying in this coming year; the Bank of England has already stopped.  Only the Bank of Japan plans more bond purchases through 2018.  The cost of borrowing is set to rise while the availability of credit will fall.  If profitability continues to fall in 2018, this is a recipe for investment collapse, not expansion.  This would especially hit the corporate sector of the so-called emerging economies.

Even if the major capitalist economies avoid a slump in 2018, nothing else has much changed.  Economic growth in the major economies remains low compared to before the Great Recession, even if it picks up in 2018.  And the prospect for the medium term is poor indeed.  Productivity (output per person working) growth is very low everywhere and employment growth from here will be muted.  So the potential long-term growth rate of the major economies will slow from any peak achieved in 2018.  After very low growth in 2016 of only 1.4%, the IMF predicts G7 growth in 2018 of 1.9% – a moderate but real upturn. However, G7 growth is then predicted to fall to 1.6% in 2019 and to a poor 1.5% in 2020-2022.

Thus the upturn in 2017-2018 seems cyclical and will not be consolidated into a new longer sustained ‘boom’.  That’s because, if there is no slump to devalue capital (productive and fictitious) and thus revive profitability, then investment and productivity growth will stay stuck in depression. Overall growth in the G7 economies since the Great Recession has been slower than during the ‘Great Depression’ of the 1930s.  Indeed, based on IMF projections, by 2022, that is 15 years after 2007, total GDP growth in the G7 economies will only be 20% compared to 62% in the 15 years after 1929.  And that assumes no major economic slump in the next five years.

Nevertheless, despite weak profitability and high debt, the modest recovery in profits in 2017 suggests that the major capitalist economies will avoid a new slump in production and investment in 2018, confounding my prediction.

Now when you are proved wrong (even if only in timing), it is necessary to go back and reconsider your arguments and evidence and revise them as necessary.  Now I don’t think I need to revise my fundamentals, based as they are on Marx’s laws of profitability as the underlying cause of crises. Profits in the major economies have risen in the last two years and so investment has improved accordingly (to Marx’s law).  Only when profitability starts falling consistently and takes profits down with it, will investment also fall.  Until that happens, the impact on the capitalist sector of the rising costs of servicing very high debt levels can be managed, for most.

What seems to have happened is that there has been a short-term cyclical recovery from mid-2016, after a near global recession from the end of 2014-mid 2016.  If the trough of this Kitchin cycle was in mid-2016, the peak should be in 2018, with a swing down again after that.  We shall see.

Top ten posts of 2017: Venezuela, Capital and class

December 24, 2017

So what were the ten top posts in terms of viewings on my blog in 2017?

The winner by some distance was my post last August on the tragic deterioration of the Chavista revolution in Venezuela.  Venezuela had been a beacon for hope in Latin America and elsewhere for the last ten years, but it now seemed to have all gone wrong.  I argued that the recent huge reversal of the gains of the working class in Venezuela was mainly due to Venezuela’s isolation in the ocean of capitalism and because the Chavista revolution had stopped ‘at less than halfway’, leaving the economy still predominantly in the control of capital.  This conclusion was controversial and many commentators on my post disagreed, blaming the forces of reaction for disrupting the revolution and the international media and institutions for distorting the story. No doubt true, but anybody who looks at the state of the economy knows that there is more to it than that.

Coming second was an equally controversial post on China and the recent ‘re-election’ of Chinese president Xi.  In my post, I asked the question: is China is a capitalist state or not?  The majority of Marxist political economists agree with mainstream economics in assuming or accepting that China is.  However, I am not one of them. I argued in the post that China is not capitalist (yet). In China, public ownership of the means of production and state planning remain dominant and the Communist party’s power base is rooted in public ownership.  So China’s economic rise has been achieved without the capitalist mode of production being dominant.

In the post, I added new data to back up my view. Using recently published IMF data, I found that China there are nearly three times as much stock of public productive assets to private capitalist sector assets in China.  In the US and the UK, public assets are less than 50% of private assets.  This shows that in China public ownership in the means of production is dominant – unlike any other major economy in the world.

The third most read post was on global poverty.  Is global poverty falling or rising?  Many mainstream economists continue to argue that the battle against global poverty was being won, as those living on less than $1.25 day (the official World Bank threshold, recently revised) had been cut by half since 1990.  But in the post, I show that any improvement in poverty levels, however measured, is down mainly to rising incomes in state-controlled China and any improvement in the quality and length of life comes from the application of science and knowledge through state spending on education, on sewage, clean water, disease prevention and protection, hospitals and better child development.  These are things that do not come from capitalism but from the common weal.

2017 marked 150 years since Marx published his analysis of the capitalist system.  In a post I critiqued the views of leading Keynesian economist Jonathan Portes on where Marx was right or wrong about capitalism.  For Portes, what is wrong with capitalism is not its exploitative essence or its failure to eliminate poverty or inequality or meet the basic needs of billions in peace and security, as Marx argued.  No, it was ‘excessive consumption’: i.e. too many things! I failed to see that excessive or endemic ‘consumerism’ was an issue for billions in the world or even millions in the UK, Europe or the US – it’s the opposite: the lack of consumption, including ‘social goods’ (public services, health, education, pensions, social care etc).

And in 2017, there were a host of studies revealing the growing inequality of income and wealth globally between nations and within them – along with scandals of the tax havens (Panama papers etc).  In another popular post, I recounted the development of these inequalities since Marx wrote Capital in 1867.  One important explanation for rising inequality is the control of wealth through capital, rather than through unequal incomes from work.  The US Economic Policy Institute found that the top 1% of society derives an increasing portion of income gains from capital.  So they are not rich because they are smarter or better educated.  It is because they are lucky (like Donald Trump) and inherited their wealth from the parents or relatives.

Contrary to the optimism and apologia of the mainstream economists, poverty for billions around the world remains the norm with little sign of improvement, while inequality within the major capitalist economies increases as capital is accumulated and concentrated in ever smaller groups. So Marx’s prediction 150 years ago that capitalism would lead to greater concentration and centralisation of wealth, in particular in the means of production and finance, has been borne out.

In another post, I referred yet again to the latest annual report by Credit Suisse on global personal wealth.  Every year my post on this report makes the top ten.  The bank’s economists found that top 1% of personal wealth holders globally now have over 50% of the world’s personal wealth – up from 45% ten years ago. And on current trends, this inequality will rise further. In the US, the three richest people in the US – Bill Gates, Jeff Bezos and Warren Buffett – own as much wealth as the bottom half of the US population, or 160 million people.

2017 was marked by the huge rise in the value of stock markets globally – driven by cheap borrowing as central banks pumped in more credit.  Rich investors went mad looking to make a quick buck.  There were new credit bubbles galore.  One of the most newsworthy was the crypto-currency craze, particularly in bitcoin.  The dollar price of bitcoin has risen 2000% and in the last year had quadrupled.  But as I write, in the last week it has fallen back 25%.  In my post last September, I argued that while the new technology behind these digital currencies, blockchain, may eventually find some productive use, cryptocurrencies would remain on the micro-periphery of global currencies, even if the crypto craze continued for a while longer.

