Why, after many years when street politics in Russia were deep-frozen, have citizens again acquired a taste for street actions? After a public rally near Chistie Prudy metro station in inner Moscow drew six or seven thousand people, what caused ten times as many to then gather on Bolotnaya Square?

Can it be the crisis? The fall in living standards? When the crisis first hit, nothing took place to remotely match the recent meetings.

When a crisis first grabs people by the throat, they tend not to go out and demonstrate, but simply try to survive. They can of course be driven to complete despair, but what happens then isn’t a public meeting but a revolt, a mutiny, an uprising.

The people who came out onto Bolotnaya Square looked perfectly well-off; they weren’t paupers, or marginalised, and neither were they the familiar figures you always expect to see at political gatherings (the latter were probably there too, but they were dissolved in the crowd to the point where you didn’t notice them). Here undoubtedly is the answer to the question, “Why?” – because if well-off people, used to standing on their own feet, are systematically humiliated and have their dignity trampled on, they stop putting up with it. People like this won’t suffer endlessly in silence.

It is people of this sort who are now joining in protests on the streets of Moscow. They have been forced too shamelessly, and for too long, to take part in farcical elections where the required percentage of the votes has been achieved by throwing bundles of ballot-papers in the direction of the “party of power”; through a “merry-go-round” of voters with suspect credentials; through banishing over-curious observers from the polling-places; and through direct forgery of electoral documents. Against the background of such methods, complaints about unequal opportunities for election campaigning seem almost beside the point.

The citizens of Russia have shown they want democracy – and not the kind of charade they have been forced to accept until now, but a genuine right to cast their votes and to be heard. All the organisations that have helped build the rallies or that have attended with their placards and banners have put forward democratic slogans. This is completely correct, since these demands make up the common platform that unites the opposition. Everyone, whatever the precise shade of their politics, needs honest mechanisms for counting citizens’ votes, even if these mechanisms are only a little honest in the early stages.

It’s clear, however, that the people who now hold power intend to spit on the slogans and demands of the opposition. Do you suppose they’re scared by the noise of meetings, and that they’ll voluntarily start turning out their pockets that are stuffed with the money they’ve stolen from us? If power were to change hands the present authorities could be forced to do this, so they can be expected to stand united in defending the right to thieve, to take bribes, to embezzle and so forth. To really scare the authorities you need to bring out not 7000, and not 70,000, but at least 700,000 people to attend rallies. Where is the opposition to get so many activists?

The opposition will find these adherents if it remembers that in Russia there are people for whom the most important thing is not the way votes are counted, but how to make it through to payday, how to find a child care centre for their children, how to get the money to equip them for school and to feed them tomorrow, how to pay for their higher education, and how to buy an apartment at today’s unbelievable prices. In short, if the democratic opposition remembers the problems that weigh on most of the population, then there is a chance that this majority of people will listen to it and support it. But if it thinks of honest voting solely as a means of winning seats in parliament at the next elections, all the steam of protest will be let off through the whistle, and today’s burst of public activism will remain a storm in a teacup. Meanwhile, the opposition so far has failed to provide any intelligent answer to the question of how the ruling elite might be forced to surrender the “right” it has usurped to manipulate the will of citizens. Russia’s rulers will not willingly yield the positions they hold in this area.

What about the political parties that claim to be aligned with the opposition? There were right-wing nationalists on Bolotnaya Square, but the shrill-voiced demagogue Zhirinovsky, who loves to pose on television shows as a fearless teller of the truth (while voting as the Kremlin instructs him), did not put in an appearance. Nor was there any sign of the intelligent gas-bag Yavlinsky, so attentive in his program to questions of rights and freedoms but so helpless when it comes to practical action – though again, plenty of his supporters were at the rally. Mironov, whose “Russian Justice” party plucks at our heartstrings with its concern for the popular welfare – and which meanwhile acts as a loyal opposition for “their excellencies” – was not to be seen either, though Oksana Dmitrieva spoke from the platform. Finally, the leaders of the Communist Party of the Russian Federation did not show up, though placards of various of the party’s organisations were in evidence. Perhaps Communist leader Gennady Zyuganov also likes playing the role of loyal opposition.

Still, we should not be unfair; each of the parties listed here is prepared to show its face at a protest meeting. But how far will they go in their demands, and how radical will the actions be that they are prepared to initiate? Will these parties, as in the past, stick to the role of obedient, unassuming talk-merchants? Most importantly, will they show any desire or ability to unite with the mass of citizens who are not members of political parties in staging actions that put real pressure on the authorities, even if these actions are only on the level of activity of the Occupy Wall Street movement? Or, will these parties once again set out to lead “the masses” and “the electorate” solely in the hope of being entrusted with a further ten seats in parliament?

And now a few photos by Andrey Kolganov

This is not the meeting; this is people, going to the meeting…

The meeting…

The center of the meeting.

The best slogan: “I did not vote for this suns of the beach (symbol of ‘United Russia’). I voted for another sons of the beach (CP, Just Russia and Jabloko). I require recalculating of the votes!”

Special police is afraid of photos.

Police, ‘protecting’ people…

by Andrew Kliman

Published by Pluto Press, November 2011

Paperback / 256pp. / ISBN-13: 978-0745332390

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“Clear, rigorous and combative. Kliman demonstrates that the current economic crisis is a consequence of the fundamental dynamic of capitalism, unlike the vast bulk of superficial contemporary commentary that passes for economic analysis.”
. – Rick Kuhn, Deutscher Prize winner, Reader in Politics at the Australian National University

“Among the myriad publications on the present day crisis, this work stands out as something unusual. Kliman cogently argues against the view that the crisis is ultimately rooted in financialization. He is an excellent theorist, and an equally excellent analyst of empirical data.”
, – Paresh Chattopadhyay, Université du Québec à Montréal

“One of the very best of the rapidly growing series of works seeking to explain our economic crisis. … The scholarship is exemplary and the writing is crystal clear. Highly recommended!”
. – Professor Bertell Ollman, New York University, author of Dance of the Dialectic

The Failure of Capitalist Production is essential reading for all Marxists and lefts interested in what caused the Great Recession.  It debunks the fads and fashionable arguments of neoliberalism, underconsumption and inequality with a battery of facts.  It restores Marx’s law of profitability to the centre of any explanation of capitalist crisis with compelling evidence and searching analysis.  It must be read.
. – Michael Roberts, Michael Roberts Blog (full review here)

The thesis presented in the book stands out in a number of ways from many contemporary radical interpretations (notably the financialised-underconsumptionist thesis advanced by the influential Monthly Review … and that of the Marxist political geographer David Harvey). … Kliman provides far more compelling empirical evidence that American corporations’ rate of profit did not recover in a sustained manner after the early 1980s. …  A crucial finding undermining the financialisation thesis is that Kliman demonstrates how American corporations have not, as is often claimed, invested a smaller share of their profit in production.
. – Socialist Voice (full review here)

UPCOMING EVENTS ON THE BOOK:

…..Feb. 6, 2012. NEW YORK CITY. 7 PM. Bluestockings Books, 172 Allen St., Manhattan. (212) 777-6028.

