Archive for the ‘marxism’ Category

Marx and Keynes in Berlin

May 5, 2018

It’s 200 years today since Karl Marx was born.  And it’s just over 100 years since the great 20th century economist John Maynard Keynes wrote about Marx’s contribution.  Keynes wrote then: “how  can I accept the (Communist) doctrine which sets up as its bible above and beyond criticism, an obsolete textbook which I know not only to be scientifically erroneous but without interest or application to modern world”.  I think we can see that Keynes had a low opinion of Marx’s ideas.

And we can see why from the following comment of Keynes.  “How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeoisie and the intelligentsia, who with all their faults, are the quality of life and surely carry the seeds of all human achievement? “

Keynes stood for the preservation of capitalism and its ruling class, for all its faults, over the ‘boorish proletariat’.  This was my opening salvo in my presentation to the Marx 200 conference in Berlin, organised by the Rosa Luxemburg Institute.  My presentation went on to cover where I thought Marx and Keynes differed and why Marx’s ideas were superior as an analysis of capitalism and as a basis for political action.  In my view, it is necessary to spell out these differences because the dominant analysis of capitalism adopted in the labour movements of the major capitalist economies, especially by the leaders of those movements, is Keynesian theory and policy, not Marx.  Marx is ignored or dismissed, on the whole.

However, at the session, Professor Radhika Desai disagreed with me.  For her, the similarities (agreements) between Keynes and Marx were greater than the differences.  It’s a debate that we could have, because in my view expunging the influence of Keynes (a supporter of the ruling class) from his dominant influence in the labour movement is an essential task.  Certainly Keynes was determined to expunge the influence of Marx from the labour movement and from his economics students –as the quotes above show.

But let’s just briefly consider the similarities and differences between these two great political economists of the last 200 years.  First, the agreements as usually presented by those who see them.  Both Marx and Keynes think there is something wrong with capitalism.  Both Marx and Keynes have a falling rate of profit theory.  Both Marx and Keynes wanted the ‘socialisation of investment’.  Both Marx and Keynes wanted and expected the ‘euthanasia of the rentier’ (Keynes’ words), namely the disappearance of finance capital.

From this, it sounds that, despite Keynes’ crude dismissal of Marx, he had a lot in common with Marx’s analysis.  But that would be looking at it very superficially, in my opinion.  In my paper to the conference session, I make a lot of points about how Keynes rejected the labour theory of value (both classical and Marx’s) and stood by marginalist and utility theory.  Berlin 2018  For Keynes, there was no theory of exploitation of labour power that extracted profit from the unpaid labour of the working class.  Profit came from ‘capital’ investing.  Workers got wages for working; bankers got interest from lending and capitalists got profit from investing; each according to his or her own.  This is the standard mainstream ‘factors of production’ theory.  So from the start, Keynes denies that there is exploitation in the capitalist mode of production; the market decides and there is free and fair exchange: profit for capital, wages for workers.

Of course, if you have followed this blog and read Marx’s ideas, you would know that this is nonsense and a mere apologia for the rule of capital.  Where does profit come from in this mainstream theory?  There is no explanation.  Somebody must pay for it and yet there is free and fair exchange of commodities in the market –so there can be no profit in the market, merely an exchange of value (money).  Keynes’ and the mainstream approach really justifies the rule of capital and, for that matter, inequality of income and wealth by denying the reality that a small group controls of the means of production and forces the rest of us to work for a living.  Indeed, Keynes said that: “For my own part, I believe that there is social and psychological justification for significant inequalities of incomes and wealth, but not for such large disparities as exist today. There are valuable human activities which require the motive of money-making and the environment of private wealth-ownership for their full fruition.“

Then there is the rate of profit theory.  Those who reckon Marx and Keynes are allies in their critique of capitalism like to point out that Keynes had a theory of a falling rate of profit as well as Marx.  Indeed, they were the same.  But Keynes’ theory has little to do with Marx’s.  Keynes did see the fluctuation of the rate of profit—or the marginal efficiency of capital (MEC), to use Keynes’s terminology—as the main factor that determines the changes in the phases of industrial cycle: “Now, we have been accustomed in explaining the ‘crisis’ to lay stress on the rising tendency of the rate of interest under the influence of the increased demand for money both for trade and speculative purposes. At times this factor may certainly play an aggravating and, occasionally perhaps, an initiating part. But I suggest that a more typical, and often the predominant, explanation of the crisis is, not primarily a rise in the rate of interest, but a sudden collapse in the marginal efficiency of capital.

But Keynes’ theory of MEC is based on falling ‘marginal productivity’ due to the growing ‘abundance of capital’ and on the psychological expectations of capitalists about the future.  The rate of profit will gradually fall as more and more technology is produced; the more abundant is capital, the less it is wanted and so its marginal value falls.  This is not Marx’s theory.  His depends on the continual drive by capital to replace labour in production with machines.  Individual capitalists compete with each other to drive down costs and in so doing that pushes up the organic composition of capital by shedding labour.  As labour is the only source of profit, not capital (as in Keynes’ theory), the rate of profit tends to fall.  And it is a tendency.

For Keynes, however, the MEC will fall not because insufficient value is being extracted from labour but because capitalists ‘suddenly’ lose their appetite for investment: “that marginal efficiency of capital depends, not only on the existing abundance or scarcity of capital-goods and the current cost of production of capital-goods, but also on current expectations as to the future yield of capital-goods. In the case of durable assets it is, therefore, natural and reasonable that expectations of the future should play a dominant part in determining the scale on which new investment is deemed advisable. But, as we have seen, the basis for such expectations is very precarious. Being based on shifting and unreliable evidence, they are subject to sudden and violent changes.”

So the fall in Keynes’ rate of profit is due to individual capitalists’ subjective views about the future (‘confidence’) not because of an objective change in the conditions of accumulation of capital and production (Marx’s view).  As Paul Mattick Snr commented 50 years ago, “what are we to make of an economic theory, which after all claimed to explain some of the fundamental problems of twentieth-century capitalism, which could declare: ‘In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends’?

The ‘sudden collapse’ in MEC has caused the slump (because interest rates are now too high compared to profitability and people ‘hoard’ money instead of investing or consuming).  But once that is overcome, we can return to the ‘normal’ capitalist mode of production.  “Economic prosperity is…dependent on a political and social atmosphere which is congenial to the average businessman.”  Unemployment, I must repeat, exists because employers have been deprived of profit. The loss of profit may be due to all sorts of causes. But, short of going over to Communism, there is no possible means of curing unemployment except by restoring to employers a proper margin of profit.”

Then there is this ‘socialisation of investment’.  Keynes called for this (a vague phrase) as a ‘final solution’ to the problem of depression in a capitalist economy.  If monetary easing (cutting interest rates and pumping in money by central banks) or fiscal stimulus (tax cuts and government spending) did not work in reviving the capitalist economy and getting capitalist to invest more, then maybe it would be necessary for the government to step in directly and take over the show. It is not clear, however, that Keynes meant any expropriation of capitalist industry and companies – something he would hate.  He probably meant that state operations and even some plan should be introduced – something similar to Roosevelt’s New Deal projects in the 1930s in the US.  And anyway, it is clear that Keynes saw ‘socialisation of investment’ as just a temporary measure to get capitalism going again (perhaps like the war economy 1940-45 eventually did).  Once the ‘technical malfunction’ (lack of demand) in the capitalist mode of production had been overcome, then we could revert to free markets and investment for profit and end ‘socialised investment’.

In one of his last articles on the capitalist economy as the Great Depression ended and the second world war began, Keynes remarked that “Our criticism of the accepted classical theory of economics has consisted not so much in finding logical flaws in its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the result that it cannot solve the economic problems of the actual world. But if our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again from this point onwards.”

So once full employment is achieved, we can dispense with planning and ‘socialised investment’ and return to free markets and mainstream neoclassical economics and policy: “the result of filling in the gaps in the classical theory is not to dispose of the ‘Manchester System’ (‘free’ markets – MR), but to indicate the nature of the environment which the free play of economic forces requires if it is to realise the full potentialities of production.”

Keynes saw all his policies as designed to save capitalism from itself and to avoid the dreaded alternative of socialism.  “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.”  So “the class war will find me on the side of the educated bourgeoisie.”  Fear of revolution was central to Keynes’ policies.  I don’t need to explain that Marx did not see this way at all.

As for the ‘euthanasia of the rentier’, Keynes reckoned that as capitalism expanded, it would, through more technology, create a world of abundance and leisure.  Because of that abundance, the return on lending money to invest would fall as the MEC fell.  So bankers and financiers would no longer be necessary; they could be phased out.  Well, that does not seem to be happening.  Indeed, the very people who claim that Keynes is a ‘progressive’ economist with great similarities to Marx now argue that capitalism is being distorted by ‘financialisation’ and finance capital – and that is the real enemy.  What happened to the gradual phasing out of finance in late capitalism a la Keynes?

In contrast, Marx’s theory of finance capital did not foresee a gradual removal of finance; on the contrary, he describes the increased role of credit and finance in the concentration and centralisation of capital in late capitalism.  Yes, the functions of management and investment become more separated from the shareholders in the big companies, but as I have argued in a previous post, this does not alter the essential nature of the capitalist mode of production – and certainly does not imply that coupon clippers or speculators in financial investment will gradually disappear.

So I reckon that the differences (and there are others in my paper) between Keynes and Marx are fundamental and any superficial similarities pale in comparison.  That is important because it is Keynesian ideas that dominate in the labour movement, not Marx 200 years since his birth.

More on other things at the Berlin conference in another post.

Advertisements

Managers rule, not capitalists?

April 29, 2018

The capitalist mode of production is coming to an end.  But it is not being replaced by socialism. Instead, there is a new mode of production, based on a managerial class that has been forming in the last hundred years.  This managerial class does not exploit the working class for surplus value and its accumulation as capital.  The managers instead use power and control which they exercise through the management of transnationals and finance.  The working class will not be the ‘gravediggers’ of capitalism, as Marx expected.  The ‘popular classes’ instead must press the managerial class to be progressive and modern; and eliminate the vestiges of the capitalist class in order to develop a new meritocratic society. Such is the thesis of a new book, Managerial Capitalism, by Gerard Dumenil and Dominique Levy (D-L), two longstanding and eminent French Marxist economists.

I participated in the launch of the book in London this week.  At the launch, Gerard Dumenil argued that capitalist class (i.e those who own the means of production) have been replaced by managers who control the big companies and take all the decisions that matter.  The capitalist class now is like the fading old feudal class in the early 19th century when Marx came on the scene.  The capitalist class took over then and the feudal class converted themselves into capitalists eventually as well.  Now the managerial class has taken over and the traditional capitalists are increasingly converting themselves into the new managerial class.

Marx was well aware to the separation of functions in capitalism between the owner of capital and the managers of corporate capital.  As he put it in Capital Vol 3: “Joint-stock companies in general (developed with the credit system) have the tendency to separate this function of managerial work more and more from the possession of capital, whether it is owned or borrowed … But since on the one hand the functioning capitalist confronts the mere owner of capital, the money capitalist, and with the development of credit this money capital itself assumes a social character, being concentrated in banks and loaned out by these, no longer by its direct proprietors; and since on the other hand the mere manager, who does not possess capital under any title, neither by loan nor in any other way, takes care of all real functions that fall to the functioning capitalist as such, there remains only the functionary, and the capitalist vanishes from the production process as someone superfluous.”(ibid. p. 512).

D-L spend some time in their book reminding us that Marx was aware of this division.  But Marx did not see this as leading to a new managerial class. The division was merely of appearance. The system had not altered: “producing surplus-value, i.e. unpaid labour, and in the most economical conditions at that, is completely forgotten in the face of the antithesis that interest accrues to the capitalist even if he does not perform any function as capitalist, but is simply the owner of capital; while profit of enterprise, on the other hand, accrues to the functioning capitalist even if he is not the owner of the capital with which he functions. In the face of the antithetical form of the two parts into which pro.t and thus surplus-value divides, it is forgotten that both are simply parts of surplus-value and that such a division can in no way change its nature, its origin and its conditions of existence” (p. 504).

D-L reckon that this view of the relation between outright capitalist families and their managers is out of date.  Managers, not capitalist families, now rule. In the book, D-L back up their thesis with empirical evidence on rising income inequality in the US and other major economies.  The top 1% of income earners in the US, who would usually be regarded as part of the capitalist class, now get 80% of their income as salaries from working as managers and top executives, not from capital income (dividends, interest and profit).  So these top people are managers, not capitalists.  This is why, D-L argue, we must revise the traditional Marxist view that top managers are merely functionaries of the capitalist class.