2017 saw attempts by heterodox economists to organise against mainstream neoclassical orthodoxy in universities and there was a growing opposition to neoliberal economic policies adopted by incumbent governments.  But Keynesian economics still dominates the views on the left in the labour movement.  In a post I reckoned that this was because Keynes offers a third way.  In the 1920s and 1930s, Keynes feared that the ‘civilised world’ faced Marxist revolution or fascist dictatorship.  But socialism as an alternative to the capitalism of the Great Depression could well bring down ‘civilisation’, delivering instead ‘barbarism’ – the end of a better world, the collapse of technology and the rule of law, more wars etc.  But he thought that, through some modest fixing of ‘liberal capitalism’, it would be possible to make capitalism work without the need for socialist revolution.  There would no need to go where the angels of ‘civilisation’ fear to tread.  That was the Keynesian narrative and it remains dominant on the left.

The 150th anniversary of the publication of Capital was a feature of many of my most popular posts, including my account of September’s special conference held on Capital organised by this blog and Kings College, London.  In particular, I did a post on the two presentations that top Marxist scholar David Harvey and I made during the symposium.

David Harvey reckoned that the more crucial points of breakdown and class struggle are now to be found outside the traditional battle between workers and capitalists in the workplace or at the point of production.  Yes, that still goes on but the class struggle is much more to be found in battles in the sphere of circulation (for example, consumers fighting price-gouging by greedy pharma companies) ie. in the manipulation of people’s ‘wants, needs and desires’ in what they buy and think they need; and in distribution in battles over unaffordable rents with landlords or unrepayable debts like Greece or student debt.  These are the new and more important areas of ‘anti-capitalist’ struggle outside the remit of Volume One of Capital.

In contrast, in my analysis still puts the class struggle in the workplace at the centre of capitalism because it is about the struggle over the division of value between surplus value and labour’s share, as Marx intended with the publication of Volume One.  This is not to deny that capitalism creates inequalities, conflicts and battles outside the workplace over rents, debt, taxes, the urban environment and pollution that Harvey focuses on, nor that the struggle does not enter the political plane through elections etc.

The theme of the relevance of Marx’s Capital was also part of my post on this year’s Historical Materialism conference in London.  The plenary speakers were Moishe Postone, Michael Heinrich and David Harvey – an impressive line-up of heavyweight Marxist academics.  Part of the discussion was over whether value is only created in exchange and also whether class struggle is not really centred (any longer) on workers and capitalists in the production process.  The plenary speakers seemed to adopt theories that crises under capitalism are now mainly caused by faults in the ‘circulation of money and credit’ and not in the contradictions of capitalism between productivity and profitability in the production of surplus value, as I think Marx argued in Capital.

In sum, my top ten most read posts in 2017 argued that Marx’s Capital still provides us with the clearest and most compelling analysis of the nature of the capitalist mode of production; and show why capitalism is transient and cannot last forever, contrary to what the apologists for capital claim.

Best books of 2017

December 21, 2017

Last year we had some seminal and important books on Marxist economics including: Anwar Shaikh’s lifetime compilation, Capitalism: competition, conflict and crises (that I dip into on a regular basis); Fred Moseley’s Money and Totality, a masterful defence of Marx’s value theory; Francois Chesnais’ Finance Capital Today, that recounts the current trends in modern finance; as well as major contributions from Tony Norfield (ttps://www.versobooks.com/books/2457-the-city,) and John Smith (Imperialism in the 21st century).

It’s difficult to compete with these in 2017.  However, this year commemorated 150 years since Marx published Volume One of Capital, so there were a few important books that everybody should get.

In my view, Joseph Choonara’s A Readers Guide to Capital was the clearest and concise of all the various ‘readers’ or video lectures that are available or were published this year.  Choonara takes the reader through each chapter of Volume One with some clarifying analysis and relevant comment to help.  Choonara says that “It is designed to be read in parallel with Capital itself, with each chapter of this book consulted either before or after digesting the relevant sections of Marx’s work.”  The aim, unlike that of Harvey’s more comprehensive approach in his video lectures, is “instead to dwell on those areas that are the most vital to an overall understanding of the work and those that most often confuse, drawing on my own experience teaching Capital to left-wing audiences of students and workers over the past decade”.  For, in Choonara’s view, Marx attempted in Capital to see capitalism from the point of view of labour and aimed for a working-class audience.  Capital clearly does the former, but whether it achieved its aim of reaching working class readers is more doubtful.  Choonara’s guide can help here.

I certainly got more out of Choonara’s reader than I did from William Clare Roberts, Marx’s Inferno, this year’s winner of the Isaac Deutscher memorial prize.  Using Marx’s motif of Dante’s inferno to describe the iniquities of capitalism, Roberts presents us with a ‘political theory of capital’.  I’m not sure of the value of this approach.  As David Harvey says in his review of the book, “My most serious objection is that Roberts isolates Volume 1 of Capital as a standalone text and seeks to interpret it by ignoring its relation to Marx’s other works.”  And the inferno motif has little to say about Marx’s economic theory, except to accept Michael Heinrich’s (incorrect in my view) interpretation of Marx’s value theory.

If you want Marxist economic theory, there is the publication by Rick Kuhn of essays by Henryk Grossman on economic dynamics, Sismondi’s theory of crises and on the various trends in bourgeois economics.  It helps us realise how perceptive Marx’s analysis of capitalism is compared to the bourgeois mainstream and the utopian socialists. Marx’s analysis destroys the idea that all can be explained by exchange and markets.  You have to delve beneath the surface to the process of production, in particular to the production of value (use value and exchange value).  As Grossman puts it: “Marx emphasises the decisive importance of the production process, regarded not merely as a process of valorisation but at the same time a labour process… when the production process is regarded as a mere valorisation process – as in classical theory – it has all the characteristics of hoarding, becomes lost in abstraction and is no longer capable of grasping the real economic process.” p156.

Despite the power of Marx’s analysis, it is still the ideas of Keynes that dominate the thinking of heterodox economists in opposing the mainstream.  And this is no accident.  In an excellent book, Geoff Mann from Simon Fraser University presents a sophisticated explanation of Keynes’ dominance in the labour and leftist movements.  In his, In the Long run we are dead, Geoff argues that Keynes rules because he offers a third way between socialist revolution and barbarism, i.e. the end of civilisation as ‘we (actually the bourgeois like Keynes) know it’. This appealed (and still appeals) to the leaders of the labour movement and ‘liberals’ wanting change.  Revolution is risky and we could all go down with it.  Mann: “the Left wants democracy without populism, it wants transformational politics without the risks of transformation; it wants revolution without revolutionaries”. (p21).