…..Feb. 10. TORONTO. 1:30 PM. York University Dept. of Political Science; Verney Room, Ross Building South, 6th Floor.

…..Week of Feb. 12. WINNIPEG. Multiple events being planned.

…..Feb. 29. TAMPERE, Finland.

…..March 1. HELSINKI, Finland.

…..March 5. LONDON. 6:30 PM. Bookmarks Bookshop. 1 Bloomsbury Street, WC1B3QE. Introduction by Joseph Choonara, talk by Kliman, discussion, wine.

…..weekend of March 17-18. NEW YORK CITY. Pace University, 1 Pace Plaza, Manhattan. Left Forum panel on book. Speakers: Brendan Cooney, Barry Finger, Alan Freeman, Anne Jaclard, and Mike West. Comments by Kliman.

Check this space again for additional events and additional details, or contact Marxist-Humanist Initiative.

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DESCRIPTION OF BOOK, AUDIO/VIDEO INTERVIEWS, AND SYNOPSIS FOLLOW.

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AUDIO and VIDEO

Audio: Kliman and host Doug Lain discuss the book (causes of the Great Recession, inequality, underconsumptionism, the #Occupy movement, and more) on Diet Soap Podcast #125: Crisis and Capitalism’s System Failure (70 mins).

Video: An interview by host Bill Weinberg on the Moorish Orthodox Radio Crusade in the World War 4 Report, “Andrew Kliman on the roots of the world financial crisis” (2 hrs 11 mins).

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The reasons behind the global financial crisis and the Great Recession are the subject of much debate. This is the first book to conclude, on the basis of in-depth analyses of official U.S. data, that Marx’s crisis theory can explain these events.

Marx believed that the rate of profit has a tendency to fall, leading to economic crises and recessions. Many economists, Marxists among them, have dismissed this theory out of hand, but Andrew Kliman’s careful data analysis shows that the rate of profit did indeed decline after the post-World War II boom. He shows that free-market policies have failed to reverse that decline. This fall in profitability led to sluggish investment and economic growth, mounting debt problems, desperate attempts of governments to fight these problems by piling up even more debt –– ultimately ending in the Great Recession.

Kliman’s conclusion is simple but shocking: short of socialist transformation, the only way to escape the “new normal” of a stagnant, crisis-prone economy is to restore profitability through full-scale destruction of the value of existing capital assets, something not seen since the Depression of the 1930s.

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Only $23.40 from MHI + $3.60 shipping in US, Canada & Mexico — below Amazon’s price (Outside North America: $11.60 shipping).

Price (Including Shipping)

US, Canada, Mexico – $27.00 USD Outside North America – $35.00 USD

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Chapters

1. Introduction
2. Profitability, the Credit System, and the “Destruction of Capital”
3. Double, Double, Toil and Trouble: Dot-com boom and home-price bubble
4. The 1970s––Not the 1980s––as Turning Point
5. Falling Rates of Profit and Accumulation
6. The Current-cost “Rate of Profit”
7. Why the Rate of Profit Fell
8. The Underconsumptionist Alternative
9. What Is to Be Undone?

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Synopsis

Chapter 1: Introduction.

Chapter 2: Sets out the theoretical framework that underlies the empirical analyses that follow. It discusses key components of Marx’s theory of crisis––the tendential fall in the rate of profit, the operation of credit markets, and the destruction of capital value through crises––and how they can help account for the latest crisis and Great Recession.

Chapter 3: Discusses the formation and bursting of the home-price bubble in the U.S., and the Panic of 2008 that resulted. It then discusses how Federal Reserve policy contributed to the formation of the bubble, arguing that the Fed wanted to prevent the United States from going the way of Japan. After Japan’s real-estate and stock-market bubbles burst at the start of the 1990s, it suffered a “lost decade,” and the Fed wanted to make sure that the bursting of the U.S. stock-market bubble of the 1990s did not have similar consequences. The latest crisis was therefore not caused only by problems in the financial and housing sectors. As far back as 2001, underlying weaknesses had brought the U.S. economy to the point where a stock-market crash could have led to long-term stagnation.

Chapter 4: Examines a variety of global and U.S. economic data and argues that they indicate that the economy never fully recovered from the recession of the 1970s. Because the slowdown in economic growth, sluggishness in the labor market, increase in borrowing relative to income, and other problems began in the 1970s or earlier, prior to the rise of neoliberalism, they are not attributable to neoliberal policies.

Chapter 5: Shows that U.S. corporations’ rate of profit did not rebound after the early 1980s. It also shows that the persistent fall in the rate of profit––rather than a shift from productive investment to portfolio investment––accounts for the persistent fall in the rate of accumulation.

Chapter 6: Discusses why many radical economists dismiss Marx’s law of the tendential fall in the rate of profit and contend that the rate of profit has risen. They compute “rates of profit” that value capital at its current cost (replacement cost); almost everyone else uses the term “rate of profit” to mean profit as a percentage of the actual amount of money invested in the past (net of depreciation). The current-cost “rate of profit” did indeed rebound after the early 1980s, but the author argues that it is simply not a rate of profit in any meaningful sense. In particular, although proponents of the current-cost rate have recently defended its use on the grounds that it adjusts for inflation, he argues that it mis-measures the effect of inflation and that this mis-measurement is the predominant reason why it rose.