But the data could be interpreted in another way.  Simon Mohun has done similar empirical work (ClassStructure1918to2011wmf) on where the income of the top layers comes from.  He found that the working class – those who depend on wages alone for their living – still constitute 84% of the working population.  Managers constitute the rest, but only 2% (Qc in graph below) can actually live off rent, interest, capital gains and dividends alone.  They are the real capitalist class.  And that ratio has little changed in 100 years, even if their direct source of income has.

Moreover, this is the group that has gained most during the last 30 years of rising inequality.  The income of this capitalist class (Qc) has risen from about 9 times the average income of the working class to 22 times while managers’ incomes (Lpd in graphs) have risen from 2.5 times to 3.5 times workers income.  So rising inequality is primarily the result of increased exploitation (a rising rate of surplus value) in Marxist terms.

Yes, for the top 1%, since 1980, their ‘labour’ source of income has fluctuated around 60% of total average income (around double what it was in the 1920s). But this top 1% of managers includes investment bankers, corporate lawyers, hedge fund and private equity managers and corporate executives. Moreover, two-thirds of the top 1% are managers only in name, as an increasing proportion of these executive occupations are in so-called ‘closely held businesses’. That means they own their own businesses but pay wages to themselves as the main source of income.  This blurs the distinction between labour and non-labour income.  So the top 1-3%, according to Mohun, are still capitalists as Marx understood it, even if they pay themselves huge salaries and bonuses.

Moreover, as one study shows“The incomes of executives, managers, financial professionals, and technology professionals who are in the top 0.1% of the income distribution are found to be very sensitive to stock market fluctuations. Most of our evidence points towards a particularly important role for financial market asset prices, shifting of income between the corporate and personal tax bases, and possibly corporate governance and entrepreneurship, in explaining the dramatic rise in top income shares.”  So their labour income depends on capitalist stock markets and financial assets.

As for managers in general, by most definitions, they constitute about 17-20% of the workforce, but it seems a jump to suggest that these constitute a new managerial class, when they can vary from Jeff Bezos at Amazon to a supervisor in Walmarts. “While managers supervise, most of them are also supervised, and splitting the distribution into working class and non-working class does not address the question of who has to sell their labour-power and who does not. That is, in no way can managers be considered a homogeneous group, because they are fundamentally divided into those who might sell their labour-power but do not have to do so, and those who do sell their labour-power because they have to do so.” Mohun.

Erik Olin Wright looked the class structure of six advanced capitalist economies and showed that ‘managers’ are a curate’s egg of a group in modern capitalism.  By breaking down the skill factors of managers, he reckoned that most managers are really workers with skills.  The working class proper was still over 70% of the labour force.  Mohun’s tax calculation method finds that the working class is more like 80-85%.

Surely, the real question is: in whose class interest do managers carry out their managerial labour? The very nature of the capitalist economy obliges the managers to manage in the interest of the 1%.  Their jobs depend on the decisions of the shareholders, the company share price and its earnings performance, however highly paid they are.

Moreover, as Marx predicted, the main feature of modern capitalism is a growing concentration and centralisation of wealth (not income).  And that means wealth held in the means of production and not just household wealth.  In 2016, the top 1% of the US population held 40% of total net wealth, while the bottom 80% held just 10%. On the basis of Wright’s class structure analysis, this suggests that the top 1% is a combination of capitalists and expert managers. The next 20% by wealth consists of the remaining capitalists and the top two thirds of the managers. The bottom 80% by wealth consists of the bottom third of the managers and the entire working class (wage workers and supervisors).

Modern capitalism has developed into a huge network of interlocking companies with cross-shareholdings.  Three systems theorists at the Swiss Federal Institute of Technology in Zurich developed a database listing 37 million companies and investors worldwide and analysed all 43,060 transnational corporations and share ownerships linking them.  They discovered that a dominant core of 147 firms through interlocking stakes in others together control 40% of the wealth in the network.  A total of 737 companies control 80% of it all.   This is the concentrated power of capital.  147 control)

At the launch, Gerard Dumenil argued that this concentration of ownership among a small number of global companies, particularly banks, actually proved D-L’s thesis.  It was managers and finance directors who ran these companies and made decisions on mergers etc while the shareholders followed like sheep.  This was proof of ‘managerial capitalism’.  Instead, I would argue that it was proof that, since Marx wrote about joint stock companies 150 years ago,the capitalist mode of production has dominated even more over investment, employment and production globally.

One of the inherent features of the capitalist mode of production is that it generates crises of production, investment and employment at regular and recurring intervals.  This is the consequence of production for profit by individual private owners on a market which runs in contradiction to the needs of society.  This is a unique feature of capitalism. Has this disappeared?  Was Marx not proved right in expecting crises to become more global and damaging?

Dumenil seemed to be suggesting that Marx was wrong about growing crises.  At the launch he claimed that the recent Great Recession had avoided a major depression because of ‘managerialism’.  The crisis had been managed.  Well, the evidence is surely to the contrary –as I have argued at length on this blog and in my book, The Long Depression.

Dumenil, however, was insistent that those of us who stick to Marx’s old analysis and predictions needed to break with dogma and recognise the new mode of production that was upon us.  The political strategy that flowed from this was for the ‘popular classes’ (working classes) to reinvigorate the class struggle – but not for the replacement of capitalism with socialism.  That was not going to happen.  But instead the aim must be to push the ruling (progressive?) managerial class to the left to introduce pro-labour reforms and isolate the small and fading capitalist class.  Well, if the working class is still 80% of the adult population in most advanced economies (let alone elsewhere) and capital is even more concentrated and centralised than ever before, why not overthrow ‘managerial capitalism’ too?

The value (price and profit) of everything

April 25, 2018

Mariana Mazzucato’s new book, The value of everything, seems to have caught the imagination of the liberal wing of mainstream economics.  It has even won the accolade of a review in the UK’s Financial Times by top mainstream Keynesian economic journalist, Martin Wolf and was launched at an event at the London School of Economics.

Mazzucato previously wrote an important book, The Entrepreneurial State, that ‘debunked’ the myth that only the capitalist sector contributes to innovation while the state sector is a burden and cost to growth.  On the contrary, Mazzucato showed that “From the internet to nanotech, most of the fundamental advances – in both basic research but also downstream commercialisation – were funded by government, with businesses moving into the game only once the returns were in clear sight. All the radical technologies behind the iPhone were government-funded: the internet, GPS, touchscreen display, and even the voice-activated Siri personal assistant.”

In that book, she continued: “Apple initially received $500,000 from the Small Business Investment Corporation, a public financing arm of the government. Likewise, Compaq and Intel received early-stage grants, not from venture capital, but via public capital through the Small Business Innovation Research program (SBIR). As venture capital has become increasingly short-termist, SBIR loans and grants have had to increase their role in early-stage seed financing the US Department of Health and the Department of Energy. Indeed, it turns out that 75 per cent of the most innovative drugs owe their funding not to pharmaceutical giants or to venture capital but to that of the National Institutes of Health (NIH). The NIH has, over the past decade, invested $600 billion in the biotech-pharma knowledge base; $32 billion in 2012 alone.”  Mazzucato showed that taxpayer enabled these tech companies to become ‘uber’ rich.

Since then, Mazzucato’s powerful arguments in favour of government investment and the role of the state have led to her becoming an adviser to the UK’s Corbyn Labour leadership and also joint winner of the Leontief prize for advancing the frontiers of economic thought, with inequality expert Branco Milanovic, formerly chief economist at the World Bank.

Now in her new book, she takes on a bigger task: trying to define who (what) creates value in our economies, a subject that has been debated by the greatest economists of capitalism from Adam Smith onwards.  “Who really creates wealth in our world? And how do we decide the value of what they do?”

Her main line in this new book is that 1) government is not recognised in national accounts as adding to value through its contribution to investment and innovation; 2) finance has sneaked into accounts as productive and value-creating when in reality it ‘extracts’ value from productive sectors and breeds speculation and short-termism etc.; and 3) there has been the growth of a monopoly sector in modern capitalism that is ‘rent-seeking’ rather than ‘value-creating’.

Mazzucato argues that “until the 1960s, finance was not widely considered a ‘productive’ part of the economy. It was viewed as important for transferring existing wealth, not creating new wealth. Indeed, economists were so convinced about the purely facilitating role of finance that they did not even include most of the services that banks performed, such as taking in deposits and giving out loans, in their calculations of how many goods and services are produced by the economy. Finance sneaked into their measurements of Gross Domestic Product (GDP) only as an ‘intermediate input’ – a service contributing to the functioning of other industries that were the real value creators.  In around 1970, however, things started to change. The national accounts – which provide a statistical picture of the size, composition and direction of an economy – began to include the financial sector in their calculations of GDP, the total value of the goods and services produced by the economy in question.

So that today “the issue is not just the size of the financial sector, and how it has outpaced the growth of the non-financial economy (e.g. industry), but its effect on the behaviour of the rest of the economy, large parts of which have been ‘financialized’. Financial operations and the mentality they breed pervade industry, as can be seen when managers choose to spend a greater proportion of profits on share buy-backs – which in turn boost stock prices, stock options and the pay of top executives – than on investing in the long-term future of the business.”

Investment is now based on short-term returns which results in less reinvestment of profits and rising burdens of debt which, in a vicious cycle, makes industry even more driven by short-term considerations. “In modern capitalism, ‘value-extraction’ is rewarded more highly than value-creation: the productive process that drives a healthy economy and society. From companies driven solely to maximize shareholder value to astronomically high prices of medicines justified through big pharma’s ‘value pricing’, we misidentify taking with making, and have lost sight of what value really means”.

Now there are many powerful truths in Mazzucato’s theses, and they are very much the kernel of modern post-Keynesian and heterodox economics.  But as such, there are also serious weaknesses with her view of value.  To argue that government ‘creates’ value is to misunderstand the law of value under capitalism.  Under capitalism, production of commodities (things and services) are for sale to obtain profit.  Commodities must have use value (be useful to someone) but they must also have exchange value (make a sale for profit).  From that capitalist perspective, government does not create value – indeed, it can be seen as a (necessary) cost that reduces the profitability of capitalist production and accumulation.  GDP is biased as a measure of value created in an economy for that good reason. It measures much more closely exchange value not the production of all use values, which would include government investment and housework (perhaps even happiness, welfare and trust).

Sure, government creates use value (although it is often use values found in weaponry, nuclear arms, chemicals etc and security forces to protect the interests of capital). But it is not productive of value and surplus value for capital.  For capital, there is not ‘value in everything’.  For capital, it is (exchange) value, not use value that matters in the last analysis.

Mazzucato is right that the finance sector does not create value. Marxist economics says it only circulates value created by labour power in productive sectors (those sectors that increase the productivity of labour power and thus the accumulation of more capital).  Banks and the credit system contribute to reduce the costs of transferring money (taking deposits and making loans) so that businesses can borrow efficiently and keep capital circulating.

Finance and credit is necessary for capital to accumulate, but does not add value itself.  But even this contribution to the circulation of capital has increasingly taken a back seat to the risk-taking role of investing in ‘fictitious capital’ (bonds and stocks trading). In her book, Mazzucato quotes the work of Andy Haldane, now chief economist at the Bank of England.  He estimated what extra value in GDP terms the financial sector actually adds to the wider economy.

He found that in the US, the value-added of financial intermediaries was about $1.2 trillion in 2010 – equivalent to 8% of total GDP. In the UK, the value-added of finance was around 10% of GDP in 2009.  In the US, the share of finance in GDP has increased almost fourfold since the Second World War. But Haldane reckons these contributions really express high risk-taking in lending and investment by banks that eventually come a cropper when a financial or property bubble bursts, as they do periodically.  Echoing Marx’s value theory, Haldane concludes: “The act of investing capital in a risky asset is a fundamental feature of capital markets. For example, a retail investor that purchases bonds issued by a company is bearing risk, but not contributing so much as a cent to measured economic activity. Similarly, a household that decides to use all of its liquid deposits to purchase a house, instead of borrowing some money from the bank and keeping some of its deposits with the bank, is bearing liquidity risk. Neither of these acts could be said to boost overall economic activity or productivity in the economy. They re-allocate risk in the system but do not fundamentally change its size or shape.”  Indeed, an IMF paper has shown that it is not just that banks trigger regular financial collapses, the finance sector has a generally negative (parasitic?) effect on the productive sectors of the capitalist economy over time.