What Mann argues is that Keynesian economics dominates the left despite its fallacies and failures because it expresses the fear that many of the leaders of the labour movement have about the masses and revolution.  As an example, read leading Keynesian, James Kwak’s latest book, Economism. Kwak quotes Keynes: “For the most part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life.” And  Kwak comments“That remains our challenge today.”

To be fair, it ain’t easy opting for an economic policy that threatens the established order.  An inferno will follow from the bourgeois media and institutions.  In the autobiographical book of the year, economist Yanis Varoufakis, Greek finance minister during the euro crisis of 2015, outlined the tortuous and labyrinthine encounters that he had with the Euro group in trying to combat the hell that the Troika of the IMF, ECB and EU aimed to impose on Greece.  Adults in the room, my battle with Europe’s deep establishment, is a personalised account, to say the least.  Varoufakis’ analysis of the crisis and his justification for what happened (the capitulation of the Syriza government and his resignation from the government) bear all the hallmarks of his ‘erratic Marxism’ (as he calls himself).  His battle was lost, but the war continues.

2017 was also the first year of Donald Trump’s reign over US capital.  One of his key aims was to deregulate the business and finance sector from the curbs that Congress had imposed (to some extent) after the global financial crash.  Deregulation at home, but protectionism abroad.  Brett Christophers’ book, The Great Leveller, looks at this dynamic tension between freeing capital from regulation and yet ensuring that it does not bring the house down.  Christopher argues that in this dynamic, law and legal measures have an underappreciated role in trying to preserve a “delicate balance between competition and monopoly”, which is needed to “regulate the rhythms of capitalist accumulation”.  The theme that Christophers highlights is the role of the law in evening out the anarchic swings between excessive monopoly and ruinous competition in different periods of capitalism.  This is a new insight.

But this was the year of the 150th anniversary and it could not go by without a new book on Capital by David Harvey, the most influential Marxist today.  In his Madness of Economic Reason, Harvey sets out his latest view of Marx’s schema in Capital.  This is a well written and easy book to read and not too long.  And there are many video lectures by DH on the main arguments in the book.  Harvey presented his latest thesis at the Capital.150 conference organised by this blog and Kings College in September.

DH’s argues that Volume One of Capital only deals with the production part of the circuit (the production of value and surplus value).  Volume Two deals with the realisation and circulation of capital between sectors in its reproduction, while Volume 3 deals with the distribution of that value.  And while Marx gives a great analysis of the production part, his later volumes are not complete and have been scratched together by Engels.  And thus, according to DH, Marx’s analysis falls short of explaining developments in modern capitalism. Now in the 21st century, crises under capitalism are at least as likely, if not more so, to be found in a breakdown in the circulation or realisation of surplus value than in its production.  And so crises are more likely now to happen in finance and over debt, due to ‘financialisation’.

Anybody who reads my blog, including the post in this conference and previous debates with Harvey on these issues, will know that I do not agree with his view of Capital. I argue that the production of surplus value and the accumulation of capital remains central to Marx’s explanation of capitalism and its contradictions that lead to recurrent crises.  As Marx put it: “The profit of the capitalist class has to exist before it can be distributed.”  The production of value is not, as DH argues, “a small sliver of value in motion” but the largest, both conceptually for Marx and also quantitatively, because in any capitalist economy, 80% of gross output is made up of means of production and intermediate goods compared to consumption.  In my view, the class struggle in the workplace remains at the centre of capitalism because it is about the struggle over the division of value between surplus value and labour’s share, as Marx showed in Volume One.

The economics of Luther or Munzer?

December 16, 2017

Last week leading leftist economists in the UK held a seminar on the state of mainstream economics, as taught in the universities.  They kicked this off by nailing a poster with 33 theses critiquing mainstream economics to the door of the London School of Economics.  This publicity gesture attempted to remind us that it was the 500th anniversary of when Martin Luther nailed his 95 theses to the Castle Church, Wittenberg and provoked the beginning of the Protestant reformation against the ‘one true religion’ of Catholicism.

The economists were purporting to tell us that mainstream economics was like Catholicism and must be protested against as Luther did back in 1517.  As they put it, “Economics is broken.  From climate change to inequality, mainstream (neoclassical) economics has not provided the solutions to the problems we face and yet it is still dominant in government, academia and other economic institutions. It is time for a new economics.”

The economists included Ha-Joon Chang, University of Cambridge, and author of 23 Things They Don’t Tell You About Capitalism and Economics: The User’s Guide.  He commented that “Neoclassical economics plays the same role as Catholic theology did in Medieval Europe – a system of thought arguing that things are what they are because they have to be.

Steve Keen, head of economics at Kingston University, London, and author of the excellent ‘Debunking Economics’ that exposed the unrealistic and illogical assumptions of neoclassical theory, exclaimed that “Economics needs a Copernican Revolution, let alone a Reformation. Equilibrium thinking in Economics should go the way of Ptolemaic Epicycles in Astronomy”.

Another post-Keynesian economist, Victoria Chick, warned that students should “read the economic scriptures, in all their great variety, for themselves. Thus they will learn that the Pope (formerly Samuelson, now Mankiw) is not infallible and that they must search for Truth in the contest of ideas.”

This all sounded progressive and exciting and reflected the movement against mainstream economic teaching that has mushroomed over the last few years since the global financial crash, organised by the Rethinking Economics group of graduates and lecturers.

But I have some reservations.  First, is a progressive revolution against the mainstream really to be painted as similar to Luther’s protestant revolt?  The history of the reformation tells us the protestant version of Christianity did not lead to a new pluralistic order and freedom to worship.  On the contrary, Luther was a bigot who worked with the authorities to crush more radical movements based on the peasants led by Thomas Munzer.

As Engels put it in his book Peasant War in Germany: “Luther had given the plebeian movement a powerful weapon—a translation of the Bible. Through the Bible, he contrasted feudal Christianity of his time with moderate Christianity of the first century. In opposition to decaying feudal society, he held up the picture of another society which knew nothing of the ramified and artificial feudal hierarchy. The peasants had made extensive use of this weapon against the forces of the princes, the nobility, and the clergy. Now Luther turned the same weapon against the peasants, extracting from the Bible a veritable hymn to the authorities ordained by God—a feat hardly exceeded by any lackey of absolute monarchy. Princedom by the grace of God, passive resistance, even serfdom, were being sanctioned by the Bible.[8]

But maybe all this shows is that analogies or metaphors have their limits and the idea of copying Luther’s theses as a publicity trick can only go so far.

More seriously, it is clear from the comments of the erstwhile academics that, for them, the mainstream economic religion is just neoclassical theory, namely there is perfect competition in markets, which tend to equilibrium; and economies can grow harmoniously, except for shocks caused by imperfections in markets (trade unions and monopolies) or interference by governments.  Our Lutheran-type protestors thus argue that it is this neoliberal economics that must be overthrown.