Chapter 7: Looks at why the rate of profit fell. It shows that changes in the distribution of corporations’ output between labor and non-labor income were minor, and it decomposes movements in the rate of profit in the standard manner of the Marxian-economics literature. It then shows that an alternative decomposition analysis reveals that the rate of profit fell mainly because employment increased too slowly in relationship to the accumulation of capital. This result implies that Marx’s falling-rate-of-profit theory fits the facts remarkably well. The chapter concludes with a discussion of depreciation due to obsolescence (“moral depreciation”). It shows that the information-technology revolution has caused such depreciation to increase substantially and that this has significantly affected the measured rate of profit. The rates of profit discussed in Chapter 5 and prior sections of Chapter 7 would have fallen even more if they had employed Marx’s concept of depreciation instead of the U.S. government’s concept.

Chapter 8: Examines underconsumptionist theory, which has become increasingly popular since the recent crisis. Contrary to what underconsumptionist authors contend, U.S. workers are paid more now, in inflation-adjusted terms, than they were paid a few decades ago, and their share of the nation’s income has not fallen. The rest of this chapter criticizes the underconsumptionist theory of crisis. In particular, it argues that the underconsumptionist theory presented in Baran and Sweezy’s influential Monopoly Capital rests on an elemental logical error.

Chapter 9: Discusses what is to be undone. It argues that the U.S. government’s response to the crisis constitutes a new manifestation of state-capitalism, and it critically examines policy proposals based on the belief that greater state regulation, control, or ownership can put capitalism on a stable path. It then discusses the political implications of underconsumptionism and critique its view that redistribution of income would stabilize capitalism. Finally, it takes up the difficult question of whether a socialist alternative to capitalism is possible. Although the author does not believe that he has “the answer,” he addresses the question because he believes that the collapse of the U.S.SR. and the latest crisis have made the search for an answer our most important task. .

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Excerpts from Introduction

A tremendous amount has already been written on the financial crisis that erupted in 2007, the Panic of 2008, and the Great Recession to which they led. Many competent and insightful analyses of these events and the factors that triggered them are widely available elsewhere. Do we really need yet one more book on the subject? Probably not. This book therefore focuses more on the underlying conditions that set the stage for the crisis and recession, and less on the proximate causes of these events.

The “failure of capitalist production” in this book’s title is a reference, not to capitalism in general, but to specific and unresolved problems within the capitalist system of value production since the 1970s. I will argue that the economy never fully recovered from the recessions of the mid-1970s and early 1980s. I will put forward an explanation of why it did not. I will argue that the persistently frail condition of capitalist production was among the causes of the financial crisis. And, most importantly, I will argue that it set the stage for the Great Recession and “the new normal,” the state of not-quite-recession that we now endure. In light of the frailty of capitalist production, the recession and its consequences were waiting to happen.

Just as more lay behind the Great Depression than the stock market crash and the bubble that preceded it, more lies behind the Great Recession and “the new normal” than the financial crisis and home-price bubble of the 2000s. As Paul Krugman and Robin Wells (2010) noted in an essay published 15 months after the recession officially ended in the U.S.,

[there] hasn’t been much of a recovery. If the fundamental problem lay with a crisis of confidence in the banking system, why hasn’t a restoration of banking confidence brought a return to strong economic growth? The likely answer is that banks were only part of the problem.”

There is also reason to doubt that the financial crisis by itself––in the absence of longer-term conditions that reduced the economy’s ability to withstand shocks––would have triggered such a severe recession.The actual declines in production, employment, and income that took place, large as they were, are not true measures of the U.S. economy’s inability to absorb the shock of the financial crisis. The true measures are the declines that would have taken place if the Treasury had not borrowed madly to prop up the economy. In the first two years that followed the collapse of Lehman Brothers, it borrowed an additional $3.9 trillion, which caused its total indebtedness to rise by more than 40 percent. The additional debt was equal to 13.5 percent of the $28.6 trillion of Gross Domestic Product (GDP) that was produced during these two years. Yet despite the enormous increase in debt and the additional spending and tax cuts financed by means of it, real GDP at the end of the two years remained less than at the pre-recession peak. In contrast, the Treasury’s debt declined in the two years between mid-1929 and mid-1931, and by mid-1932 it was still only 15 percent greater than in mid-1929. It is likely that the latest recession would have been almost as bad as the Great Depression, maybe even worse, if the government had refrained from running up the public debt.

Main Thesis

The rate of profit—that is, profit as a percentage of the amount of money invested—has a persistent tendency to fall. However, this tendency is reversed by what John Fullarton, Karl Marx, and others have called the “destruction of capital”––losses caused by declining values of financial and physical capital assets or the destruction of the physical assets themselves. Paradoxically, these processes also restore profitability and thereby set the stage for a new boom, such as the boom that followed the Great Depression and World War II.

During the global economic slumps of the mid-1970s and early 1980s, however, much less capital value was destroyed than had been destroyed during the Depression and the following World War. The difference is largely a consequence of economic policy. The amount of capital value that was destroyed during the Depression was far greater than advocates of laissez-faire policies had expected, and the persistence of severely depressed conditions led to significant radicalization of working people. Policymakers have not wanted this to happen again, so they now intervene with monetary and fiscal policies in order to prevent the full-scale destruction of capital value. This explains why subsequent downturns in the economy have not been nearly as severe as the Depression. But since so much less capital value was destroyed during the 1970s and early 1980s than was destroyed in the 1930s and early 1940s, the decline in the rate of profit was not reversed. And because it was not reversed, profitability remained at too low a level to sustain a new boom.

The chain of causation is easy to understand. The generation of profit is what makes possible the investment of profit. So, not surprisingly, the relative lack of profit led to a persistent decline in the rate of capital accumulation (new investment in productive assets as a percentage of the existing volume of capital). Sluggish investment has, in turn, resulted in sluggish growth of output and income.

All this led to ever more serious debt problems. Sluggish income growth made it more difficult for people to repay their debts. The decline in the rate of profit, together with reductions in corporate income tax rates that served to prop up corporations’ after-tax rate of profit, led to greatly reduced tax revenue and mounting government budget deficits and debt. And the government has repeatedly attempted to manage the relative stagnation of the economy by pursuing policies that encourage excessive expansion of debt. These policies have artificially boosted profitability and economic growth, but in an unsustainable manner that has repeatedly led to burst bubbles and debt crises. The latest crisis was the most serious and acute of these.