Finance is clearly unproductive.  But it is not just finance that is unproductive.  Real estate, commercial advertising and media and many other sectors are not ‘productive’ because the labour employed does not create new value but instead just circulates and redistributes value and surplus value created.  And it is the profitability of the productive sectors that is key to a capitalist economy, not the overall amount of use values produced.

Moreover, was there nothing wrong with capitalism before finance (and ‘financialisation’) emerged after the 1970s?  Were there no crises of overproduction and investment, no monopolies and rent-seeking before the 1970s?  Was there a wonderful productive, competitive, equal capitalist mode of production existing in the 1890s, 1930s or even in the 1960s? And why did finance suddenly emerge in the 1970s, leading to the GDP measure being altered to account for it?

Mazzucato offers no explanation of why capitalism became increasingly ‘unproductive’ and ‘rent-seeking’.  But Marx’s value theory does.  From the mid-1960s to the early 1980s, there was a sharp fall in the profitability of the productive sectors of all the major capitalist economies.  Capitalism entered the so-called neoliberal period of the destruction of the welfare state, restriction of trade unions, privatisation, globalisation – and financialisation.  Financialisation (looking to make profit from the purchase and sale of financial assets using new forms of financial derivatives) became a major counteracting factor to this fall in profitability.  For capital, it was not a matter of ‘choice’ but necessity to reduce the cost of government and raise profitability, partly through financial speculation and monopoly rent-seeking.

In a Bloomberg TV interview on her new book, Mazzucato was asked by the presenter how she could persuade chief executives of large multinationals to invest productively and innovate rather than buy back their shares to boost their share prices and pay higher dividends to shareholders (ie financial speculation).  Mazzucato replied that it was a matter of choice: some companies were investing more productively and others were not.  So apparently, we have to make these companies see the error of their ways.

Mazzucato argues that government should be “tilting the field in the favour of innovators and true value creators.”  But is that really possible where capital (and monopolies) dominate?  Mainstream economics remains highly unpersuaded that government can add value for capitalism.  In his review of the book, Martin Wolf in the FT commented that: “What I would have liked to see far more of, however, is a probing investigation of when and how governments add value. …How can one ensure that governments do add value rather than merely extract and waste it? In her enthusiasm for the potential role of the state, the author significantly underplays the significant dangers of governmental incompetence and corruption.”

In the launch of her book at the London School of Economics, Mazzucato presented the example of Brazil, where during the global financial crisis under the Lula government, the state banks were directed to invest in projects that would help boost employment and technology even if they were not profitable (at least not in the medium term).  But what happened?  Big business and finance (domestic and international) bitterly attacked this policy and its implementation through the Brazilian state development bank as reducing the profits of the finance sector.  When Lula was gone, the policy was reversed.

Mariana Mazzucato does not call for the replacement of capitalism or even the rent-seeking monopolies but “how we might reform it” in order to replace the current parasitic system with a type of capitalism that is more sustainable, more symbiotic – that works for us all.”  In her TV interview she talked of a “partnership between government, multi-nationals and a ‘third sector’ (presumably social non-profit coops etc).” She made no mention of bringing the ‘parasitic’ finance sector into public ownership, let alone the ‘short-termist’, ‘rent-seeking’ monopolies.  Instead, she seeks a ‘partnership’ of government, finance and monopolies.

It seems to me a utopian illusion to imagine that monopolies can be persuaded to stop being ‘short termist’ and invest for higher productivity and innovation for the long term, if profitability in such productive pursuits seems to them too low compared to finance or real estate (if profitability was higher in productive investment, they would do it anyway).  Surely, a left government must instead look to replace big capital with democratically-run state enterprises in the ‘commanding heights’ of an economy.  This would lay the proper foundation for innovation and enterprise and thus put use-value before value, price and profit.

Marx 200: Carney, Bowles and Varoufakis

April 23, 2018

As the 200th anniversary of Marx’s birth gets closer, a host of conferences, articles and books on the legacy of Marx and his relevance today are emerging – including my own contribution.  The most interesting was a speech last week by the governor of the Bank of England, Mark Carney in his homeland of Canada.

In his speech at a ‘Growth Summit’ to the Public Policy Forum in Toronto, Carney set out to be provocative and headline catching with a statement that Marxism could once again become a prominent political force in the West.  “The benefits, from a worker’s perspective, from the first industrial revolution, which began in the latter half of the 18th century, were not felt fully in productivity and wages until the latter half of the 19th century. If you substitute platforms for textile mills, machine learning for steam engines, Twitter for the telegraph, you have exactly the same dynamics as existed 150 years ago (actually 170 years ago –MR )– when Karl Marx was scribbling the Communist Manifesto.”

Just as the first industrial revolution in early 19th century Britain led to the collapse of traditional jobs and held down real wages for a generation in the first two decades of the 19th century, so in this current Long Depression globally, with the advent of robots and AI, a new industrial revolution threatens to destroy human labour and livelihoods.

In 1845, Engels wrote, The condition of the working class in England, which exposed the misery and poverty engendered by the replacement of manual skills with machines and kept real incomes stagnant.  Now, says Carney, Marxism might again be relevant with a new burst of ‘capital bias’ (ie a rise in machines relative to human labour power).

Automation may not just destroy millions of jobs.  For all except a privileged minority of high tech workers, the collapse in the demand for labour could hold down living standards for decades.

In such a climate, “Marx and Engels may again become relevant”, said Carney.

Without realising it, Carney was reiterating Marx’s general law of capitalist accumulation outlined in Volume One of Capital (Chapter 25), written some 160 years ago, that capitalist accumulation will expand and promote machines to replace human labour but this will not lead automatically to higher living standards, less toil and more freedom for the individual, but mostly to downward pressure on real incomes, not only of those losing their jobs to machines, but in general.  It would also lead to more not less toil for those with jobs, while leaving millions in a state of ‘precarious labour’ – a reserve army for capital to exploit or dispense with as the cycle of accumulation demands. (see Capital Volume One p782-3 and my new book, pp32-37).

Carney’s view of the robot revolution leading to massive job losses has much empirical backing.  However, as Marx pointed out in Capital, it is not a one-sided collapse in jobs.  Technology also creates new jobs and raises the productivity of labour and, depending on the balance of forces in the class struggle between capital and labour over the value created, real incomes can also rise.  This happens in periods when profitability is improving and more labour comes into the market.

Of course, this ‘happy’ side of capitalist accumulation is the one that mainstream economics likes to promote, contrary to Carney’s worries.  For example, Paul Ormerod, commented on Carney’s view of the relevance of Marx. You see, Marx was completely wrong on a fundamental issue.  Marx thought, correctly, that the build up of capital and the advance of technology would create long term growth in the economy.  However, he believed that the capitalist class would expropriate all the gains.  Wages would remain close to subsistence levels – the “immiseration of the working class” as he called it.”

In fact, says Ormerod, “living standards have boomed for everyone in the West since the middle of the 19th century.  Leisure hours have increased dramatically and, far from being sent up chimneys at the age of three, young people today do not enter the labour force until at least 18.”  Apparently prosperity is the order of the day: “every single instance of an economy which enters into the sustained economic growth of the market-oriented capitalist economies, from early 19th century England to late 20th century China.  Once this is over, the fruits of growth become widely shared.”

There are several points here that I have taken up in many previous posts.  First, Marx did not hold to a theory of ‘subsistence wage levels’.  As for the argument that capitalism has taken everybody out of poverty and reduced toil and misery, it is full of holes.  Note that Ormerod talks of “everyone in the West”, thus giving the lie to billions outside ‘the West’ that remain in poverty by any definitions.  See my detailed posts on the level of poverty globally here.

And contrary to Ormerod’s view (as that of Keynes before him), the rise of technology under capitalism has not led to much reduction in toil.  I have shown that most people in “the West” continue to have working lives (in hours per year) much as they did in 1880s or the 1930s; they may work less hours per day on average and get Saturdays and Sundays off (for some), but they still put in over 1800 hours a year and work longer overall (50 years or so).

Ormerod also argues that inequality of incomes and wealth is not getting worse and labour’s share in national income has stopped falling, contrary to Carney.  Well, there is a wealth of evidence that wealth and income inequality is not improving, both globally between nations and within national economies.

Ormerod is right, however, to question Carney’s one-sided model of capitalism.  Labour’s share of total value created can rise and fall in different periods depending on the balance of class forces and impact of accumulation; and Carney’s own graph shows that real wages did not just stagnate in the first industrial revolution or now, but also in the 1850s and 1860s; and in the first quarter of the 20th century.  So there is more to this issue than technology.  The current stagnation in real wages in the UK and the US is more a product of the Long Depression of the last ten years than robots or AI, which have hardly started to have an impact yet (labour productivity growth is low or slowing in most economies).  The profitability of capital itself and the strength of labour in the battle over value created are more relevant.

Unfortunately it is not just mainstream economists who either distort or dismiss Marx’s economic theory.  In an article for Vox, eminent and longstanding Marxist economist Sam Bowles writes on the legacy of Marx’s economic ideas in order to dismiss them.  He agrees with Keynes’ view that Capital is “an obsolete economic textbook [that is] not only scientifically erroneous but without interest or application to the modern world” (Keynes 1925). And he agrees with 1960s mainstream economic guru, Paul Samuelson’s judgement that “From the viewpoint of pure economic theory, Karl Marx can be regarded as a minor post-Ricardian…and who in turn was “the most overrated of economists” (Samuelson 1962).

Bowles considers that Marx’s labour theory of value was “pioneering, but inconsistent and outdated”. According to Bowles, Marx’s labour theory of value as a representation of a general system of exchange and his theory of the tendency of the profit rate to fall “did not resolve the outstanding theoretical problems of his day, but rather anticipated problems that would later be addressed mathematically.”  Bowles reckons that mainstream economics, in particular neoclassical marginalism, went on to sort out Marx’s failures by replacing his value theory.  And this has also led to dropping the idea of social ownership of the means of production to replace the capitalist mode. “Modern public economics, mechanism design and public choice theory has also challenged the notion – common among many latter-day Marxists, though not originating with Marx himself – that economic governance without private property and markets could be a viable system of economic governance.”

Apparently, all that is left of Marx’s legacy is what Bowles calls “despotism in the workplace”, the exploitive nature of capitalist production; which is not due to the exploitation of labour power for surplus value; but the ‘power structure’ where moguls and managers rule the roost over the worker serfs.  Thus we are reduced to a political theory (and even that is not much in common with Marx’s political theory for that matter) as Marx’s economic ideas are ‘outdated’ or false.

Well, all Bowles arguments (and those of Keynes and Samuelson) have been taken up by me in various posts in the past, and more thoroughly in my new book, Marx 200.  In short, we can show that Marx’s value theory is logical, consistent and backed empirically.  It even provides a compelling explanation of relative price movements in capitalism, though that is not its main aim.  Its main aim is to show the particular form that the capitalist mode of production takes in exploiting human labour for profit;  and why that system of exploitation has inherent contradictions that cannot be resolved without its abolition.

Moreover, the Marxist critique of capitalism is based on economics and leads to revolutionary political action; so it is not (just) a moral critique of ‘despotism’ in the workplace or anywhere else.  The market economy (capitalism) cannot deliver the full development of human potential because despotism in the workplace is a product of the exploitation of labour by capital.

Yanis Varoufakis recognises this in his long article on Marx and Engels’ Manifesto of the Communist Party to promote his new introduction to that masterpiece.  Varoufakis writes a colourful, if over flowery, article emphasising one great message of Marx and Engels’ CM: that capitalism is the first mode of production that has become global.  Varoufakis sees this process as only being completed with the fall of the Soviet Union and other ‘communist’ states that blocked globalisation until then. That is probably an exaggeration.  Capitalism from the start aimed to expand globally (as Marx and Engels explain in the CM).  After the end of the depression of the 1870 and 1880s, there was startling expansion of capital worldwide, now named imperialism, based on flows of capital and trade.

While correctly recognising the powerful (happy?) effect of capitalism globally, Varoufakis also emphasises the dark side: of alienation, exploitation, imperialism and despotism: “While celebrating how globalisation has shifted billions from abject poverty to relative poverty, venerable western newspapers, Hollywood personalities, Silicon Valley entrepreneurs, bishops and even multibillionaire financiers all lament some of its less desirable ramifications: unbearable inequality, brazen greed, climate change, and the hijacking of our parliamentary democracies by bankers and the ultra-rich.”