But is that all there is of the mainstream?  Our protestors have nothing to say against Keynesian economics – indeed variants of Keynes are the way forward for them.  That’s an irony for a start because the basis of neoclassical theory is marginalism: marginal utility of the consumer and marginal productivity of ‘capital’.  And Keynes held entirely to the marginal theory propounded by his mentor Alfred Marshall.  All he added was that, because of uncertainty and unpredictability in investment decisions by individuals (driven by psychology or ‘animal spirits’), sometimes economies can get locked into an equilibrium where markets don’t clear and unemployment becomes permanent.  For Keynes, this was a ‘technical problem’ that could be fixed; it was not inherent feature of the capitalist production process.

As he said at the end of his life: “I find myself moved, not for the first time, to remind contemporary economists that the classical teaching embodied some permanent truths of great significance. . . . There are in these matters deep undercurrents at work, natural forces, one can call them or even the invisible hand, which are operating towards equilibrium. If it were not so, we could not have got on even so well as we have for many decades past.”  Keynes, the neoliberal.

But our Lutheran protestors had not a word of critique against Keynes, and certainly not his more radical followers like Hyman Minsky.  On the contrary, the 33 theses show clear support of Minskyan theory on crises under capitalism.  Thesis 28 refers to “financialisation, short-termism, speculative finance and financialised real economy” as the key issues, thus implying that it is the growth of finance under neoliberalism that is the cause of crises, not any inherent flaws or contradictions in the capitalist profit-making system as a whole.  Marx’s critique of the mainstream (and not just neoclassical and neoliberal economics) is ignored.

Our protestors follow Luther, not Munzer.  They want to replace Catholic economics with Protestant economics, but they do not want to do away with the religion of capitalist economics.  They wish to correct a ‘capitalism distorted by finance’, not replace the mode of production and social relations.  Indeed, this has been the dominant position of Rethinking Economics as it seeks to reverse the dominance of neoclassical theory in the universities.

The result is that there will be no revolution in economics by following Luther.  Indeed, our Lutheran economists have gone little further than the revisions to ‘neoliberal economics’ that mainstream ‘Catholic’ gurus are considering too.  Martin Sandbu in the FT pointed out that “economists are debating intensively how to upgrade their understanding of the economy in order to prepare better for future disruptions and provide better guides for good policy”.  Nobody could be more mainstream and Keynesian than former IMF chief economist Olivier Blanchard and former US Treasury secretary Larry Summers (who is related to Paul Samuelson, the pope of mainstream ‘neoliberal’ economics in the 1970s, according to Chick).  They too want to ‘rethink economics’.  Indeed, all the things advocated in the 33 theses are being considered by the great and good of academic economics.

Back in the 1520s, Luther was eventually accommodated and Protestantism became a religion of the establishment and many monarchies across Europe (and the religious motivation behind capitalism, some argue).  Today’s economic Lutherans may also be absorbed to save capital.  Munzer was executed.

Capitalism without capital – or capital without capitalism?

December 10, 2017

There is a new book out called Capitalism without capital – the rise of the intangible economy.  The authors, by Jonathan Haskel of Imperial College and Stian Westlake of Nesta, are out to emphasise a big change in the nature of modern capital accumulation – namely that increasingly investment by large and small companies is not in what are called tangible assets, machines, factories, offices etc but in ‘intangibles’, research and development, software, databases, branding and design.  This is where investment is rising fast relative to investment in material items.

The authors call this capitalism without capital.  But of course, this is using ‘capital’ in its physicalist sense, not as a mode of production and social relation, as Marxist theory uses the word.  For Marxist theory what matters is the exploitive relation between the owners of the means of production (tangible and intangible) and the producers of value, whether they are manual or ‘mental’ workers.

As G Carchedi has explained, there is no fundamental distinction between manual and mental labour in explaining exploitation under capitalism.  Capitalism cannot be without capital in that sense.

Knowledge is produced by mental labour but this is not ultimately different from manual labour. Both entail expenditure of human energy. The human brain, we are told, consumes 20% of all the energy we derive from nourishment and the development of knowledge in the brain produces material changes in the nervous system and synaptic changes which can be measured. Once the material nature of knowledge is established, the material nature of mental work follows. Productive labour (whether manual or mental) transforms existing use-values into new use-values (realised in exchange value). Mental labour is labour transforming mental use values into new mental use values.  Manual labour consists of objective transformations of the world outside us; mental labour of transformations of our perception and knowledge of that world. But both are material.

The point is that discoveries, generally now made by teams of mental workers, are appropriated by capital and controlled by patents, by intellectual property or similar means. Production of knowledge is directed towards profit. Medical research, for example, is directed towards developing medicines to treat disease, not preventing disease, agricultural research is directed to developing plant types which capital can own and control, rather than relieving starvation.

What Haskell and Westlake find is that investment in intangible assets now exceeds that in tangible assets.

And they reckon this is changing the nature of modern capitalism.  Indeed, it could expose the uselessness of the so-called market economy.  The argument is that an intangible asset (like a piece of software) can be used over and over again at low cost and allow a business to grow very fast.  That’s an exaggeration, of course, because tangible assets like machines can also be used over again, but it’s true that they have ‘wear and tear’ and depreciation.  But then software also gets out of date and also becomes ‘tired’ for the continually changing purposes required.

Indeed, the ‘moral depreciation’ of intangibles is probably even greater than tangibles and so increases the contradictions of capitalist accumulation.  For an individual capitalist, protecting profit gained from a new piece of research or software, or the branding of a company, becomes much more difficult when software can easily be replicated and brands copied.

Brett Christophers showed in his book, The Great Leveller, capitalism is continually facing a dynamic tension between the underlying forces of competition and monopoly.  “Monopoly produces competition, competition produces monopoly” (Marx).

That’s why companies are keen on intellectual property rights (IPR).  But IPR is actually inefficient in developing production.  ‘Spillover’, as the authors call it, where the benefit of any new discovery is shared in the community, is more productive, but by definition almost, is only possible outside capitalism and private profit – in other words rather than capitalism without capital; it becomes capital without capitalism.

As Martin Wolf of the FT concludes in his analysis of the rise of ‘intangibles’, “intangibles exhibit synergies. This goes against the spillovers. Synergies encourage inter-firm co-operation (or outright mergers), while spillovers are likely to discourage it. Who really wants to give a free lunch to competitors?”  So “Taken together, these features explain two other core features of the intangible economy: uncertainty and contestedness. The market economy ceases to function in the familiar ways.”

Under capitalism, the rise of intangible investment is leading to increased inequality between capitalists.  The leading companies are controlling the development of ideas, research and design and blocking ‘spillover’ to others.  The FANGs are gaining monopoly rents as a result, but at the expense of the profitability of others, reducing them to zombie status (just covering their debts without the ability to expand or invest).