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Although the financial crisis is over, and the recession officially ended two years ago, the debt problems persist––within the European Union, they are now critical––as do massive unemployment and the severe slump in home prices. These problems seem to be the main factors that have kept the U.S. economy from growing rapidly since the end of the recession. For a long time, Americans were willing to increase their borrowing and reduce their saving, since they believed that increases in the prices of their houses and shares of stock were an adequate substitute for real cash savings. But those increases have vanished, and many people are worried about whether they will hold on to their jobs and homes, so they have begun to borrow less and save more. And because of continuing debt, unemployment, and housing-sector problems––and probably because of concerns that they will suffer additional losses on existing assets and ultimately have to report losses that they have not yet “recognized”––lenders are less willing to lend. The low level of borrowing/lending has caused spending and economic growth to be sluggish.

I certainly do not advocate full-scale destruction of capital value––or any other policies intended to make capitalism work better; it is not a system I favor. Yet the destruction of capital value would indeed be a solution to the systemic problems I have outlined––unless it led to revolution or the collapse of the system. A massive wave of business and personal bankruptcies, bank failures, and write-downs of losses would solve the debt overhang. New owners could take over businesses without assuming their debts and purchase them at fire-sale prices. This would raise the potential rate of profit, and it would therefore set the stage for a new boom. If this does not happen, I believe that the economy will continue to be relatively stagnant and prone to crisis.

The Conventional Left Account

This is not a book that I set out to write. At the start of 2009, I began the empirical research that eventually became the core of the book, but at the time I had a different, and very limited, objective in mind. However, I soon discovered things that impelled me to dig deeper and widen the scope of my research.

To understand the significance of what I gradually learned, one needs to be familiar with the conventional wisdom on the left regarding recent U.S. economic history and its relationship to the recent crisis and recession. What follows is a brief summary of the conventional account. (Later in the book, I will quote various authors and provide citations.)

According to conventional wisdom, the rate of profit fell from the start of the post-World War II boom through the downturns of the 1970s and early 1980s. But by that time, economic policy had become “neoliberal” (free-market), and this led to increased exploitation of workers. Consequently, U.S. workers are not being paid more, in real (inflation-adjusted) terms, than they were paid decades ago, and their share of income has fallen. The increase in exploitation led to a significant rebound in the rate of profit. Normally, this would have caused the rate of accumulation to rise as well, but this time it did not.

The conventional account blames the “financialization” of the economy for the failure of the rate of accumulation to rebound. It holds that financialization, another component of neoliberalism, has induced companies to invest a larger share of their profits in financial instruments, and a smaller share in the productive capital assets (factories, machinery, and so on) that make the “real” economy grow. As a result, economic growth has been weaker during the last several decades than it was in the first few decades that followed World War II, and this factor, along with additional borrowing that enabled working people to maintain their standard of living despite the drop in their share of income, has led to long-term debt problems. These debt problems, and other phenomena that also stem from financialization, are said to be the underlying causes of the latest economic crisis and slump.

This was not an interpretation of recent economic history that I found particularly appealing, and I knew that proponents of the conventional wisdom mis-measure the rate of profit. But I had no reason to believe that their measures were overstating the rise in profitability instead of understating it. Nor did I doubt that their other empirical claims were based on fact. Yet in the course of my research, I found that:

• US corporations’ rate of profit did not recover in a sustained manner after the early 1980s. Their before-tax rate of profit has been trendless since the early 1980s and a rate of profit based on a broader concept of profit, more akin to what Marx meant by “surplus-value,” continued to decline.
• Neoliberalism and financialization have not caused U.S. corporations to invest a smaller share of their profit in production. Between 1981 and 2001, they devoted a larger share of their profit to productive investment than they did between 1947 and 1980 (and the post-2001 drop in this share is a statistical fluke). What accounts for the decline in the rate of accumulation is instead the decline in the rate of profit.
• U.S. workers are not being paid less in real terms than they were paid decades ago. Their real pay has risen. And their share of the nation’s income has not fallen. It is higher now than it was in 1960, and it has been stable since 1970.

These findings do no damage to the claim that a long-term buildup of debt is an underlying cause of the recent crisis and subsequent problems. However, all of the other causal claims in the conventional leftist account fall to the ground.

The conventional wisdom implies that the latest economic crisis was an irreducibly financial one. Of course, a financial crisis triggered the recession, and phenomena specific to the financial sector (excessive leverage, risky mortgage lending, and so on) were among its important causes. But what I mean by “irreducibly financial” is that conventional wisdom on the left holds that the recent crisis and slump are ultimately rooted in the financialization of capitalism and macroeconomic difficulties resulting from financialization. The persistent frailty of capitalist production supposedly has nothing to do with these macroeconomic difficulties. Indeed, on this view, the capitalist system of production has not been frail at all, since the rate of profit, the key measure of its performance, recovered substantially after the early 1980s.

The political implications of this controversy are profound. If the long-term causes of the crisis and recession are irreducibly financial, we can prevent the recurrence of such crises by doing away with neoliberalism and “financialized capitalism.” It is unnecessary to do away with the capitalist system of production––that is, production driven by the aim of ceaselessly expanding “value,” or abstract wealth. Thus, what the crisis has put on the agenda is the need for policies such as financial regulation, activist (“Keynesian”) fiscal and monetary policies, and perhaps financial-sector nationalization, rather than a change in the character of the socio-economic system.

If, on the other hand, a persistent fall in the rate of profit is an important (albeit indirect) cause of the crisis and recession, as this book argues, then these policy proposals are not solutions. At best, they will delay the next crisis. And artificial government stimulus that produces unsustainable growth threatens to make the next crisis worse when it comes. The economy will remain sluggish unless and until profitability is restored, or the character of the socio-economic system changes.

How This Book Differs

Quite a few books have put forward different leftist perspectives on the recent crisis and recession. Many of them focus, as have most other books on these topics, on the proximate causes of these events. This book differs from them, as I noted above, in that it focuses on the long-term, underlying conditions that enabled the financial crisis to trigger an especially deep and long recession, and one with persistent after-effects.