And, contrary to the conventional mainstream view, Varoufakis argues that Marx and Engels were right that class struggle under capitalism can be boiled down to a battle between capital and labour.  “Society as a whole,” it argues, “is more and more splitting up into two great hostile camps, into two great classes directly facing each other.” As production is mechanised, and the profit margin of the machine-owners becomes our civilisation’s driving motive, society splits between non-working shareholders and non-owner wage-workers. As for the middle class, it is the dinosaur in the room, set for extinction.”

And he sees that capitalism must be replaced, not modified or corrected for its faults.  “It is our duty to tear away at the old notion of privately owned means of production and force a metamorphosis, which must involve the social ownership of machinery, land and resources.   Only by abolishing private ownership of the instruments of mass production and replacing it with a new type of common ownership that works in sync with new technologies, will we lessen inequality and find collective happiness.”

Varoufakis recognises the ‘irrationality’ of capitalism as a system for human progress and freedom, but this self-confessed ‘erratic Marxist’ does not present the material explanation for this irrationality, apart from growing inequality and inability to use new technology to benefit all.  Capitalism also suffers from regular and recurrent crises of production that destroy and waste value created by human labour.  These crises are of ‘overproduction’, unique to capitalism and regularly throw human development backwards.  This aspect of capitalism’s irrationality is missing from Varoufakis’ article, although it was expressed vividly by Marx and Engels in the CM.  See the striking passage in CM where Marx and Engels start by explaining “the need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe” and finishes with “paving the way for more extensive and more destructive crises and diminishing the means whereby crises are prevented”.

And a theory of crises is important.  People can live with rising inequality, with relative poverty even, even wars etc, as long as, for them, things improve gradually each year without break.  But gradual improvement in living standards is not possible because capitalism has regular and recurrent slumps in production, investment and employment built into its system, which can last for a generation in depressions – as Carney’s graphs show.  That is a fundamental character of capitalism’s irrationality.

Marx’s economic theories are often trashed or disputed – fair enough in a debate for truth.  But when each critical argument is analysed, it can be found to be weak, in my view.  Marx’s laws of motion of capitalism: the law of value; the law of accumulation and the law of profitability still provide the best and most compelling explanation of capitalism and its inherent contradictions.  And I am leaving out the great contribution that Marx and Engels made to the understanding of human historical development – the materialist conception and the history of class struggle – that lie at the basis of human actions. “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past.”

As the Manifesto says (and Varoufakis echoes in his article), capitalism has taken the productive forces of human labour to unprecedented heights, but dialectically it has also brought new depths of depravity, exploitation and wars on a global scale.  Marx’s legacy is to show why that is and why capitalism cannot last if human society is to go forward to the “free development of each” as the “condition for the free development of all”.  Marx’s ideas remain even more relevant in the 21st century than the 19th.  But understanding is not enough.  As the epitaph on Marx’s tomb in Highgate cemetery, London inscribes from Marx’s Theses on Feuerbach: “The philosophers have only interpreted the world, in various ways; the point is to change it”.

Marx’s law of value: a debate between David Harvey and Michael Roberts

April 2, 2018

This is going to be a long post, so bear with me.  First, you will have to read a paper (attached below) by Professor David Harvey, then a critique by me below – and finally a reply to my critique by Professor Harvey.  And then it’s up to you readers to see what you make of it: is this like a medieval religious debate about how many angels there are on the head of a pin; or is it a debate that leads to something really worth knowing?

For more on the nature of Marx’s law of value and its relation to crises, see my new book, Marx 200 


David Harvey’s misunderstanding of Marx’s law of value (Michael Roberts)

Recently, Professor David Harvey (DH) sent out an email to several people, including me, attaching a short paper for discussion (see Harvey paper).  The paper outlines DH’s view that Marx’s theory of value in capitalist economies has been badly misunderstood.

Just in case you are unaware (difficult to believe), Professor Harvey is probably the most eminent Marxist scholar alive today with a host of books, papers and educational videos to his name on Marxist economic theory.  The short paper circulated expressed succinctly his view of Marx’s value theory that he has recently outlined more expansively in his latest book, Marx, Capital and the madness of economic reason.[i]

In the paper, entitled Marx’s refusal of the labour theory of value, DH argues that Marx did not have a ‘labour theory of value’ at all.  His theory of value was distinctive from that of the classical economist, David Ricardo.  Instead, according to DH, Marx argued that value was a reflection of labour embodied in a commodity which is only created/revealed in exchange in the market.  As DH puts it: “if there is no market, there is no value”.  If this correct, then it is in the realization of value as expressed in money that value emerges, not in the production process as such.

DH then goes on to argue that if wages are forced down to the minimum or even to nothing, then there will be no market for commodities and thus no value – and this is the “real root of capitalist crises”.  And thus it follows that a policy for capital to avoid crises would be by “raising wages to ensure “rational consumption” from the standpoint of capital and colonizing everyday life as a field for consumerism”.  This is the consequence of a correct view of Marx’s value theory, according to DH.

DH points out that this interpretation of value theory “is far beyond what Ricardo had in mind and equally far away from that conception of value usually attributed to Marx.”  It certainly is.  But is DH right in his interpretation of Marx’s value theory and, even if he is, does such interpretation have any empirical validity?  I would answer both these questions with: ‘no’, ‘non’, ‘nein’, to use Marx’s three best known languages.

DH starts by saying that “It is widely believed that Marx adapted the labour theory of value from Ricardo as a founding concept for his studies of capital accumulation” and “since the labour theory of value has been generally discredited, it is then often authoritatively stated that Marx’s theories are worthless.”  It is not clear who DH is referring to here.  Clearly bourgeois mainstream economists consider Marx’s law of value as discredited.  The neoclassical marginalists have long rejected the concept of labour-value by labelling it ‘metaphysical’.  Neo-Ricardian, post-Sraffian, and post-Keynesian economists, in particular, are also strongly inclined to dismiss any notion of ‘value’ as an ideological mystification.

But most Marxist economists are aware of the distinction between Marx’s value theory and Ricardo’s.  And the difference is not what DH says it is, namely, Ricardo had a ‘labour theory of value’ and Marx did not.  The difference is that Ricardo had a theory of (use-) value based on ‘concrete labour’ (physical amounts of labour) measured in labour time.  Marx’s law of value was based on ‘abstract labour’ (value measured in labour time when ‘socially’ tested on the market).

Under capitalism, human labour power itself is a commodity to be sold on the market.  Indeed, this is a key characteristic of the capitalist mode of production where the majority has no means of production and so must sell their labour power to the owners of the means of production.  So, just as with other commodities, labour has a dual property. On the one hand, it is useful labour, that is, expenditure of human labour in a concrete form and for a specific purpose and with this property creates use values. On the other hand, it is abstract labour, that is, expenditure of human ‘labour power’ without specific characteristics which creates the value of the commodity in which it is represented.  Thus Marx made the distinction between labour and labour power, a distinction that is absolutely crucial for the understanding of the source of profit.

This was the great advance in Marx’s law of value. The labour time embodied in the commodities normally purchased by the worker for the reproduction of himself and his family in a day is less than the labour time that a worker actually offers to the owner of capital during the same time period. The result is that for any given time period, the worker produces more value than the wage equivalent which is paid by the owner of capital for the use of the labour power. This difference, Marx calls “unpaid labour” and “surplus labour”- or surplus value.  Marx’s value theory of abstract labour exposes the exploitative nature of the capitalist mode of production, while neither Ricardo’s nor Adam Smith’s labour theory of value does.

DH mentions just once (and in passing) this vital discovery of Marx (i.e. abstract labour) that distinguishes Marx’s law from the classical labour theory of value.  And that is because DH wishes to press on to his interpretation of Marx’s theory as one where value is created/realized only in exchange, and not in the process of production using labour power.  DH says that “value is initially taken to be a reflection of the social (abstract) labour congealed in commodities.”  But “as a regulatory norm in the market place, value can exist, Marx shows, only when and where commodity exchange has become “a normal social act.” So, without money, there is no value.

Yes, but the value of a commodity is still the labour contained in it and expanded during the production process before it gets to market.  Value is expended physical and mental human labour which is then abstracted by the social process of production for the market.  Value is not a creature of money – on the contrary.  Money is the representation or exchange value of labour expended, not vice versa.  I think Marx is clear on this crucial point.  He says in Capital Volume One: ‘The value of a commodity is expressed in its price before it enters into circulation, and it is therefore a pre-condition of circulation, not its result.”[ii]

Murray Smith in his new and forthcoming edition of his book, Invisible Leviathan[iii], provides a concise explanation of the difference between Marx’s law of value and DH’s interpretation.  Marx said that: “Money as the measure of value is the necessary form of appearance of the measure of value which is immanent in commodities, namely labour-time.” Smith comments that this “is certainly inconsistent with the idea that value can be created in the act of exchange. ..It is precisely because exchange effects a process of ‘equalisation of products of lab our on the market’ (that is, involves a real abstraction) that production oriented toward exchange must take account of the fact that ‘physiological labour’ is both utility-shaping and value-creating – that is, both concrete and abstract at one and the same time. To try and argue that that value is created ‘not in production but at the articulation of production and circulation’ is a notion replete with circular reasoning and requiring the most robust of mental gymnastics to entertain…. The problem with this approach is that if one accepts that abstract associated labour has no substantial existence apart from the value form, money, then commodity values appear to be severed entirely from any determination in the conditions of their production, and the way is paved for an effective identification of value and price.”

Instead, Marx’s law of value is based on the view that the labour involved in the production of commodities produces value, while exchange realises it in money-form. It is only because of this that Marx can distinguish between the amounts of value and surplus-value created in commodity production, and the generally different amounts realised through exchange.

Contrary to the view of the mainstream and neo-Ricardian economists, there is no ‘mystification’ here.  Value is objective and real and not just expressed in money.  Marx’s law of value, where abstract labour (measured in labour time) explains exchange value and prices, can be empirically validated.[iv]

There is reason behind DH’s interpretation.  If value is created only at the moment of exchange for money and ‘money rules’, then it will be (effective) demand that will decide whether capitalism smoothly accumulates without recurring crises.  To show this, DH describes in some detail the impact of capitalist accumulation on the conditions and living standards as capitalists strive to raise relative surplus value through the introduction of machinery.  He uses some of the graphic examples provided Marx in Chapter 25 of Volume One.  DH emphasises that capitalist accumulation aims to minimize the value of labour power – even to the point of pauperism.

DH concludes that “If this is a typical outcome of the operation of the capitalist law of value accumulation, then there is a deep contradiction between deteriorating conditions of social reproduction and capital’s need to perpetually expand the market.  As Marx notes in Volume 2 of Capital, the real root of capitalist crises lies in the suppression of wages and the reduction of the mass of the population to the status of penniless paupers.”  So the ‘real root of crises’ is found in the “suppression of wages” and the “reduction of the mass of population to the status of penniless paupers”.  This is an underconsumptionist theory of crises.

There are several points here.  First, Chapter 25 entitled, The general law of capitalist accumulation, does not just refer to the pauperization of the working class.  DH leaves out a very important aspect of that general law: the tendency for the organic composition of capital to rise[v].  This is what drives up relative surplus value but is also a key factor in the tendency of the rate of profit to fall (developed in Volume 3), ‘the most important law of political economy’[vi], which lays the basis for Marx’s theory of crises.  DH ignores this aspect.

But DH goes further in his underconsumptionist interpretation.  “Value depends on the existence of wants, needs and desires, backed by ability to pay in a population of consumers……It also means that the diminution of wages to almost nothing will be counterproductive to the realization of value and surplus value in the market. Raising wages to ensure “rational consumption” from the standpoint of capital and colonizing everyday life as a field for consumerism are crucial for the value theory.”  Thus DH argues that capitalism goes into crises because wages are suppressed; and so raising wages, ensuring ‘rational consumption’, would provide the ‘ability to pay’ and so end the crisis.

This underconsumptionist interpretation of Marx’s crisis theory has been firmly dismissed – by Marx himself – in the famous note in the same Volume 2 that DH refers to (underlines are my emphasis).

It is sheer tautology to say that crises are caused by the scarcity of effective consumption….That commodities are unsaleable means only that no effective purchasers have been found for them.   But if one were to attempt to give this tautology the semblance of a profounder justification by saying that the working-class receives too small a portion of its own product and the evil would be remedied as soon as it receives a larger share of it and its wages increase in consequence, one could only remark that crises are always prepared by precisely a period in which wages rise generally and the working-class actually gets a larger share of that part of the annual product which is intended for consumption. From the point of view of these advocates of sound and ‘simple‘ (!) common sense, such a period should rather remove the crisis.”[vii]

In my view, Marx rejected both the law of value as DH interprets it and also the conclusion that crises caused by an inability to pay for the ‘wants, need and desires’ of people.  But Marx could be wrong and DH right on the cause of crises.  Empirical evidence does not support DH, however.