Indeed, the control of intangibles by a small number of mega companies could well be weakening the ability to find new ideas and develop them.  Research productivity is declining at a rate of about 6.8 per cent per year in the semiconductor industry. In other words, we’re running out of ideas. That’s the conclusion of economic researchers from Stanford University and the Massachusetts Institute of Technology Innovation.  They reckon that in order to maintain Moore’s Law – by which transistor density doubles every two years or so – it now takes 18 times as many scientists as it did in the 1970s. That means each researcher’s output today is 18 times less effective in terms of generating economic value than it was several decades ago.

Thus we have the position where the new leading sectors are increasingly investing in intangibles while investment overall falls along with productivity and profitability.  Marx’s law of profitability is not modified but intensified.

The rise of intangibles means the increased concentration and centralisation of capital.  Capital without capitalism becomes a socialist imperative.

Grossman on capitalism’s contradictions

December 5, 2017

Henryk Grossman, Capitalism’s contradictions: studies in economic theory before and after Marx, edited by Rick Kuhn, published by Haymarket Books.

Rick Kuhn, the indefatigable editor, biographer and publisher of the writings of Henryk Grossman, has another book out on his work.  Grossman was an invaluable contributor to the development of Marxist political economy since Marx’s death in 1883.  An activist in the Polish Social Democrat party and later in the Communist party in Germany, Grossman, in my view, made major contributions in explaining and developing Marx’s theory of value and crises under capitalism.

Grossman established a much clearer view of Marx’s analysis, overcoming the confusions of the epigones, who either dropped Marx’s value theory for the mainstream bourgeois utility theory, or in the case of crises, opted for variants of pre-Marxist theories of underconsumption or disproportion.  In his works, Grossman weaved his way through these diversions, most extensively in his Law of Accumulation and the Breakdown of the Capitalist System in 1929. Grossman put value theory and Marx’s laws of accumulation and profitability at the centre of the cause of recurrent and regular crises under capitalism.

This book brings together essays and articles by Grossman that critiques the errors and revisionism of the Marxists who followed Marx and in so doing combats the apology of capitalism offered by mainstream (or what Grossman calls ‘dominant’) economics.  Rick Kuhn provides a short but comprehensive introduction on Grossman’s life and works, but also on the essence of the essays in the book.

They include an analysis of the economic theories of the Swiss political economist Simonde de Sismonde, who exercised a powerful influence on the early socialists who preceded Marx – and, for that matter, Marx himself.  Then there is a critical essay by Grossman on all the various ideas and theories presented by Marx’s epigones from the 1880s onwards; and two essays on the ideas of the so-called ‘’evolutionists’’, who tried to develop an alternative to the mainstream based on history and development rather than cold theory.  Their argument was the capitalism was changing and developing away from competition and harmonious growth into monopoly, stagnation and inequality.  But, as Grossman says, Marx too recognised these trends but only he could provide a theoretical explanation of why, based on his laws of accumulation (p250).  Change, time and dynamics as opposed to equilibrium, simultaneity and statics is a big theme of Grossman’s exposition of Marxist economics and that is why the chapter on classical political economy and dynamics in the book is the most important, in my view.

But let me highlight the key conclusions that come out of Grossman’s essays that Rick Kuhn also identifies.  Marx considered that one of his greatest contributions to understanding capitalism was the dual nature of value.  Things and services are produced for use by humans (use value), but under capitalism, they are only produced for money (exchange value).  This is the driver of investment and production – value and, in particular, surplus value.  And both use and exchange value are incorporated into a commodity for sale.  But this dual nature of the value also exposes capitalism’s weakness and eventual downfall.  That is because there is an irreconcilable contradiction between production for use and for profit (between use value and exchange value), which leads to regular and recurring crises of production of increasing severity.

As Grossman shows, Sismondi was aware of this contradiction, which he saw as one between production and consumption.  But he did not see, as Marx did, the laws of motion in capitalism, from the law of value to the law of accumulation and finally to the law of the tendency of the rate of profit to fall, that reveal the causes of crises of overproduction.

The vulgar economists of capitalism have tried to deny this contradiction of capitalist production ever since it was hinted at by the likes of Sismondi, and logically suggested by the law of value based on labour, first proposed by Adam Smith and David Ricardo. The apologists dropped classical theory and turned to a marginal utility theory of value to replace the dangerous labour theory.  They turned to equilibrium as the main tendency of modern economies and they ignored the effect of time and change.  Only the market and exchange became matters of economic analysis, not the production and exploitation of labour.

But as Kuhn points out that “economic processes involve not just the circulation of commodities but their production as use values.  The duration of the periods of production and even the circulation of different commodities vary.  Their coincidence if it occurs at all, can only be accidental.  Yet vulgar economics simply assumes such coincidence or simultaniety of transactions.  It cannot theoretically incorporate time and therefore history.” p17.

Marx’s analysis destroys the idea that all can be explained by exchange and markets.  You have to delve beneath the surface to the process of production, in particular to the production of value (use value and exchange value).  As Grossman puts it: “Marx emphasises the decisive importance of the production process, regarded not merely as a process of valorisation but at the same time a labour process… when the production process is regarded as a mere valorisation process – as in classical theory – it has all the characteristics of hoarding, becomes lost in abstraction and is no longer capable of grasping the real economic process.” p156.

In my view, Grossman makes an important point in emphasising that the production of value is the driving force behind the contradictions in capitalism not its circulation or distribution, even as these are an integral part of the circuit of capital, or value in motion.  This issue of the role of production retains even more relevance in debates on the relevant laws of motion of capitalism today, given the development of ‘financialisation’ and the apparent slumber of industrial proletariat.

In the chapter on dynamics, Grossman perceptively exposes the failure of mainstream theories which are based on static analysis.  Such theories lead to the conclusion that crises are just shocks to an essentially tendency towards equilibrium and even a stationary state – something that Keynes too accepted.  Capitalism is not gradually moving on (with occasional shocks) in a generally harmonious way towards superabundance and a leisure society where toil ceases – on the contrary it is increasingly driven by crises, inequality and destruction of the planet.

It is the “incongruence” between the value side and the material side of the process of reproduction that is the key to the disruption of capitalist accumulation.  There is no symmetry as the mainstream thinks. The value of individual commodities tends to fall while the mass of material goods increases. Here is the essence of the transitional nature of capitalism as expressed in Marx’s ”dual” value theory and the law of profitability.

Market power again

November 21, 2017

In a previous post, I covered the arguments of several mainstream economists who sought to explain the slowdown in productivity and investment growth especially since the beginning of the 2000s as due to market power.