Yet a fair number of other books from the left also focus on the underlying causes. Some of them––such as Foster and Magdoff (2009), Harvey (2010), Duménil and Lévy (2011), and McNally (2011)––put forward some version of the conventional leftist account discussed above. And some, like the works by Foster-Magdoff and Harvey, also stress the supposed facts that workers’ share of total income declined and that this led to a lack of demand that was covered over by rising debt. From such a perspective, the crisis appears not to be a crisis of capitalism, but a crisis of a specifically neoliberal and financialized form of capitalism. I do not think the facts are consonant with these views, and I trust that disinterested readers will find, at minimum, that this book’s empirical analyses call such views into question.

On the other hand, some other books from the left have appeared that regard the crisis as a crisis of capitalism, and that take issue with the conventional account or parts of it––including Harman (2009), Roberts (2009), Carchedi (2011), and Mattick (2011). To these can be added articles such as Desai and Freeman (2011), Onishi (2011), and Potts (2011). I do not agree with all of these works in all respects, but I am proud that this book can now be counted among them. Except for the book by Duménil and Lévy, this book contains the most in-depth and comprehensive data analyses of any of the works I have cited above, as well as most other books on the topic. And among the works that take issue with the conventional leftist account, its treatment of the underlying causes of the Great Recession is arguably the most comprehensive.

To some degree, this book’s differences with the conventional account reflect methodological and theoretical differences. Like most of its other critics cited above, I am a proponent of the temporal single-system interpretation (TSSI) of Marx’s value theory. It has long been alleged that the value theory and the most important law based upon it––the law of the tendential fall in the rate of profit (LTFRP), the core of Marx’s theory of capitalist economic crisis––are internally inconsistent and must therefore be corrected or rejected. However, TSSI research has demonstrated that the inconsistencies are not present in the original texts; they result from particular interpretations. When Marx is interpreted as the TSSI interprets him, the inconsistencies disappear (see, for example, Kliman 2007).

As Chapter 6 will discuss in more detail, the TSSI’s ability to reclaim Marx’s Capital from the myth of inconsistency impinges upon the controversy over the underlying causes of the Great Recession in the following way. In their supposed proofs that the LTFRP is internally inconsistent, his critics replace the temporally determined rate of profit to which his theory refers with an atemporal “rate of profit” (the current-cost or replacement-cost rate), and they then find that Marx’s law does not survive this process of substitution. Those who have accepted these proofs have also accepted the manner in which the proofs mis-measure the rate of profit. Thus, when they found that the atemporal “rate of profit” trended upward after the early 1980s, they took this as conclusive evidence that capitalist production has been sound, and that the true underlying causes of the Great Recession are therefore neoliberalism, financialization, and heighted exploitation. Analysis of actual rates of profit leads to quite different conclusions.

However, I do not want to overstate the role of methodological and theoretical differences. Prior to analyzing the data, I had no prior belief that actual rates of profit had failed to rebound since the early 1980s, and I even wrote that “profitability has been propped up by means of a decline in real wages for most [US] workers” (Kliman 2009: 51), which I believed to be an unambiguous fact. Methodology and theory greatly influence the kinds of questions one asks and the data one regards as significant, but they have no influence over the data themselves.

In other words, this book is an empirical analysis, not a theoretical work. Even my claim that the atemporal “rate of profit” is not a rate of profit in any normal sense of the term is an empirical claim. If it, and this book’s other claims and findings, are “true for” those who find its conclusions appealing, they are no less “true for” those who do not. Not everything is a matter of perspective. If I can now say that a persistent decline in U.S. corporations’ profitability is a significant underlying cause of the Great Recession, and that Marx’s explanation of why the rate of profit tends to decline fits the facts remarkably well, it is because I have crunched and analyzed the numbers. I could not have said these things a few years ago.

Click here to view the video.

Please click here for the original announcement of this panel.

Since only two papers were presented, the discussion period lasted more than an hour. The bulk of it concerned Kliman’s presentation. During his replies to questions and comments, he displayed a quotation, several graphs, and a table from his forthcoming book. The discussion period begins approximately fifty minutes after the start of the recording.

Click here to listen to the audio recording.

McDonald’s presentation was entitled “The Cry for Jobs: An Absurd and Brutal Affirmation of Labor’s Subordination to Capital.” Kliman’s presentation was entitled “The ‘Stagnant Pay’ Myth and the Persistent Frailty of Capitalist Production.” For video recordings of similar presentations by Kliman, click here or here.

Recorded March 19, 2011 at the Left Forum at Pace University in lower Manhattan. Featuring Alan Freeman on “Waking from the Dream: Europe in the Great Recession,” Andrew Kliman on ”The Great Recession and the Persistent Frailty of Capitalist Production,” David McNally on “Global Slump, Age of Austerity, and the Growing Resistance,” and Fred Moseley on “A Lost Decade for Jobs in the U.S., Unless…”

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In the spring and summer of 2010, crisis gripped Europe, highlighting the continued instability of the capitalist system across the globe. Financial meltdown was averted only by means of a massive bailout package, totaling as much as €750 billion, and the European Central Bank’s move to begin purchasing sovereign debt of the weaker Euro zone countries to prevent a breakup of the zone. Will the patch hold?

Antti Ronkainen will give special attention to the European Financial Stability Facility (EFSF), established last summer to help safeguard financial stability in the Euro zone. He will argue that the EFSF is not designed to solve the Euro crisis, but rather allows the European Central Bank to engage in potentially risky lending and provides a mechanism for redistributing income from taxpayers to banks. Ronkainen will also discuss the European workers and students’ demonstrations and strikes against new austerity programs, especially the current situation in Finland. Will the resistance succeed in saving the unions and government benefits?

Antti Ronkainen is a student of social sciences in Finland. He is an editor of and writer for Megafoni, a Finnish autonomist web journal (http://megafoni.org).

Presented by Marxist-Humanist Initiative & the New SPACE (http://new-space-nyc.org).

The Great Recession & Its Aftermath
Saturday, March 19^th at 3:00 p.m., Room LHN
Alan Freeman: “Waking from the Dream: Europe in the Great Recession”
Andrew Kliman: ”The Great Recession and the Persistent Frailty of Capitalist Production”
David McNally: “Global Slump, Age of Austerity, and the Growing Resistance”
Fred Moseley: “A Lost Decade for Jobs in the U.S., Unless…”
Click here for more info.