Let me cite just three facts.  The first is that workers’ consumption is not the largest sector of ‘demand’ in a capitalist economy; it is productive capital consumption.  Gross domestic product or expenditure is a measure of annual demand for ‘wants, needs and desires’.  In the US, consumption would seem to constitute 70% of GDP.  However, if you look at ‘gross product’ which includes all the intermediate value-added products not counted in GDP, then consumption is only 36% of the total product; the rest constitutes demand from capital for parts, materials, intermediate goods and services.  It is investment by capitalists that is the swing factor and driver of demand, not consumption by workers.

This is shown in the second fact.  If we analyse the changes in investment and consumption prior to each recession or slump in the post-war US economy, we find that consumption demand has played little or no leading role in provoking a slump.  In the six recessions since 1953, personal consumption fell less than GDP or investment on every occasion and does not fall at all in 1980-2.  Investment fell by 8-30% on every occasion.

Percentage change in US real personal consumption (PC), investment and GDP

The third fact relates directly to wages and DH’s claim that raising them would help capital.  Carchedi finds that of the 12 post-WWII crises, 11 have been preceded by rising wages and only one by falling wages (the 1991 crisis)[viii].  That confirms Marx’s view in the note in Volume 2  above.

I conclude from DH’s short paper that he aims to establish an argument that class struggle is no longer centred or decided between labour and capital at the point of production of surplus value. Instead in ‘modern’ capitalism, it is to be found in other places in his ‘circuit of capital’ that he presents in latest book and in various presentations globally.  For DH, it is in the point of realisation (ie over rents, mortgages, price gouging by pharma firms etc) or in distribution (over taxes, public services etc) that the ‘hotspots’’ of class struggle are now centred.  The class struggle in production is now less important (even non-existent).

In my view, to support this, DH presents a series of theoretical confusions in this paper.  First, Marx did not have a labour theory of value.  Second, value is only created in exchange (in realisation). Third, the rate of profit (or even profit alone) is irrelevant to crises: what matters is the driving down of the value of labour power to the minimum (or even zero!) so that workers are unable to meet their ‘wants, desires, etc’.  This becomes a crude underconsumption theory – cruder than Keynes.

DH deliberately ignores the difference (and duality) between concrete and abstract labour, and its counterpart, use value and exchange value.  The dual nature of value in a commodity, as Marx discovered, is reduced by Harvey to the lack of the ability of workers to buy their use values.  Use value (wants and desires) is the key, not exchange value in value, for DH.  Marx’s theory of crisis (based on insufficient surplus value) is replaced with insufficient use values for workers as consumers.   Overaccumulation is replaced by underconsumption.  The class struggle becomes not workers versus capitalists; but consumers versus capitalists or taxpayers versus governments.

It’s not Marx’s view.  More important, the whole approach is confusing to a class analysis and strategy for the working class struggle.

And now here is David Harvey’s response to my critique of his paper on Marx’s value theory.


The misunderstandings of Michael Roberts (David Harvey)

There are, obviously, some serious points for discussion over Marx’s value theory and I hope that some dialogue with Michael Roberts can help clarify them.  Before getting to them, I need to remove a number of misreadings and misrepresentations of my position in Roberts’ response.  Let me be clear. Value is always created in the act of production.  But it is realized in the moment of market exchange. I therefore think of value in terms of what Marx calls “the contradictory unity of production and realization.”  Value cannot be produced through market exchange. But it cannot be realized outside of market exchange.  Marx is clear enough about that.

The essence of value is abstract labour or, as I prefer to refer to it, “socially necessary labour time”.  Roberts is obviously correct to say that Marx’s definition is entirely different from the concrete labour time that Ricardo postulated.  No matter whether we say “abstract labour” or “socially necessary”, however, the onus then falls on how the abstraction is made and how socially necessary is to be understood. The answer to such questions has to be grounded in material processes and not constructed through idealist exercises.  So by what materialist process is value constructed if it is not “immanent” in commodities but historically created.

The answer is given in Marx’s starting point in Capital which is the idealized material act of commodity exchange.  If the capitalist takes a commodity to market and there is no want, need or desire for it, then the labour congealed in it is socially unnecessary and it therefore has no value (this is what Marx says at the end of the first section of Capital – p.131 in Penguin/Vintage edition).  This does not mean that value is created in the market (which Roberts incorrectly accuses me of saying). But – and here this may be my peculiar way of looking at it – I take the value created in production to be only a potential value until it is realized.  An alternative way would be to say that the value is produced but then the value is lost if there is no demand for it in the market.  In which case, we would need to construct a strong theory of devaluation to account for what happens in the market place. Devaluation rarely appears in Roberts’ accounts and has no role in his response.  Given my interest in the relation between value and not-value or anti-value this latter formulation might also work for me.  But in either case I think it undeniable that the state of wants, needs and desires backed by ability to pay has an important role to play in sustaining the circulation of capital. This does not mean, as Roberts again and again infers, that this is the only relevant factor in crisis formation.  I have gone out of the way many times to say that this is just one important moment in the circulation of capital where devaluations (sometimes but not always of crisis proportions) can occur.

But again and again Roberts loves to relegate me into that pejorative category of underconsumptionist whenever I mention such matters.  It was Marx, not me, who said “the real root of crises” lies in the diminished purchasing power of the working classes and if I cite Marx on that point it is because it is a neat antidote to all those who endlessly cite the falling rate of profit.  Crises come in many shapes and forms, I have argued.  The falling rate of profit or the collapse of consumer demand are two of many other explanations (I note in passing that Marx in his comments on the crises of 1847- and 1857 – crises that had an uncanny resemblance to 2007-8 – described the crises as commercial and financial crises without any mention of either falling profit rates or insufficient consumer demand).

My objection to any exclusionary productivist interpretation (to cite a matching pejorative characterization!) is that it casts to one side the whole history of creation of wants, needs and desires (let alone the mechanics of ensuring an ability to pay) in the history of capital accumulation.  I think we should pay much more attention to this aspect of things. This does not mean I downplay, deny or refute all the work that has been done on the labour process and the importance of the class struggles that have occurred and continue to occur in the sphere of production.  But these struggles have to be put in relation to struggles over realization, distribution (e.g. rental extractions, debt foreclosures), social reproduction, the management of the metabolic relation to nature and the free gifts of culture and nature. These have all figured large in recent anti-capitalist movements and I insist that we take them all seriously along with the more traditional focus on the Marxist left favoring class struggle at the point of production as the key moment for struggle.  This is why I think the diagram I offer of circulation and the definition of capital as value in motion is so important.  Strange to have it all dismissed in the citation from Murray Smith as “circular reasoning”!!

This perspective opens up some interesting lines of enquiry and points of difference.  Marx’s account over struggles over the working day and the forces that drive technological and organizational changes in the search for relative surplus value all depend upon the “coercive laws of competition”.  That term comes up at various key points in Marx’s argument throughout Capital.  Where is this force mobilized and most clearly felt?  In the market of course!  We cannot understand what goes on in the realm of production (or social reproduction for that matter) without market forces playing their part. It is the coercive laws of competition in the market that mandate capitalist reinvestment and the lengthening of the working day etc.

But this tracks back to how Marx sets up how the abstraction of value – which, by the way, is in Marx’s view, a social relation hence “immaterial but objective” and not “immanent” and “real” as the quote from Murray Smith proposes (“not an atom of matter enters into the objectivity of commodities” says Marx in Capital– p.138).  Value arises not as a product of thought but as a product of a historical material process.  Marx’s study of equivalent and relative forms of value leads into the generalization of exchange which underpins the rise of value as a regulatory norm operating in the market and it is this regulatory norm of value that then returns to dominate behaviors not only in the market but also in the realm of production and social reproduction.  This is a very dialectical move that Marx make but quite commonly encountered in Marx’s work.  Only in this way, for example, can we understand how it is that workers make the capital which then returns to dominate them and how we can all become prisoners of our own products (academics beware!!).

Finally, let me comment on the empirical example on which Roberts reduces final demand to 30 from 70 percent.  To be sure, there is a complicated question of how to deal with value relations across commodity chains (there is an interesting piece by Starosta on Commodity Chains and Marx’s Value Theory in Antipode for 2011).  But imagine a situation where iron ore is mined and the mining company produces value and surplus value that is realized through a sale to a company that produces steel which realizes more value and surplus value through a sale to an auto company that produces yet more value and surplus value that is realized by a sale of autos to final consumers who want and need an auto and have the money to buy one.  The value of the auto is all the accumulated past abstract labour applied.  Suppose for some reason the final consumers cannot pay or get fed up with autos. Then all the accumulated value is lost (devalued).  In practice, as Marx observed, the chain of payments might take a while to work through but when it does then all value production in the chain disappears.

Of course, all sorts of other scenarios can be imagined.  But the point here is that no one apart from crazy people and speculators will want to accumulate steel in the absence of a market for it.  So what happens to value in all of this becomes problematic and Robert’s account makes it seem as if investment in the production of means of production is independent of final demand and can occur without any mind for final market conditions.  Of course, there are certain kinds of investments with all sorts of time lags (fixed capital and infrastructures) like the Chinese overproduction of cities funded by doubling down on indebtedness, where things get very complicated (as I outlined in the final chapter of the madness of economic reason book).  But Roberts’ empirical example makes no sense to me whatsoever as an elucidation as to why realization and the politics of realization are irrelevant or at best a sidebar to the main action at the point of production.

All this and we have yet to get to the thorny questions of money and the politics of distribution along with the circulation of interest-bearing capital in relation to value theory.  Can banks produce value?  They are clearly producing representations of value hand over fist…..Are they a mere side-bar too?


For more on the nature of Marx’s law of value and its relation to crises, see my new book, Marx 200 

Notes:

[i] https://profilebooks.com/marx-capital-and-the-madness-of-economic-reason.html

[ii] Capital Volume One, p260 trans. Ben Fowkes, New York: Vintage 1977

[iii] Murray Smith, Invisible Leviathan, Historical Materialism, forthcoming 2018

[iv] Cockshott and Cottrell broke down the economy into a large number of sectors to show that the monetary value of the gross output of these sectors correlates closely with the labour concurrently expended to produce that gross output.  Anwar Shaikh also did something similar.  He compared market prices, labour values and standard prices of production calculated from US input-output tables and found that on average labour values deviate from market prices by only 9.2 per cent and that prices of production (calculated at observed rates of profit) deviate from market prices by only 8.2 per cent. Lefteris Tsoulfidis and Dimitris Paitaridis investigated the question of price-value deviations using the input-output Table of Canada. They found for the Canadian economy the results are consistent with Marx’s law of value. And G Carchedi, in a recent paper, showed that the validity of Marx’s law of value can be tested with official US data, which are deflated money prices of use values.  He found that money and value rates of profit moved in the same direction (tendentially downward) and tracked each other very closely.

[v] “The accumulation of capital, though originally appearing as its quantitative extension only, is effected, as we have seen, under a progressive qualitative change in its composition, under a constant increase of its constant, at the expense of its variable constituent.”  Capital Vol 1, Chapter 25

[vi] Grundrisse p748

[vii] Capital Volume 2, Chapter 20

[viii] https://thenextrecession.files.wordpress.com/2017/09/carchedi-the-old-and-the-new.pdf

Marx 200 – a new book

March 27, 2018

My new book is ready.  Called Marx 200 – a review of Marx’s economics 200 years after his birth, it is published by Lulu and is now available on Lulu’s site.

With the 200th anniversary of Karl Marx’s birthday on 5 May, I thought it might be useful to attempt to explain Marx’s economic ideas and their relevance to modern economies 200 years after his birth.

So in this short book, I argue that Marx developed three key laws of motion of capitalism, around which a clear analysis of the nature of modern economies can be understood. From these laws, we can understand why capitalism cannot escape being subject to regular and recurring slumps; causes vicious rivalry among national states that leads to perpetual wars; and engenders uncontrolled and wasteful use of natural resources that now threatens the destruction of the planet itself.

Marx’s laws also tell us that capitalism is not here for eternity but has a finite existence. The question before us, 200 years after Marx’s birth, is what would replace it as a mode of production and social organisation for human beings on this planet?

The development of Marx’s economic thought can be divided into four parts: his childhood; as a young man; as a mature man; and the old Marx.