Now there is yet another round of mainstream economic papers trying to explain why investment in the major economies has fallen back since the end of Great Recession in 2009.  And again most of these papers try to argue that it is the rise in ‘market power’ ie monopolistic trends, especially in finance, that has led to profits being accumulated in finance, property or in cash-rich techno giants that do not invest productively or innovatively.

That investment in productive assets has dropped in the US is revealed by the collapse in net investment (that’s after depreciation) relative to the total stock of fixed assets in the capitalist sector.

Note that the fall in this net investment ratio took place from the early 2000s at the same time as financial profits rocketed.  That suggests that a switch took place from productive to financial investment (or into fictitious capital as Marx called it).

In a new paper, Thomas Philippon, Robin Döttling and Germán Gutiérrez looked at data from a group of eight Eurozone countries and the US. They first establish a number of stylised facts. They found that the corporate investment rate was low in both the Eurozone and the US, with the share of intangibles (investment in intellectual property such as computer software and databases or research and development) increasing and the share of machinery and equipment decreasing.  But they also found that investment tracked corporate profits in the Eurozone, but fell below in the US.  In other words, productive investment slipped in the Eurozone because profitability did too.

But there appeared to be an ‘investment gap’ in the US.

But there is an important issue here of measurement.  As I showed in my previous post, these mainstream analyses use Tobin’s Q as the measure of accumulated profit to compare against investment.  But Tobin’s Q is the market value of a firm’s assets (typically measured by its equity price) divided by its accounting value or replacement costs.  This is really a measure of fictitious profits.  Given the credit-fuelled financial explosion of the 2000s, it is no wonder that net investment in productive assets looks lower when compared with Tobin Q profits.  This is not the right comparison.  Where the financial credit and stock market boom was much less, as in the Eurozone, profits and investment movements match.

Nevertheless, mainstream/Keynesian economics continues to push the idea that there is an ‘investment gap’ because the lion’s share of the profits has gone into monopolistic sectors which do not invest but just extract ‘rents’ through their market power.  This argument has even been taken up by the United Nations Conference on Trade and Development (UNCTAD) in its latest report.  In chapter seven of its 2017 report, UNCTAD waxes lyrical about the great insights of Keynes about the ‘rentier’ capitalist, who is unproductive, unlike the entrepreneur capitalist who makes things tick.  UNCTAD’s economists conclude that there has been “the emergence of a new form of rentier capitalism as a result of some recent trends: highly pronounced increases in market concentration and the consequent market power of large global corporations, the inadequacy and waning reach of the regulatory powers of nation States, and the growing influence of corporate lobbying to defend unproductive rents”.

But is the rise of rentier capitalism the main cause of the relative fall in investment?  As I have pointed out above, the rentier appears to play no role in the low investment rate of the Eurozone: it’s just low profitability.  However, there does seem a case for financial market power or financialisation as a cause for low productive investment in the US.

Marx considered that there were two forms of rent that could appear in a capitalist economy.  The first was ‘absolute rent’ where the monopoly ownership of an asset (land) could mean the extraction of a share of surplus value from the capitalist process without investment in labour and machinery to produce commodities.  The second form Marx called ‘differential rent’.  This arose from the ability of some capitalist producers to sell at a cost below that of more inefficient producers and so extract a surplus profit – as long as the low cost producers could stop others adopting even lower cost techniques by blocking entry to the market, employing large economies of scale in funding, controlling patents and making cartel deals.  This differential rent could be achieved in agriculture by better yielding land (nature) but in modern capitalism, it would be through a form of ‘technological rent’; ie monopolising technical innovation.

Undoubtedly, much of the mega profits of the likes of Apple, Microsoft, Netflix, Amazon, Facebook are due to their control over patents, financial strength (cheap credit) and buying up potential competitors.  But the mainstream explanations go too far.  Technological innovations also explain the success of these big companies.  Moreover, by its very nature, capitalism, based on ‘many capitals’ in competition, cannot tolerate any ‘eternal’ monopoly, a ‘permanent’ surplus profit deducted from the sum total of profits which is divided among the capitalist class as a whole.  The continual battle to increase profit and the share of the market means monopolies are continually under threat from new rivals, new technologies and international competitors.

The history of capitalism is one where the concentration and centralisation of capital increases, but competition continues to bring about the movement of surplus value between capitals (within a national economy and globally). The substitution of new products for old ones will in the long run reduce or eliminate monopoly advantage.  The monopolistic world of GE and the motor manufacturers did not last once new technology bred new sectors for capital accumulation.  The world of Apple will not last forever.

‘Market power’ may have delivered rental profits to some very large companies in the US, but Marx’s law of profitability still holds as the best explanation of the accumulation process.  Rents to the few are a deduction from the profits of the many. Monopolies redistribute profit to themselves in the form of ‘rent’ but do not create profit.  Profits are not the result of the degree of monopoly or rent seeking, as neo-classical and Keynesian/Kalecki theories argue, but the result of the exploitation of labour.

The key to understanding the movement in productive investment remains its underlying profitability, not the extraction of rents by a few market leaders.  If that is right, the Keynesian/mainstream solution of regulation and/or the break-up of monopolies will not solve the regular and recurrent crises or rising inequality of wealth and income.

US rate of profit update

November 18, 2017

The latest data for net fixed assets in the US have been released, enabling me to update the calculations for the US rate of profit a la Marx up to 2016.

Last year, I did the calculations with the help of Anders Axelsson from Sweden, who not only replicated the results to ensure their accuracy (and found mistakes!), but also produced a manual for carrying out the calculations that anybody could use.

As I did last year and in previous years, I have also updated the rate of profit using the method of calculation by Andrew Kliman (AK) that he first carried out in his book, The failure of capitalist production AK measures the US rate of profit based on corporate sector profits only and using the BEA’s historic cost of net fixed assets as the denominator.

I also calculate the US rate of profit with a slight variation from AK’s approach, in that I depreciate gross profits by current depreciation rather than historic depreciation as AK does, but I still use historic costs for net fixed assets.  The theoretical and methodological reasons for doing this can be found here and in the appendix in my book, The Long Depression, on measuring the rate of profit.

The results of the AK calculation and my revised version are obviously much the same as last year – namely that AK’s measure of the rate of profit falls persistently from the late 1970s to a trough in 2001 and then recovers during the credit-fuelled, ‘fictitious capital period’ up to 2006.  The 2006 peak in the rate is higher than the 1997 one.   My revised version of AK’s measure shows a stabilisation of the profit rate at the end of the 1980s, after which profitability does not really rise much (although there are various peaks up to 2006).  What the new data for 2016 do reveal, however, is that profitability (on both measures) has remained below the peak of 2006 (i.e. for the last ten years) and has fallen for the last two.  And, of course, the long-term secular decline in the US rate is confirmed on both measures, some 25-30% below the 1960s.