Is Socialism Possible? (Panel I)
Saturday, March 19^th at 10:00 a.m., Room W623
Andrej Grubačić: “Anarchism, or Libertarian Socialism for the 21st Century”
Anne Jaclard: “Yes, If a New Mode of Production Lays the Ground”
Antti Ronkainen: “Socialization of the Banking System”
Alex Steinberg: “Socialism and the Role of Consciousness”
Click here for more info.

Is Socialism Possible? (Panel II)
Sunday, March 20^th at 3:00 p.m., Room W504
Michael Albert: “Yes, But Which Socialism”
Andrew Kliman: “Marx’s Lower Phase of Communism: Not Another ‘Labor Money’ Scheme”
Cindy Milstein: “The Horizontalist Moment: Self-organization Works!”
Click here for more info.

We will also have a book table in the Exhibitors area. Please drop by to say “hello” and browse our most recent publications!

For more information about the Left Forum, including details on registration and directions to Pace University, visit www.leftforum.org/conference/2011.



This post was updated on March 26, 2011 to add the titles of Cindy Milstein and Fred Moseley’s presentations.

This article responds to recent works by Jonathan Nitzan and Shimshon Bichler, influential radical political-economic thinkers who teach, respectively, at York University in Toronto and at colleges in Israel. Part I, below, responds to Bichler and Nitzan’s (B&N)  “Systemic Fear, Modern Finance and the Future of Capitalism” (Bichler and Nitzan 2010). In this paper, they argue that (1) “systemic fear”–fear of the death of the capitalism–has gripped capitalists during the last decade, but (2) capitalists’ belief that their system is eternal is necessary for its continued existence. So (3) the alleged systemic fear is itself a threat to the system. And thus we have yet another version of the notion that capital itself may be the historical Subject that will bring it down.

B&N claim that fear of the death of the system’s death has gripped capitalists only during two periods in recent history–the Great Depression and the 2000s. Their evidence for this claim consists entirely of the alleged fact that these two periods of crisis were the only periods since World War I in which equity (stock) prices and current profits were strongly correlated, i.e. the only periods in which they closely moved up and down together.[1] However, using the exact same methods and the exact same data as B&N, I show below that that equity prices and current profits were also strongly correlated from the early 1950s through 1973–during the so-called golden age of capitalism!

In Parts II and III of this article, which will appear here later this month, I will respond to the critique of Marx’s value theory that pervades Nitzan and Bichler’s 2009 book, Capital as Power. In this book, they allege that Marx’s value theory is practically useless for the study of accumulation. So my response will show, among other things, that his theory sheds significant light on the long decline in the rate of accumulation (investment) that contributed to ever-increasing debt burdens in the U.S. and helped set the stage for the recent Great Recession.

Part I

In November, Nitzan presented his and Bichler’s “systemic fear” thesis–including the correlation data that supposedly supports it–in a presentation to a joint session of the prestigious Harvard Law School and Harvard’s equally prestigious Kennedy School of Government. And a different version of the same argument, featuring the same correlation data, appeared earlier in an article they published in Dollars & Sense, a left-liberal economics magazine.

But since their data actually show that equity prices and current profits were also strongly correlated from the early 1950s through 1973–during the so-called golden age of capitalism!–we should doubt their claim that systemic fear has prevailed in recent years. After presenting and discussing these data, I will argue that flaws in B&N’s reasoning should also cause us to doubt their claim that capitalists are normally convinced that capitalism is eternal, as well as their claim that this conviction is crucial to its continued existence. But if the future of capitalism doesn’t hinge on the conviction that the system is eternal, it also doesn’t much matter whether capitalists have recently been gripped by systemic fear in B&N’s sense.

Good old regular fear, “the dread and apprehension that regularly puncture [capitalists'] habitual greed” (Bichler and Nitzan 2010, p. 18), is another matter. There can be little doubt that good old regular fear was intense at the start of the last decade, and even more intense at the end. I believe that this good old regular fear was justified and that it remains so. The underlying long-run economic problems that led to the recent Great Recession, and to the weakness of the subsequent recovery, have not been resolved. As I will discuss in Part II of this article, slow growth of employment relative to investment during the last six decades has led to a persistent fall in the rate of profit; the fall in the rate of profit has caused capital accumulation and economic growth to be sluggish for decades; and this sluggishness has led to mounting debt burdens. I doubt that the fall in the rate of profit can be reversed or that the debt problem can be solved without much more destruction of capital value–i.e. falling prices of real estate, securities, and means of production, as well as physical destruction–than has taken place to date. And if these problems remain unresolved, the economy will continue to be relatively stagnant and prone to crisis.

But it is difficult to discuss these ideas with B&N, or at all, because they and others like them contend that the theory on which the ideas are based, Marx’s value theory, is internally inconsistent and circular. An internally inconsistent theory cannot possibly be correct.[2] All ideas resting upon such a foundation can thus be disqualified at the starting gate, without further ado. In order to clear the ground for a genuine discussion–one in which B&N’s approach to questions of crisis and the future of capitalism is compared with and contrasted to something rather than nothing–Parts II and II of this article will respond to the main criticisms of Marx’s value theory.

* * *

B&N (2010, p. 17, emphasis in original) note that “if we adhere to the scriptures of modern finance, we should expect to see no systematic association between equity prices and current profits.” And they claim that equity prices have indeed become decoupled from current profits since 1917, except during two brief and exceptional periods. “Figure 2 and Table 2 show two clear exceptions to the rule: the first occurred during the 1930s, the second during the 2000s. In both periods … equity prices moved together–and tightly so–with current earnings” (Bichler and Nitzan 2011, p. 17 emphasis altered).

However, their Figure 2 actually shows four clear exceptions to the alleged rule. Equity prices also moved together with current earnings–and tightly so–from the early 1950s to the early 1960s, and from the early 1960s to the early 1970s (see my Figure 1). 