In his teenage years, he was under the influence of his father and his father’s friend, Count Von Westphalen. They were both men of the enlightenment, followers of the ideals of the French philosophers and revolution. Marx was born just after the end of the so-called Napoleonic wars and at the start of a gradual economic recovery in the petty German statelets. When Marx went to university in the late 1830s, he was a radical democrat in opinion, one of the ‘Young Hegelians’, who were philosophically opposed to religious superstition and autocracy.

The period of Marx as a young man from the point of him leaving university and without an academic post was one of radical upsurge in ideas and political action in Europe. Britain was in the midst of the ‘industrial revolution’ with all its expansion of machinery and goods and the accompanying dark exploitation of labour. The Reform Act of 1832 had given the middle classes the vote but now there was pressure from the Chartist working class movement for full franchise. In Germany, workers in the towns were organising for the first time and peasants in country were growing restive. Economically, in 1840 there was the establishment of the German Customs Union, the Zollverein, which brought an end to trade barriers within the Prussian sphere of influence and began a huge economic upsurge.

On leaving university, Marx became a radical journalist with a growing materialist conception of class struggle. Marx started to take an interest in economic developments under the encouragement of his new and eventually lifetime friend, Friedrich Engels. Engels lived in the heart of Capital, Britain’s industrial Manchester, and was already writing on the economic and social consequences of capitalist development. Marx and Engels became communists, an ideology designed to replace capitalism as a mode of production and social organisation with communal control, with the working class as the ‘gravediggers’ of capitalism to deliver this. They wrote the Communist Manifesto in 1848 (Marx was 29 years old), just before the outbreak of the revolutions against autocracy across Europe. The manifesto intuitively recognised the nature of capitalism, but without expounding any economic laws of motion.

The defeat of the 1848 revolutions and Marx’s eventual exile to Britain began the period of mature Marx (aged 32 in 1850) that lasted until the defeat of the Paris Commune in 1871 (aged 53). This turned out to be the period of the long boom in the European economies. Britain was the dominant economic and political power and thus the best placed to study the economics of capitalism. The boom revealed to Marx and Engels that there was no short-cut to revolution and capitalism still had some way to go in its spread across the globe. The first international slump in 1857 did not lead to the collapse of capitalism or to revolution. Marx concentrated on organising the first international party of the working class (the International Working Men’s Association) and on writing his main economic work, Capital.

The defeat of the Paris Commune in 1871, followed by the financial panic and crash of 1873 in the US, which spread to Europe, set the final phase of Marx’s life. It was also the start of what was eventually called the (first) Great Depression, where the major capitalist economies struggled to recover from crashes and became subject to a series of slumps. This was a vindication of Marx’s laws of motion. Marx died in 1883, in the depth of the latest slump in Britain.

Marx remained an obscure figure in economic and political thought after his death, except in the circles of the leaders of the burgeoning social democratic parties of Europe after the Great Depression came to an end. In this new period of economic recovery of the 1890s, unskilled workers formed trade unions and working class organisations built mass political parties with increasing voting power. Marx’s ideas now became more widespread. The victory of the ‘Bolshevik’ (majority) social democrats in the Russian revolution in 1917 then placed the works of Marx and Engels on the world stage through the 20th century.

The book will look back at Marx’s economic ideas and see just how relevant they are for 21st century.

Trump’s trade tantrums – free trade or protectionism?

March 19, 2018

Today, the finance ministers of the top 20 economies (G20) meet in Buenos Aires, Argentina, and the big topic for discussion is trade protectionism and the possibility of an outright trade war between the US and other major economics areas, particularly China.

There is a real concern that all the blustering by President Trump is finally turning into reality and ‘The Donald’ is now going to honour his promise to ‘make America great again’ by introducing a range of tariffs, quotas and bans on various imports from Europe and Asia into the US.  Trade protectionism is coming back after decades of ‘free trade’ and globalisation.

Up to now, Trump has only imposed tariffs (taxes or enforced price rises) on steel and aluminium imports.  But he has also pulled the US out of the Trans-Pacific Partnership (TPP) and demanded a re-negotiation of the terms of North Atlantic Free Trade Area (NAFTA). But there is talk of more measures, including action to stop the free exchange of intellectual property rights by US companies and other countries.

The steel and aluminium tariffs (facilitated by an old GATT loophole, allowing countries to enact barriers for reasons of ‘national security’ (US defence spending consumes 3% of US steel output) are really small beer on their own.  In 2002 when the US last imposed steel tariffs, the US produced almost as much steel as today. But now it produces it with a small fraction of the 2002 workforce. Technology has boosted productivity and created products that use less steel.  So direct job gains for US workers are likely to be small, if any.

Back in 2002, President Bush signed into law tariffs for certain steel products following a spate of mill closures and surging imports. The net effect on employment in the steel production industry was minimal. But, according to a Trade Partnership Worldwide study, businesses that consumed steel products shed approximately 200,000 jobs, compared to the 180,000 employed in steel production.  The pain was born principally by smaller manufacturing firms (smaller than 500 employees), which had limited room to negotiate on prices and similarly restricted space to pass costs on due to price competition. The Bush barriers were only in place for a little over a year, but the impact was immediate as price distortions squeezed end users.

If the impact on the employment figures of effectively raising the cost of steel was uppermost in Trump’s mind, he should have considered the potential net loss of jobs in the car industry, the aviation industry and the countless other manufacturers that depend on cheap steel as a raw material. These companies are expected to pass on the extra cost to their customers and suffer the usual consequences – lower demand and a profit squeeze.

Moreover, since 2002, US steel mills have moved south and west, where unions are weak and labour is cheaper.  But now the industry has fewer workers because it is increasingly automated. The Trump tariffs will not bring any new jobs and certainly not in the old steel ‘smokestack’ regions that looked to him for help. The real hit will be on many emerging economies.  Canada and Mexico are exempt from the tariffs because they are part of NAFTA.  But Brazil is a big exporter to the US.  Canada and Brazil account for around one-third of US steel imports, while China accounts for no more than 3%.  With Canada exempt and China unimportant, Trump’s ‘steel’ protectionist move is both weak and misdirected.

Anyway, Trump’s claimed objective to ‘make America great again’ by boosting steel production and other traditional industries means rolling back the advance of technology to recreate smokestack industries.  It can’t and won’t happen.  Trump’s claim that American workers have been losing jobs in traditional ‘smokestack’ industries because of unfair trade by other countries is bogus.  The loss of US manufacturing jobs has been replicated in other advanced capitalist economies over the last 30 years.  This decline is not due to nasty foreigners fixing trade deals.  It is due to the inexorable attempt of American capital to reduce its labour costs through mechanisation or through finding new cheap labour areas overseas to produce.

The rising inequality in incomes is a product of ‘capital-bias’ in capitalist accumulation and ‘globalisation’ aimed at counteracting falling profitability in the advanced capitalist economies. But it is also the result of “neo-liberal’ policies designed to hold down wages and boost profit share.  Trump cannot and won’t reverse that – on the contrary – with all his bluster because to do so would threaten the profitability of America capital.

Nevertheless, it seems that Trump and his new ‘protectionist’ advisers are going to launch a series of measures against the imports of other countries – particularly against China.  But in the last 20 years, China has moved up the value-added ladder from basic industries into higher and higher tech products.  Indeed, much of the global flow of technological innovation is now coming from China, not the US.

Efforts to punish China with tariffs could quicken this trend. Typically, such businesses are highly adaptable in the face of restrictions, shifting investment and capacity overseas. And China is already moving in this direction with a huge rise in outward FDI. China now ranks second only below the US in terms of outward investment. Its stock of direct investment assets has been growing 25% annually hitting a value of $1.3trn (see graph below). Two thirds of this outflow is directed towards Asia (blue line). China is also pushing aggressively into ‘the belt’ countries of its ‘one road’ project. That’s reflected in its exports, with sales to these states double those to the US. So any restrictive measures taken by the Trump administration against China can only accelerate this reallocation process.

Also, while Trump and his new ‘protectionist’ advisers want to take action against China and other ‘unfair’ trading nations, European and Asian economies, along with the international agencies, want to hold the line for ‘globalisation’ and ‘free trade’.  The rest of the world is still trying to lower barriers. The EU completed free trade agreements with both Canada and Japan at the end of last year. Meanwhile Japan, Canada, Australia, New Zealand, Mexico, Malaysia, Vietnam, Peru, Chile, Brunei and Singapore ratified a revised TPP without the US.

And what Trump forgets is that now in world capitalism, it is not so much trade, or even services trade rather than goods trade, that matters; it is capital flows.  And any full trade war would seriously threaten US foreign investment just at a time when China is expanding its overseas flows.

Foreign trade now contributes relatively little to US corporate profits. Back in the 1940s, foreign subsidiaries of US-based corporations accounted for only 7% of all US profits – the same proportion as exports. Globalisation of US corporate operations and capital investment has changed that in the last 35 years. In 2016, the share of domestic profits has shrunk to 48% of total profits, while the shares of foreign operations and exports have grown to 40% and 12%, respectively.

Stimulated by Trump’s protectionist talk, the debate in mainstream economics over whether free trade is better for every country and the people living in them has also revived.  The longstanding neoclassical view is based on David Ricardo’s law of comparative advantage.  In his book On the Principles of Political Economy and Taxation (1817), now over 200 years old, Ricardo argued that, although Portugal could produce both cloth and wine with less amount of labour than England, both countries would benefit from trade with each other. Because the comparative advantage for Portugal with England is greater in the production of wine than in cloth, it would still make sense for Portugal to produce excess wine and trade that for English cloth. England in turn would benefit from this trade, because while it still costs the same to produce cloth, the price for wine would fall considerably.  So free trade is a win-win situation.

And yet the historical evidence for this ‘law’ is the opposite.  Over the last 30 years or so, the world capitalist economies have move closer to ‘free trade’ with sharp reductions in tariffs, quotas and other restrictions – and many international trade deals.  But economic growth since the 1980s has been slower than in the 1960s.

Another conclusion of the mainstream theory is that free trade will eventually lead to harmonisation and equilibrium in trade balances through the adjustments in international exchange rates and production costs.  And yet there has been little such harmonisation.  The US has continually run a goods and services trade deficit over the last 30 years; and so have many supposedly ‘comparatively advantaged’ emerging economies.

And as for harmonisation of incomes and employment, inequality of incomes and wealth between countries and within them has worsened in the last three decades, while 1.5bn workers globally are still without a regular job or income.

Free trade has been no great capitalist success.  And now globalisation seems to have paused or even stopped. World trade ‘openness’ (the share of world trade in global GDP) has been declining since the end of the Great Recession.

This has led to various mainstream voices suggesting that maybe protectionist policies by individual countries might better for them.  Dani Rodrik has been pushing this line; reminding us that the US itself protected its domestic industry in the 1870s onwards to get it going; and Germany did similarly in the 1890s, while Japan and other Asians followed suit in the post-war period.

Rodrik, Stiglitz and other ‘leftist’ mainstream economists who now denounce the failure of globalisation really do so from the point of view that free markets are fine as long as they are really free.  But they are not and so governments must intervene to reduce monopoly and other distortions and to control and regulate financial speculation.  And internationally, you need proper and ‘fair’ agreements on trade to protect the weaker national economies.  Apart from this being a utopian aim, this ‘alternative’ to unbridled ‘free trade’ is really an admission that Ricardo’s win-win theory is faulty and disproved, even if there were fully ‘free trade’.

Capitalism does not tend to equilibrium in the process of accumulation.  As Adam Smith put it, in contrast to Ricardo, “When a rich man and a poor man deal with one another, both of them will increase their riches, if they deal prudently, but the rich man’s stock will increase in a greater proportion than the poor man’s. In like manner, when a rich and a poor nation engage in trade the rich nation will have the greatest advantage, and therefore the prohibition of this commerce is most hurtful to it of the two”. Capitalism does not grow globally in a smooth and balanced way, but in what Marxists have called ‘uneven and combined development’.  Those firms and countries with better technological advances will gain at the expense of those who are behind the curve and there will be no equalisation.

Free trade works for national capitalist states when the profitability of capital is rising (as it was from the 1980s to 2000) and everybody can gain from a larger cake (if in differing proportions).  Then globalisation appears very attractive.  The strongest capitalist economy (technologically and thus competitively in price per unit terms) will be the strongest advocate of ‘free trade’, as Britain was from 1850-1870; and the US was from 1945-2000.  Then globalisation was the mantra of the US and its international agencies, the World Bank, the OECD and the IMF.