But readers of my blog and other papers know that I prefer to measure the rate of profit a la Marx by looking at total surplus value in an economy against total productive capital employed; so as close as possible to Marx’s original formula of s/c+v.  So I have a ‘whole economy’ measure based on total national income (less depreciation) for surplus value; net fixed assets for constant capital; and employee compensation for variable capital.  Most Marxist measures exclude a measure of variable capital on the grounds that it is not a stock of invested capital but circulating capital that cannot be measured from available data.  I don’t agree and G Carchedi and I have an unpublished work on this point.  Indeed, even inventories (the stock of unfinished and intermediate goods) could be added as circulating capital to the denominator for the rate of profit, but I have not done so here as the results are little different.

Updating the results from 1946 to 2016 on my ‘whole economy’ measure shows more or less the same result as last year, as you might expect.  I measure the rate in both historic and current cost terms.  This shows that the overall US rate of profit has four phases: the post-war golden age of high profitability peaking in 1965; then the profitability crisis of the 1970s, troughing in the slump of 1980-2; then the neoliberal period of recovery or at least stabilisation in profitability, peaking more or less in 1997; then the current period of volatility and eventual decline.  Actually, the historic cost measure shows no recovery in the rate of profit during the neoliberal period.  The current cost measure always shows much greater upward or downward movement.  On this measure, the post-war trough was in 1982 while on the historic cost measure, it is 2009 at the bottom of the Great Recession.

What is new about the 2016 update is that the US rate of profit fell in 2016, after a fall in 2015.  So the rate of profit has fallen in the last two successive years and is now 6-10% below the peak of 2006.

One of the compelling results of the data is that they show that each economic recession in the US has been preceded by a fall in the rate of profit and then by a recovery in the rate after the slump.  This is what you would expect cyclically from Marx’s law of profitability.

In a recent paper, G Carchedi identified three indicators for when crises occur: when the change in profitability; employment; and new value are all negative at the same time.  Whenever that happened (12 times since 1946), it coincided with a crisis or slump in production in the US.  This is Carchedi’s graph.

My updated measure for the US rate of profit to 2016 confirms the first indicator is operating.  The graph above shows that in the last two years there has been a 5%-plus fall.  However, new value growth is slowing but not yet negative; and employment growth continues.  So on the basis of these three (Carchedi) indicators, a new recession in the US economy is not imminent.  Also the mass of profit or surplus value rose (if only slightly) in 2016, and so again does not provide confirmation of an imminent slump.

What the updated data do confirm is my guess last year that 2016 would show a fall in the US rate of profit – and by all the measures mentioned. And, of course, Marx’s law of profitability over the long term is again confirmed.  There has been a secular decline in US profitability, down by 28% since 1946 and 15-20% since 1965; and by 6-10% since the peak of 2006.  So the recovery of the US economy since 2009 at the end of the Great Recession has not restored profitability to its previous level.

Also, the driver of falling profitability has been the secular rise in the organic composition of capital, which has risen nearly 20% since 1965 while the main ‘counteracting factor’, the rate of surplus value, has fallen 4%.  Indeed, even though the rate of surplus value has risen 5% since 1997, the rate of profit has fallen 5% because the organic composition of capital has risen over 12%.

Has the US rate of profit slowed further in 2017?  We can use quarterly data from the US Federal Reserve on the non-financial corporate sector to get a rough idea.  The Fed data suggest that the rate of profit in the first half of 2017 was flat at best.

So, if the rate of profit is a good indicator of an upcoming slump in capitalism, then the jury is out on the likelihood of slump in 2018.  However, the rate of profit is still down from its peaks of 1997 and 2006 and now appears to be flat lining at best.

Value, class and Capital

November 12, 2017

This year’s Historical Materialism conference in London focused on the Russian revolution as well as the 150th anniversary of the publication of Marx’s Volume One of Capital.  Naturally, I concentrated on presentations that flowed from the latter rather than the former.

Indeed, the main plenary at HM was on Marx’s theory of value and class – and the annual winner of the Isaac Deutscher book prize announced at the HM was William Clare Roberts’ Marx’s Inferno, which seemed to be a ‘political theory’ of capital seen through the prism of Dante’s famous poem.  Maybe, more on that later.

The plenary speakers were Moishe Postone, Michael Heinrich and David Harvey – an impressive line-up of heavyweight Marxist academics.  Postone is co-director of the Chicago Center for Contemporary Theory and faculty member of the Chicago Center for Jewish Studies.  His 30-min speech was difficult to understand, being couched in polysyllabic academic jargon. But I think the gist of it was that we cannot consider the class struggle under capitalism as just between exploited workers and capitalists any longer, as it now involves race, creed and gender and a new populism of the right.  So we need to rethink Marx’s theory of class.

For this reason, “orthodox Marxism” is a hindrance.  The old meaning of class struggle is not essential.  As for Marx’s theory of value, it is specific to capitalism, but it has changed and exploitation is now over the amount of time we all have rather than over the production of surplus value.  Now I think that is the gist of what he said, but frankly, I cannot be sure because Postone’s exposition was so incomprehensible.

The next speaker was Michael Heinrich, the well-known German expert of Marx’s Capital and close researcher of Marx’s original writings in the so-called MEGA project.  Now readers of this blog will know that Heinrich and I have debated before on whether Marx’s law of the tendency of the rate of profit is logical and whether Marx himself dropped it; and we published on this issue.

In his presentation, Heinrich agreed with Postone that value is a category specific to capitalism, but he reckons that Marx changed his conception of both class and value over his lifetime.  So it is not possible to pull quotes from Marx like random rocks in a stone quarry.  Each quote must be placed in its context and time.  For example, Marx’s definition of class struggle as found in the Communist Manifesto in 1848 differs with his later definitions of class at the end of Capital Volume 3.

Similarly, Marx’s concept of value changed over time.  Early on, value is seen to come from the production process and the exploitation of labour power by capital.  Later on, Marx revised this view to argue that value was only created at the point of exchange into money.  Similarly, Marx thought that a rising organic composition of capital would lead to a fall in the rate of profit, but later he recognised that more machines could raise the rate of surplus value and so the rate of profit may not fall.

Heinrich has the advantage over us in reading Marx’s original words in German, but they remain his interpretations of Marx’s meaning. Heinrich, in effect, argues that value is not a material substance, namely the expenditure of human energy in labour that can be measured in labour time, but only exists in the form of money.  In my view and in the view of many other Marxists, this denies the role of exploitation of labour in production, which comes first.  Yes, you can only see value in the form of money, but then you cannot see electricity until the light comes on, but that does not mean it does not exist before the light glows.  For an excellent critique of Heinrich’s interpretation of Marx’s value theory, see G Carchedi’s book, Behind the Crisis, chapter 2).