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During the first of these additional “exceptional” periods, period 4 of Table 1, below, the correlation between equity prices and current earnings was stronger than during the Great Depression (period 2). During the other “exceptional” period that B&N fail to bring to our attention, period 5, the correlation was lower, but still considerably stronger than during the 2000s (period 7).[3] The percentage of the variation in one variable that is “explained” by, or attributable to, the variation in the other is the square of the correlation coefficient, r². Thus, as Table 1 shows, only about two-fifths of the variation in share prices during period 7 is attributable to variations in current profits; the explained variation during period 4 is almost twice as great, while the explained variation during period 5 is more than 50% greater.[4]

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Table 1. Correlations between the annual rates of growth of stock prices and earnings per share, S&P 500 companies (monthly data are expressed as 3-year moving averages)

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Table 1 also shows that share prices have been strongly and positively correlated with current profits more than 40% of the time since 1917, and almost half the time since 1929. So the “exceptions” are not exceptional; the “rule” that share prices and current profits have become decoupled is no rule at all.

But B&N haven’t merely gotten their facts wrong. Because their facts are wrong, so is their paper’s key claim that we can infer that investors are gripped by “systemic fear” when the relationship between current profits and equity prices is strong and positive. They tell us that the two periods in which systemic fear prevailed were two periods of acute crisis, the Great Depression and the 2000s. If a strongly positive correlation between current profits and share prices were another exceptional feature of these periods of crisis, then the notion that we can infer the existence of systemic fear from the positive correlation might be plausible. But the 1930s and 2000s were not exceptional in that respect, as we have seen. And the other two strongly positive-correlation periods, which run from the early 1950s through the early 1970s, cannot plausibly be characterized as a time of systemic fear. On the contrary, that era was the so-called golden age of capitalism.[5] So a strongly positive correlation between current profits and equity prices does not allow us to infer the existence of systemic fear.

But the correlation data are B&N’s only evidence that capitalists were gripped by systemic fear in the 1930s and 2000s. (The statements by the Financial Times, Alan Greenspan, Bernie Sucher, Gillian Tett, and Mervyn King quoted in their paper discuss a highly uncertain environment, economic crisis, and discredited economic theory and ideology, not fear of the death of capitalism.) So they have not given us a good reason to accept that claim.

* * *

Nor do they give us a good reason to accept that the opposite of systemic fear–the conviction that capitalism is eternal–is the norm. Their “demonstrat[ion]” that capitalists are almost always guided by this conviction is fatally flawed. And since the same demonstration is the basis upon which B&N (2010, p. 3) claim that “[t]his … conviction is necessary for the existence of modern capitalism, at least in its present form,” they also fail to give us a good reason to accept this latter claim.

The most glaring flaw in their “demonstration” comes at the end, when they write, “the fact that capitalists invest shows that they expect … that the value of their assets will grow, not contract–and that expectation means that, consciously or not, they also think that the ritual that valuates their assets will never end” (Bichler and Nitzan 2010, pp. 3-4, emphasis added). The italicized clause is simply false. Just as some people buy lottery tickets even if they don’t expect to hit the jackpot, some people buy shares of stock even if they don’t expect their prices to rise. A large enough jackpot or a large enough potential capital gain more than makes up for a low probability of success.  Hence, the fact that people invest does not mean that they normally expect capitalism to last forever.

Imagine, for instance, that you think that there’s only a 50-50 chance that capitalism will exist a year from now, and that you are considering buying shares of stock for $10,000 today. If capitalism doesn’t survive, you’ll lose the whole $10,000, so it would be better to spend the $10,000 now, not invest it. You believe that this outcome is as likely as not, but you also believe that if capitalism does survive, the shares will be worth $500,000 a year from now. If you are like most people, you’ll go ahead and invest.

Secondly, dozens upon dozens of experiments conducted by Nobel laureate Vernon Smith and colleagues (e.g. Smith, Suchanek, and Williams 1988; Porter and Smith 2003) during the past quarter century have demonstrated conclusively that people frequently invest in assets even when know that “capitalism” (i.e., its experimental equivalent) will soon perish. Participants in the experiments are given some cash and some shares of an imaginary equity. They are told that the shares will pay dividends for a fixed length of time, such as fifteen periods, and that the experiment will then end, at which point the shares will be worthless. The current fundamental value of a share–the sum of the average per-period dividends throughout the remainder of the experiment–is announced at the start of each period.[6] Participants can buy additional shares from other participants, sell their shares, or hold onto them and collect their dividends. At the end of the experiment, they get to keep their initial cash endowments, dividends, and any net capital gains they have obtained.

Now, B&N (2010, p. 3)  claim to demonstrate that if capitalists believed that the system “would cease to exist at some future point,” then share prices “would have no-where to trend but down,” and capitalists would therefore be unwilling to buy additional shares. But even though participants in the experiments are absolutely certain that the system (i.e., the experiment) will soon cease to exist and that the asset’s fundamental value is continually falling, share prices typically rise throughout  much or most of the experiment–big bubbles are formed–and the volume of investment in additional shares is typically heavy. This has been the routine outcome even when the participants in the experiments are over-the-counter stock dealers, businesspeople, or students at the California Institute of Technology or the Wharton School.

Research into why this “perverse” behavior occurs is still ongoing, but the basic reason why people buy shares that eventually become worthless, and whose prices must therefore eventually fall, is obvious. People think that they may well make a substantial profit in the meantime, by reselling the shares at prices higher than those they paid.

Finally, even if the rest of B&N’s “demonstration” were sound, it would not prove that capitalists are normally guided by the conviction that capitalism is eternal. At least it wouldn’t prove this if we use the word “conviction” in the normal way. B&N are undoubtedly aware that it would not, since they write that “consciously or not, [capitalists] also think that the ritual that valuates their assets will never end” (emphasis added).  I doubt that “unconscious conviction” is a coherent concept, but even if it is, B&N’s appeal to it turns what started out as a provocative and straightforward claim into a piece of unfalsifiable Freudian speculation.[7]

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References

Bichler, Shimshon and Jonathan Nitzan. 2010. Systemic Fear, Modern Finance and the Future of Capitalism, July. Available at bnarchives.yorku.ca/289/03/20100700_bn_systemic_fear_modern_finance_future_of_capitalism.pdf .

James, William. 1890. The Principles of Psychology, Vol. 1. New York. Henry Holt and Co.

Nitzan, Jonathan and Shimson Bichler. 2009. Capital as Power: A study of order and creorder. London and New York: Routledge.

Porter, David P. and Vernon L. Smith. 2003. Stock Market Bubbles in the Laboratory, Journal of Behavioral Finance 4:1, 7-20.