But if profitability starts to fall consistently, then ‘free trade’ loses its glamour, especially for the weaker capitalist economies as the profit cake stops getting larger.  ‘Populism’ and nationalism rears its head and mainstream economists opposed to ‘free trade’ become more prominent.  That was the situation in the 1870s and 1880s.  That was the situation in the 1930s Great Depression.  That is the situation since the early 2000s and especially since the end of the Great Recession.

US capitalism has lost ground relatively, not only to Europe and Japan, but even more worryingly to the rising economic juggernaut that is China, where foreign investment is strictly controlled and subservient to the state sector and to an autocratic Communist elite.  The US is now in the same position as the UK was in the 1880s, only worse.  Trump is the consequence of that.

Marx and Engels recognised that ‘free trade’ could drive capital accumulation globally and so expand economies, as has happened in the last 170 years.  But they also saw (as is the dual nature of capitalist accumulation) the other side: rising inequality, a permanently floating ‘reserve army’ of unemployed and increased exploitation of labour in the weaker economies.  And so they recognised that rising industrial capitalist nations could probably only succeed through protecting their industries with tariffs and controls and even state support (China is an extreme example of that).

But is free trade or protectionism better for labour and the working class?  It depends.  Perhaps the answer is best summed up by Robert Tressell in famous book, The Ragged Trousered Philanthropist, written in 1910 in the UK: “We’ve had Free Trade for the last fifty years and today most people are living in a condition of more or less abject poverty, and thousands are literally starving. When we had Protection things were worse still. Other countries have Protection and yet many of their people are glad to come here and work for starvation wages. The only difference between Free Trade and Protection is that under certain circumstances one might be a little worse that the other, but as remedies for poverty, neither of them are of  any real use whatever, for the simple reason that they do not deal with the real causes of poverty”.

American workers can expect nothing from Trump’s trade tantrums – indeed it can make things worse.

From Communism to Activism?

March 14, 2018

Last week, to commemorate 170 years since Marx and Engels wrote The Communist Manifesto, the editors of the UK’s Financial Times commissioned two executives of a ‘corporate advisory’ firm to consider what was right and wrong in that seminal work about capitalism and communism.  The two FT writers started by declaring that “as a partner in a corporate advisory firm and a professor of law and finance, we are true believers in free-market capitalism”, but nevertheless, the 1848 manifesto still had some value, especially “in the wake of a calamitous financial crisis and in the midst of whirlwind social change, a popular distaste of financial capitalists, and widespread revolutionary activity”.

But the FT authors wanted to convert the Communist Manifesto into what they call a “Activist Manifesto”.  They threw out the outdated concepts of two classes: capitalists and workers; and replaced them with the ‘haves’ and the ‘have nots’.  You see, classes and crises are out of date as the main critique of capitalism now is rising inequality, which the FT authors claim the Communist Manifesto was really about.  “As in Marx’s and Engels’ time, economic inequality is rising, wages are stagnating, and the owners of productive capital are reaping the benefits of technological advances”.

But the solution to this, the FT authors are at pains to say, is not the confiscation of private property or communism – this only breeds “murderous tyrannies”.  And “we also think Marx and Engels would update their views about private property. While the abolition of private property was their first and most prominent demand, we think they would recognise that Have-Nots have benefited from property rights. Moreover, we argue that state-held property is problematic, leading to waste, inefficiency and the likelihood of being co-opted by the Haves in our societies today. As the role of the state has grown, inequality has also grown. And the Have-Nots have been the ones who have paid for it.”

Instead what we need is ‘shareholder activism’ in companies “shaking up complacent boards and advocating for changes in corporate strategy and capital structure.” This is the way forward, according to our FT authors 170 years after Marx and Engels’ manifesto.  And even the global elite recognise it: “many Haves too are activists already today… Think of the billionaires such as Bill Gates, Warren Buffett and Mark Zuckerberg, who already support philanthropic efforts to alleviate inequality”.  So that’s all right then.

Should the Communist Manifesto be rewritten as a plea for ‘activism’ led by billionaires to reduce inequalities, rather than the abolition of private property in the means of production and the replacement of capitalism with communism?  While the FT was publishing its view on the Communist Manifesto today, I was delivering a talk on social classes today at the Metropolitan University of Mexico in Mexico City (Universidad Autónoma Metropolitana – UAM) as part of my recent visit there.  I too started off with a reminder that it was 170 years since the Communist Manifesto was published.  But I emphasised that the basic division of capitalism between two classes: the owners of the means of production (corporations globally) and those who own nothing and only have their labour power to sell; remains pretty much unchanged from how it was in 1848.

Recent empirical work on the US class division of incomes has been done by Professor Simon Mohun.  Mohun analysed US income tax returns and divided taxpayers into those who could live totally off income from capital (rent, interest and dividends) – the true capitalists, and those who had to work to make a living (wages).  He compared the picture in 1918 with now and found that only 3.8% of taxpayers could be considered capitalists, while 88% were workers in the Marxist definition.  In 2011, only 2% were capitalists and near 84% were workers.  The ‘managerial’ class, ie workers who also had some income from capital (a middle class ?) had grown a little from 8% to 14%, but still not decisive.  Capitalist incomes were 11 times higher on average than workers in 1918, but now they were 22 times larger.  The old slogan of the 1% and the 99% is almost accurate.

The class divide described in the Communist Manifesto is that between those who own and those who do not and Mohun’s ‘class’ stats confirm that.  For Marx and Engels, all previous history has been one of class struggle over the surplus created by labour.  In slave economies, the owners of capital literally owned humans as source of their surplus; in feudal society, they controlled the days of work and obligations of the serfs.

Under capitalism, the surplus was usurped in a hidden ‘invisible’ way.  Workers were paid a wage – a fair wage – but they produced more value in the commodities they made for sale and it was this surplus value realised in the sale of commodities (goods and services) that capitalists accumulated.  The class struggle under capitalism thus took the form of a struggle between the share of value going to wages or profits.  As Marx put it in Capital: “In the class struggle as a finale in which is found the solution of the whole smear! From a struggle over wages, hours and working conditions or relief, it becomes, even as it fights for those things, a struggle for the overthrow of the capitalist system of production – a struggle for proletarian revolution.”

In my presentation to UAM in Mexico, I ambitiously argued that we can gauge the intensity of the class struggle from the balance of forces in the wage-profit battle.  I used statistics of strikes in the UK since 1890 against the profitability of UK capital (for more on this, see my paper, Mapping out the class struggle).  The first long depression of capitalism was at its deepest just as Marx died in 1883. It came to an end in the UK in the early 1890s: profitability recovered and the labour movement strengthened with the advent of new mass unions.  Labour disputes erupted for a while.  The fall back in profitability from 1907 then sparked a new battle over the surplus leading to intense levels of strikes just before the WWI broke out.

After the war, the class struggle resumed with some intensity, but in the UK that ended with the defeat of the general strike in 1926.  On the back of that defeat, UK capital recovered some profitability while the unions were weakened.  Strikes and class struggle were depressed by the Great Depression of the 1930s.

The second world war drove up profitability and the labour movement also made a recovery.  It was the golden age of growth, investment, employment and the ‘welfare state’.  So when the profitability crisis of the late 1960s and 1970s commenced, British workers fought hard to maintain their gains.  Strikes were at a high level and there was talk of revolution.  That struggle came to an end with the defeat of the miners in 1985.  What followed was rising profitability in the neo-liberal period, along with weakened trade unions.  This was a recipe for low levels of class struggle.  With the Great Recession and the subsequent Long Depression, that low intensity continued.

I concluded from this short analysis that the class struggle as described in the Communist Manifesto has not disappeared and neither have the two basic classes, contrary to the amendments advocated in the ‘Activist Manifesto’ of the FT authors.  But the intensity of that struggle depends on the objective conditions of the profitability of capital and the strength of labour.  Class struggle is not always at fever pitch, revolutionary moments are rare.

The most intense periods of struggle appear to be when the labour movement is reasonably strong in incomes and organisation but when the profitability of capital has started to fall, according to Marx’s law of profitability.  Then the battle over the share of the surplus and wages rises.  Historically, in the UK that was from 1910 just before and just after WW1; and in the 1970s.  Such objective conditions have so far not arisen again.  So the spectre of Communism haunting Europe – the phrase that Marx and Engels started with their manifesto in 1848 (in a similar intense period as those above) – is not yet with us again.

UNAM 3 – the robotic future

March 9, 2018

My third and final lecture at the Autonomous National University of Mexico (UNAM) was on the impact of robots and artificial intelligence (AI). Are robots set to take over the world of work and thus the economy in the next generation and what does this mean for jobs and living standards for people? Will it mean socialist utopia in our time (the end of human toil and a superabundant harmonious society) or capitalist dystopia (more intense crises and class conflict)? Robots and AI Mexico

As readers of my blog know (only too often), I consider the current period in the world capitalist economy as a long depression, with low productivity, investment and trade growth.

One question is whether robots and AI can turn things round for capitalism and perhaps for us all. Robots have arrived. The level of robotics use has almost always doubled in the top capitalist economies in the last decade. Japan and Korea have the most robots per manufacturing employee, over 300 per 10,000 employees, with Germany following at over 250 per 10,000 employees. The United States has less than half the robots per 10,000 employees compared to Japan and The Republic of Korea. The adoption rate of robots increased in this period by 40% in Brazil, by 210% in China, by 11% in Germany, by 57% in The Republic of Korea, and by 41% in the United States.

Now all the talk is that the age of robots will mean the end of jobs for human beings. Two Oxford economists, Carl Benedikt Frey and Michael Osborne, looked at the likely impact of technological change on a sweeping range of 702 occupations, from podiatrists to tour guides, animal trainers to personal finance advisers and floor sanders. Their conclusions were: “According to our estimates, about 47 percent of total US employment is at risk. We further provide evidence that wages and educational attainment exhibit a strong negative relationship with an occupation’s probability of computerisation….Rather than reducing the demand for middle-income occupations, which has been the pattern over the past decades, our model predicts that computerisation will mainly substitute for low-skill and low-wage jobs in the near future. By contrast, high-skill and high-wage occupations are the least susceptible to computer capital.”

On the other hand, a study by economists at the consultancy Deloitte on the relationship between jobs and the rise of technology by trawling through census data for England and Wales going back to 1871. Their conclusion is unremittingly cheerful. Rather than destroying jobs, technology historically has been a “great job-creating machine”. Findings by Deloitte such as a four-fold rise in bar staff since the 1950s or a surge in the number of hairdressers this century suggest to the authors that technology has increased spending power, therefore creating new demand and new jobs. “The dominant trend is of contracting employment in agriculture and manufacturing being more than offset by rapid growth in the caring, creative, technology and business services sectors,” they write. “Machines will take on more repetitive and laborious tasks, but seem no closer to eliminating the need for human labour than at any time in the last 150 years.”

The story of bank tellers vs the cash machine (ATM) is an example of a technological innovation entirely replacing human labour for a particular task. Did this led to a massive fall in the number of bank tellers? Between the 1970s (when American’s first ATM was installed) and 2010, the number of bank tellers doubled. Reducing the number of tellers per branch made it cheaper to run a branch, so banks expanded their branch networks. And the role gradually evolved away from cash handling and more towards relationship banking.

So even if many of today’s jobs can be entirely replaced by machines, technology can also create new roles. At the end of the 19th century, half the US workforce was employed in agriculture, and this employment was rendered obsolete by technical change. But in that time a whole raft of new occupations – electrical engineer, computer programmer, etc – have been created.

Will the information revolution reduce working time under capitalism and thus lead progressively to post-capitalism? Well, previous technological changes have not done so. The average working week in the US in 1930 – if you had a job – was about 50 hours. It is still above 40 hours (including overtime) now for full-time permanent employment. In 1980, the average hours worked in a year was about 1800 in the advanced economies. Currently, it is about 1800 hours. So, since the great information revolution began under the ‘neoliberal period’ of capitalism, the average working year for an American has not changed. Indeed, hours of work have been rising since the 1970s in the US.

Then there is the great contradiction that I raised at UNAM on the question of robots – indeed with any technological revolution under capitalism. The aim of capitalist accumulation is to increase profits and accumulate more capital. So capitalists want to introduce machines that can boost the productivity of each employee and reduce costs compared to competitors. This is the great revolutionary role of capitalism in developing the productive forces available to society.