Does any of this matter, you might say?  Are we not just discussing how many angels are there on the head of a needle, as medieval Catholic theologians did?  Well, yes.  But I think there are some consequences from deciding that value is only created in exchange and also that class struggle is not really centred (any longer) on workers and capitalists in the production process.  For me, such theories lead to the idea that crises under capitalism are caused by faults in the ‘circulation of money and credit’ and not in the contradictions of capitalism between productivity and profitability in the production of surplus value, as I think Marx argued.  And the revisions of the nature of class struggle could lead to the removal of the working class as the agent for socialist change.

There is a similar problem with David Harvey’s presentation.  Again, Harvey has made a massive contribution to expounding and defending Marx’s ideas as expressed in Capital to explain the workings of the capitalist mode of production.  I have presented my critique of Harvey’s more novel propositions on this blog before and he has also criticised my ‘orthodox’ view.

In his presentation, Harvey again looked to be ‘innovatory’ in an attempt to raise new categories in Capital.  Yes, value is ‘phantom-like’ (can’t be seen), but objective (i.e. real) and only appears as money.  But Harvey wants us to consider new terms like ‘anti-value’.  What does Harvey mean by this?  Apparently, money and credit can be created without the backing of value.  Marx called this ‘fictitious capital’ because it was not real capital based on the production of value and surplus value by the exploitation of labour, but merely the title to assets that may or may not be supported by new value.  In that sense, investment in financial assets produces fictitious profits.

Now Harvey wants to change the name of this category to ‘anti-value’ because he thinks that in doing so it can show that there are obstacles to the flow of capital (value) in the realisation of value.  Thus crises can originate or be caused from breaks in the circuit of capital outside the production process itself.  Similarly, Harvey came up with what he called ‘value regimes’.  ‘World money’ as represented by gold no longer controls the value of fiat money (money ‘printed’ and backed by governments), particularly after the US dollar came off the gold standard in 1971.  So now we have ‘value regimes’ like the dollar area, the euro and more recently, the Chinese yuan.  Again, I think all this was saying was that various economic national state powers are trying to gain the biggest shares of global value and in so far as they are successful, their currencies will be stronger relative to others over time.  I failed to see why we needed new terms or concepts to ‘explain’ this.  But there we are.

Of course, things have changed over the last 150 years since Marx formulated his critique of capitalism and political economy and published Capital.  Capitalism is now global, finance capital has expanded dramatically, imperialist power blocs have developed and capital has become ever more concentrated and centralised.  But it seems to me that the laws of motion in the capitalist mode of production have not so fundamentally changed that we need new categories to explain them; or we need to drop Marx’s basic value theory or his main law of the contradiction between productivity and profitability to explain crises and instead search for other explanations in the money and credit circuit.

If we do that, then we also reduce the role of the proletariat as the main agency for revolutionary change.  And in my view, it still is, if only by the absence of success in the last 150 years.  Revolutions based on the peasantry (China) or isolated in one country (Russia) have not delivered socialism even if they have removed capitalism, for a while.  Only the global proletariat in unity can do that.

The idea that Marx’s theory of value and crises is out of date and needed amending was the theme of my own paper at HM.  I quoted John Maynard Keynes in commenting that Capital was “an obsolete textbook which I know to be not only scientifically erroneous but without interest or application for the modern world”.  I wanted to defend Marx against this view of Keynes, which is still prevalent not only in bourgeois analysis, but also in recent biographies of Marx by former Marxist historians who claim that Marx was a man of 19th century with little to tell us about the 21st.

My paper above all aimed to show that Keynesian ideas have nothing in common with Marx’s critique of capitalism and are thoroughly designed to restore capitalism in crisis and make it work better.  HM London November 2017 This, I think, is important, because Keynesian theory and policies dominate the minds of the labour movement everywhere, as though they were a workable and radical alternative, while Marxist theory is ignored.

Of course, this is no accident because if you accept Marx’s critique of capitalism, you are compelled to require a revolutionary transformation of the capitalist mode of production – something that remains frightening, not just to the leaders of the labour movement, but also to many activists who fear the risks involved in revolutionary change.

My paper argued that, contrary to Keynes’ view, the labour theory of value provides a logical and empirically verifiable explanation of the capitalist mode of production, while, in contrast, the mainstream ‘marginalist’ theory is false, indeed unfalsifiable.  Marx’s great discovery about capitalism is that it is a system of exploitation of labour power to appropriate value produced by workers as surplus value or profit through sale on the market for commodities.  That is where profit comes from.  Keynes, like all mainstream economics, denied profit is the result of unpaid labour.  For him, profit is the marginal return on investment and justified to the capitalist.

Marx’s theory of crises means that rising productivity of labour through increased investment in means of production relative to labour will lead to the contradictory fall in profitability, engendering recurring crises.  Keynes, instead, saw slumps or depressions as due to a collapse in the ‘animal spirits’ of entrepreneurs and/or to too high interest rates charged by financiers. Crises are a ‘technical problem’ that can be corrected by boosting the ‘confidence’ of capitalists and lowering interest rates, or in the extreme, getting governments to spend to prime the pump of private industry.

For Keynes, once such measures are used to deal with these occasional slumps, then capitalism will be set fair for a golden future where hours of toil will fall dramatically with the use of technology; scarcity and poverty would disappear; and the main problem would be how to use our leisure time.  Well, now 80 years after Keynes argued this, more than 2bn people are in dire poverty, inequality has never been greater, technology is threatening to take away many jobs and the average working life has not fallen at all.  Moreover, the Keynesian prescriptions of easy money (QE) and government spending have signally failed to revive capitalism in the major economies since the Great Recession.  The Long Depression, as I have called it, remains.

Indeed, in my session, veteran French Marxist Francois Chesnais presented his thoughts from his book, Finance Capital Today, which was short listed for the Deutscher prize.  Chesnais argued that the current depression would never end.  The rate of profit globally is still falling and global debt is steadily rising.  The Great Recession has not ‘cleansed’ the system. And now global warming threatens to destroy the planet.

Now I am not quite so ‘pessimistic’ (or is it optimistic?) that capitalism is in its last throes.  But it is possible that capitalism could sink into ‘barbarism’ or the collapse of living standards, as the Roman slave empire did after 400AD, without being replaced by a new mode of production.  As Carchedi put it in a recent paper at the Capital.150 symposium, ‘the old is dying but the new cannot be born’ (Gramsci).  But capitalism could also stagger on with some revival in profitability after new slumps and the renewed opportunity to exploit new sources of labour in Africa and the periphery.  It will require the action of the global working class to achieve socialism.  It won’t come just because capitalism flounders economically.

Marx’s Capital provides us with the clearest and most compelling analysis of the nature of the capitalist mode of production and also its irreconcilable contradictions that show why capitalism is transient and cannot last forever, contrary to what the apologists for capital claim.

I don’t think we need to invent new and often confusing terms or categories to explain modern capitalism 150 years since Capital was published; or deny the role of exploitation in the creation of value at the heart of capitalism; or reduce the role of the global proletariat in ending it.