Skidelsky, Robert. 2010. Keynes: The Return of the Master. London: Allen Lane.

Smith, Vernon L., Gerry L. Suchanek, and Arlington W. Williams. 1988. Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets, Econometrica 56:5, 1119-1151.

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Notes

[1] They interpret a strong influence of current profits on share prices as evidence that investors are acting on the basis of the current situation, having abandoned their supposedly normal “conviction” that the shares will yield returns ad infinitum because capitalism is eternal.

[2] An internally inconsistent theory may happen by accident to hit upon correct conclusions, but the arguments it provides in support of these conclusions are always invalid.

[3] The correlation was negative between February 1961 and May 1964. If we count this as a distinct period and shorten periods 4 and 5 accordingly, the correlations during these periods increase to 0.92 and 0.82.

[4] I computed a correlation of 0.65 for period 7, while B&N report a correlation of 0.64. My other results match theirs, so this slight discrepancy may be due to a recent revision of the data set, published by Robert Schiller Shiller on his website.

[5] Since I, like B&N, computed the correlations between 3-year average values, periods 4 and 5 use data from August 1950 through December 1973, which is almost exactly coextensive with the golden age as defined by Skidelsky (2010, p. 24)–the period “from 1951 to 1973.”

[6] In some experiments, shares pay a fixed dividend. In others, participants are told what the possible dividends are and the probabilities that each will be paid.

[7] As William James (1890, p. 163, emphasis omitted) noted, “the distinction … between the unconscious and the conscious being of the mental state … is the sovereign means for believing what one likes in psychology and of turning what might become a science into a tumbling ground for whimsies.”

One hundred and fifty people came — from New York, New Jersey, Pennsylvania, Massachusetts, California, and elsewhere — to participate in the “Economic Crisis and Left Responses” conference that took place at Pace University in lower Manhattan on November 6. The conference was convened by Marxist-Humanist Initiative (MHI).

MHI also received many communications from people in the United States and abroad who were unable to attend, but who indicated that they were eager to watch the video recording of the conference proceedings.

The participants included currently employed and retired workers, students, academics, and others. The three sessions of the conference featured ten speakers, some of whom are political activists and some of whom are academics.

During the conference, MHI announced that it was taking initial steps to form a “Network for the Circulation of Theoretical Struggles.” Mike Dola discussed the motivation behind the Network at the conclusion of the conference.

Dola said that MHI is encouraged by the Capital study groups that have recently sprouted up, and by the beginnings of a serious discussion of the causes and consequences of the recent crisis. He noted that the Network, which will be international, will help facilitate and coordinate this ongoing theoretical activity, which it is intended to supplement rather than to replace.

Anne Jaclard, National Secretary of MHI and one of the speakers at the conference, said afterward that she thought it represented “a giant step forward.” In a post-conference letter, Jaclard stated that “many of the speakers and audience actively engaged with each others’ issues. They did not merely put forth their positions and leave them undebated, or rush to prescribe ‘practice’ without examination of what theory underlies their practice.”

A paper presented by Andrew Kliman in the conference’s morning session proved to be controversial. According to Kliman, a persistent fall in the rate of profit was an underlying cause of the crisis and recession; it was not the case that workers’ share of income fell, causing the rate of profit to rebound after the early 1980s. The growth of workers’ incomes did fall markedly, he said, but it fell because the growth of the economy and total income fell markedly, not because workers’ share of the income fell.

Richard Wolff, another panelist in the morning session, challenged this conclusion, arguing that retirees are not workers, but ex-workers, so their income is not workers’ income. Speakers from the audience argued similarly that health-care and retirement benefits that employers pay and workers receive are not part of workers’ incomes.

The issue of “raising consciousness” was also controversial. A supporter of MHI said that people don’t need raised consciousness but information and access to ideas that they don’t now have access to. Walter Daum, a supporter of the League for the Revolutionary Party and a speaker in the early-afternoon panel, countered that leading the masses and raising their consciousness is what it means to be a revolutionary.

Some other speakers also suggested that consciousness-raising is a key component of an effective response from the Left to the economic crisis and its aftermath. Jaclard’s paper, on the other hand, put forward what it called a “very different” direction that Left intellectual activity should take, that of “demonstrat[ing] theoretically that another, non-capitalist world is possible.”

In addition to Daum, Jaclard, Kliman, and Wolff, speakers included Roslyn Wallach Bologh, Brendan Cooney, Barry Finger, Mac Intosh, Paul Mattick, and Fred Moseley. Pace University’s Center for Community Action & Research, the Department of Economics, History, and Political Science of Pace’s Pleasantville campus, the Committee for a Conference on the Economic Crisis, the League for the Revolutionary Party, Internationalist Perspective, and The New SPACE joined MHI as sponsors of the conference.

Communications announcing the conference explained the motivation behind it as follows:

“The future is especially uncertain, and ‘the new normal’ may prove to be very difficult, economically and politically.

“For the Left to be prepared for what may happen and prepared to respond effectively, activity and organization will not be enough. We also need the organization of thought–and that is why we have convened this conference. In order to work out a viable response, one that doesn’t merely react to and support the least-bad proposals offered by policymakers and mainstream thinkers, we need a clear and deep understanding of what has gone wrong with capitalism, and of the limits and pitfalls of proposed reforms. And we cannot take for granted that more progressive policies would in fact bring capitalism out of the crisis and restore jobs, economic growth, and stability. Wide-ranging dialogue on these topics is needed, not only so that all views can be heard but, above all, so that we can test different ideas in debate and work out answers to the questions we face.”

*****

For videos of the conference panels, conference papers, the proposal for the formation of a Network for the Circulation of Theoretical Struggles, and more, click here. We hope you’ll then sign-up to be contacted about the Network.

A number of materials have been gathered together on this website –- including conference papers and a video recording of the entire conference –- to help extend and deepen the dialogue opened at the conference. Click here for an article, “Economic Crisis Conference Featured Wide Participation and Debate,” which provides an overview of conference proceedings and links to these materials.

We make this space available for our readers to discuss conference presentations, theoretical controversies that emerged at the conference, and the themes of the conference broadly. We hope to have wide-ranging dialogue, not only so that all views can be heard but also so that we can test different ideas in debate and work out answers to the questions we face at this moment.

Please help expand the discussion by adding a comment below.