But in trying to raise the productivity of labour with the introduction of technology, there is a process of labour shedding. Yes, increased productivity might lead to increased output and open up new sectors for employment to compensate. But over time, a ‘capital-bias’ or labour shedding means less new value is created (as labour is the only content of value) relative to the cost of invested capital. So there is a tendency for profitability to fall as productivity rises. In turn, that leads eventually to a crisis in production that halts or even reverses the gain in production from the new technology. This is solely because investment and production depend on the profitability of capital in our modern (capitalist) mode of production.

What does this mean if we enter the extreme (science fiction?) future where robotic technology and AI leads to robots making robots AND robots extracting raw materials and making everything AND carrying out all personal and public services so that human labour is no longer required for ANY task of production at all? Surely, value has still been added by the conversion of raw materials into many more goods (but now without humans)? Surely, that refutes Marx’s claim that only human labour can create value?

But this confuses the dual nature of value under capitalism: use value and exchange value. There is use value (things and services that people need); and exchange value (the value measured in labour time and appropriated from human labour by the owners of capital and realised by sale on the market). In every commodity under the capitalist mode of production, there is both use value and exchange value. You can’t have one without the other under capitalism. But the latter rules the capitalist investment and production process, not the former.

Value (as defined) is specific to capitalism. Sure, living labour (and machines) can create things and do services (use values). But value is the substance of the capitalist mode of producing things. Capital (the owners) controls the means of production and will only put them to use in order to appropriate value created by human labour. Capital does not create value itself. So in our hypothetical all-encompassing robot/AI world, productivity (of use values) would tend to infinity while profitability (surplus value to capital value) would tend to zero.

This is no longer capitalism. The analogy is more with a slave economy as in ancient Rome. In ancient Rome, over hundreds of years, the formerly predominantly small-holding peasant economy was replaced by slaves in mining, farming and all sorts of other tasks. This happened because the booty of the successful wars that the Roman republic and empire conducted included a mass supply of slave labour. The cost to the slave owners of these slaves was incredibly cheap (to begin with) compared with employing free labour.

A fully robot economy means that the owners of the means of production (robots) would have a super-abundant economy of things and services at zero cost (robots making robots making robots). The owners can then just consume. They don’t need to make ‘profit’, just as the aristocrat slave owners in Rome just consumed and did not run businesses to sell commodities to make a profit. So a robotic economy could mean a super-abundant world for all or it could mean a new form of slave-type society with extreme inequality of wealth and income. It’s a social ‘choice’ or more accurately, it depends of the outcome of the class struggle under capitalism.

But just how close are AI/robots to doing all human work? Not very. The Defense Advanced Research Projects Agency, a Pentagon research arm, held a Robotics Challenge competition in Pomona, Calif. There was $2 million in prize money for the robot that performs best in a series of rescue-oriented tasks in under an hour. Robots had an hour to complete a set of eight tasks that would probably take a human less than 10 minutes. And the robots failed at many. Most of their robots were two-legged, but many had four legs, or wheels, or both. But none were autonomous. Human operators guided the machines via wireless networks and were largely helpless without human supervisors. Little headway has been made in “cognition,” the higher-level humanlike processes required for robot planning and true autonomy. As a result, any researchers have begun to think instead of creating ensembles of humans and robots, an approach they describe as co-robots or “cloud robotics.”

So there’s still a long way to go. Indeed, as Professor Jose Sandoval, who commented on my paper at UNAM pointed out, American economist Robert J Gordon reckons that the great new innovatory productivity enhancing paradigm that is supposedly coming from the digital revolution could be over already and the future robot/AI explosion will not change that.

William Nordhaus from Yale University’s department of economics, has tried to estimate the future economic impact of AI and robots. Nordhaus says, projecting the trends of the last decade or more, it would be in the order of a century before growth in robot skills would reach the level associated with full automation.

Robots and AI will only really take off when the current depression enters a new phase. Marx noticed that “a crisis always forms the starting-point of large new investments. Therefore, from the point of view of society as a whole … a new material basis for the next turn-over cycle.” (Marx, Capital Vol. II, p.186). New and massive investments will take the form of new technologies, which will be not only labour-shedding and productivity-increasing, but also new forms of domination of labour by capital.

The key issue is Marx’s law of the tendency of the rate of profit to fall. A rising organic composition of capital will lead to a fall in the overall rate of profit engendering recurring crises. If robots and AI do replace human labour at an accelerating rate, that can only intensify that tendency. Well before we get to a robot-all world, capitalism will experience ever-increasing periods of crises and stagnation.

I’ll be posting all my papers and the accompanying powerpoint presentations on my Facebook site.

UNAM 2 – Europe’s single currency

March 8, 2018

My second lecture to the economics faculty of the Autonomous National University of Mexico (UNAM) was on Europe’s single currency zone. Has the euro worked in taking the economies in the Eurozone forward both in improved living standards for the people within the area and also in integrating and converging each national economy into one effective capitalist unit? The euro

It’s a subject that interests Mexicans, as Mexico is part of the only effective free trade area in the Americas, the North American Free Trade Area (Mexico, US, Canada) – NAFTA, which is now under threat from US President Trump’s protectionist program.

In my presentation, I argued that this European project which started after the WWII, had two aims: first, to ensure that there were never any more devastating wars between European nations; and second, to make Europe into an economic and political entity that could rival America and Japan in global capital battle.  This project was led by Franco-German capital, and with the introduction of the euro, the project eventually went further than just a free trade area or even a customs union (with free movement of capital and labour), to a single currency and monetary policy.  The aim was to integrate all European capitalist economies into one unit to compete with the US and Asia in world capitalism with a rival currency to the dollar.

There are three views on the success of the European Union and the single currency.  The mainstream neoclassical view is that an Optimal Currency Area (OCA), where all members benefit from a single currency and monetary policy, is possible as long as economies move through similar business cycles.  If they don’t, then the market must be allowed to adjust wages and prices between national economies to bring about a new balance. Equilibrium can be established if there is wage flexibility and labour mobility in the currency area. And ideally there is also a common fiscal and monetary policy to adjust taxes and interest rates as necessary.

When the EU began, the EU Commission economists optimistically reckoned that, with higher trade integration, there would be increased synchronization of national business cycles. That’s because trade among EU economies is typically intra-industry and so does not lead to higher specialization, which could cause increased possibility of ‘asymmetric shocks’ ie differing business cycles.

But this neoclassical view of mobility of labour and wage flexibility was disputed by Keynesian theory.  In the 1990s, Nobel prize winner Paul Krugman, who specialised in international trade theory, argued that higher trade integration would lead to higher specialisation of industry.  That would lead to a concentration of industrial activity in just a few states. So far from convergence within the trade area between national economies, there was risk of divergence on productivity, wages and investment.

The Marxist view starts from the opposite position of the neoclassical mainstream.  There is no tendency to equilibrium in trade and production cycles under capitalism.  So fiscal, wage or price adjustments by the market (or even government) will not restore equilibrium.  Capitalism is an economic system that combines labour and trade, but unevenly.  The centripetal forces of combined accumulation and trade are countered by centrifugal forces of uneven development.

The idea that ‘free trade’ is beneficial to all countries and to all classes is a ‘sacred tenet’ of mainstream economics.  But it is a fallacious proposition based on the theory of comparative advantage (first proposed by the classical early 19th century economist, David Ricardo) that if each country concentrated on producing goods or services where it has a ‘comparative advantage’ over others, then all would benefit.  Trading between countries would balance and wages and employment would be maximised. But this is empirically untrue.  Countries run huge trade deficits and surpluses for long periods; have recurring currency crises; and workers lose jobs from competition from abroad without getting new ones from more competitive sectors.

In contrast, the Marxist theory of international trade is based on the law of value.  In the Eurozone, Germany has a higher technology ratio (organic composition of capital) than Italy.  Thus in any trade between the two, value is transferred from Italy to Germany.  But Italy cannot compensate for this by increasing the scale of its production/export to Germany, unlike say China.  So it transfers value to Germany and runs a permanent deficit on total trade with Germany.  In this situation, Germany gains within the Eurozone at the expense of Italy.  As nearly all other member states cannot scale up their production to surpass Germany, unequal exchange is compounded across the EMU.

Balance of trade between Germany and Italy (Euro m)

With a single currency, the value differentials between the weaker states (lower OCC) and the stronger (higher OCC) are exposed with no option to compensate by devaluation of any national currency or protectionist measures.  The weaker capitalist economies (in southern Europe) within the euro area eventually lost ground to the stronger (in the north).

Change in productivity levels since 1999 relative to Eurozone average (%)

The move to a common market and a customs union was a relative success in raising trade for all and in converging productivity levels and growth rates.  This was similar to where NAFTA is today.  But when the EU moved to free movement of labour and capital in 1993, harmonising its trade and employment regulations and setting up political controls, convergence in Europe stopped and the stronger capitalist economies increased their share of the value created at weaker economies’ expense.   This was a key point made by a participant at the UNAM session.

The EU leaders had set criteria for joining the euro, but these criteria were all monetary (interest rates and inflation) and fiscal (budget deficits and debt).  There were no convergence criteria for productivity levels, GDP growth, investment or employment.  That was because those were areas for the free movement of capital (and labour) and capitalist production for the market and not the province of interference or direction by the state.  After all, the EU project is a capitalist one.

This growing divergence in incomes and production per head and in profitability of capital was exposed when the Eurozone economy entered the major slump and debt crisis with the Great Recession of 2008-9. The global financial crash and the Great Recession were the result of Marx’s law of profitability, as I have argued ad nauseam elsewhere.

As Sergio Camara, Marxist economist at the Metropolitan University of Mexico (UAM), said in his commentary on my presentation at the UNAM session, we must distinguish between the underlying trends in capitalism globally and specific features for Europe.  Many Keynesians blame the euro for the euro crisis, but the crisis of the currency was really a crisis of capitalism in general.  The global crisis of capitalism took a particular form in the Eurozone because of the currency union. The debts being built up by the south with the north were exposed in the crash and sparked the ‘euro crisis’, but only after the global financial crash.

The global slump dramatically increased the divergent forces within the euro. The fragmentation of capital flows between the strong and weak Eurozone states exploded. Net capital assets and liabilities within the Eurozone should have been in balance – but they were far from that.

The capitalist sectors of the richer economies like Germany stopped lending directly to the weaker capitalist sectors in Greece and Slovenia, etc. As a result, in order to maintain a single currency for all, the official monetary authority, the ECB, and the national central banks had to provide the loans instead.

Franco-German capital was not prepared to pay for the ‘excesses’ of the weaker capitalist states.  Thus the bailout programmes were combined with ‘austerity’ to make the people of the distressed states pay with cuts in welfare, pensions and real wages, and to repay (virtually in full) their creditors (the banks of France and Germany and the UK).  The debt owed to the Franco-German banks was transferred to the EU state institutions and the IMF – in the case of Greece, probably in perpetuity.

It was the workers of the Baltic states and the distressed Eurozone states of Greece, Ireland, Cyprus, Spain, and Portugal who took the biggest hit. In these countries, real wages fell, unemployment rocketed, and hundreds of thousands have left their homelands to look for work somewhere else. That has enabled companies in those countries to sharply increase the rate of exploitation of their reduced workforce, although so far that has not been enough to restore profitability to levels before the Great Recession and thus sustain sufficiently high new investment for a sustained path of growth.

Keynesians blame the crisis in the Eurozone on the rigidity of the single-currency area and on the strident ‘austerity’ policies of the leaders of the Eurozone, Germany. They reckon that the weaker economies would have been better off leaving the euro and devaluing their currencies to reverse their trade and capital imbalances. But such policies would have been no better for the workers in those countries exiting the euro, possibly worse.

Keynesian policies would still mean a loss of real income through higher prices, a falling currency, and eventually rising interest rates. Take Iceland, a tiny country outside the EU, let alone the Eurozone.  It adopted the Keynesian policy of devaluation of the currency, a policy not available to the member states of the Eurozone.  But it still meant a 40% decline in average real incomes in euro terms and nearly 20% in krona terms since 2007.  Indeed, in 2015 Iceland’s real wages were still below where they were in 2005, ten years earlier, while real wages in the ‘distressed’ EMU states of Ireland and Portugal were more or less flat.

In the last 18 months, the Eurozone economies have made a modest economic recovery, after nearly ten years of depression.  But profitability of capital in most EZ economies remains below where it was in 2007 (see graph below). Progress in raising the rate of exploitation has been considerable.  But progress in devaluing and deleveraging the stock of capital and debt built up before has been slow and even being postponed by easy monetary policy from the European Central Bank. Given the current level of profitability, recovery may take too long before the world economy drops into another slump. Then all bets are off on the survival of the euro.