The panel featured Andrew Kliman on the “Roots of the Economic Crisis: The Persistent Fall in Profitability and Debt Financing,” Brendan Cooney on “Value, Crisis, and Marx’s ‘Order of Operations,’” and Anne Jaclard on “Do We Have an Uncoupled Economy?”

View the video here

Special thanks to Brendan Cooney for the recording.

In late December, Michel Husson, a Marxist economist, published a critique of my study of U.S. corporations’ profitability. His critique, “Les Coûts Historiques d’Andrew Kliman,” appears on the website of the Nouveau Parti Anticapitaliste.

I have just completed a response to him, entitled “Masters of Words: A reply to Michel Husson on the character of the latest economic crisis.”

For the full text, click here.  Below are the start of the paper, the first two sections, and the final section.

Masters of Words

A reply to Michel Husson on the character of the latest economic crisis

“I don’t know what you mean by ‘glory,’” Alice said.

Humpty Dumpty smiled contemptuously. “Of course you don’t–till I tell you. I meant ‘there’s a nice knock-down argument for you!’”

“But ‘glory’ doesn’t mean ‘a nice knock-down argument,’” Alice objected.

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean–neither more nor less.”

“The question is,” said Alice, “whether you can make words mean so many different things.”

“The question is,” said Humpty Dumpty, “which is to be master–that’s all.”

–Lewis Carroll, Through the Looking Glass

1. Introduction

This paper replies to Michel Husson’s (2009a; also Husson 2010) critique of my study of movements in the rates of profit of U.S. corporations (Kliman 2009). I showed that rates of profit fell markedly, beginning in the late 1950s and continuing through the early 1980s, and that no sustainable rebound in profitability took place between the trough year of 1982 and the trough year of 2001. Depending upon the particular measure of the rate of profit one considers, the rate of profit during that period either continued to decline, or stagnated, or increased extremely modestly.  I argued that this persistent fall in profitability is an underlying cause of the latest economic crisis, since it led to sluggish accumulation of capital, sluggish economic growth, instability, and, above all, mounting debt problems.

I also argued that, while some leftist economists–Husson is one of them–claim that “the rate of profit” did rebound substantially, and thus that profitability problems are not an underlying cause of the economic crisis, their conclusions are based partly upon cherry picking of the data and partly upon the use of current-cost “rates of profit” that are simply not rates of profit in the normal sense of the term. Although the latter practice is sometimes defended on the ground that it is a way of producing inflation-adjusted estimates, I argued that current-cost “rates of profit” do not adjust for inflation in a proper manner, and I went on to report on my own estimates of movements in inflation-adjusted rates of profit. I found that their trends in the period since 1982 differed very little from trends in un-adjusted rates of profit.

Curiously, Husson’s critique of my work does not defend the manner in which current-cost rates adjust for inflation, and I am not aware of anyone else who has done so, either. He ignores that issue and instead sets out to turn the tables. He criticizes my use of unadjusted (historical-cost) rates of profit. His major argument, however, is that the alternative procedure I used to adjust for inflation is “incorrect” and that my “error” results in the elimination of the substantial rebound in inflation-adjusted profitability that actually occurred.

Let me note that even if everything he says against the unadjusted rates of profit and my inflation-adjusted rates were correct, it would not constitute a defense of the use of the current-cost “rate of profit.” Such a defense has evidently not yet been produced.

The next section of this reply discusses what is ethically at stake in this debate, and the final section discusses what is politically at stake.  In between, I respond to the particulars of Husson’s critique. Section 3 defends the use of unadjusted historical-cost rates of profit (alongside inflation-adjusted ones). Section 4 argues that Husson’s critique of my inflation-adjustment procedure is much ado about nothing, since an alternative adjustment procedure along the lines he recommends yields results that are almost identical to those I reported originally. Section 5 argues that the failure of current-cost “rate of profits” to adjust for inflation in a proper manner is responsible for almost all the rise, since 1980, in a key current-cost rate (the ratio of U.S. corporations’ property income to the current cost of their fixed assets).

Husson argues that the low rate of accumulation we have experienced since the 1980s is not due to a failure of the rate of profit to rebound. Rather, he claims, it is due to a neoliberal “regime of accumulation” that has encouraged diversion of profits away from productive investment and into financial speculation. In Section 6, I briefly recapitulate the counter-argument I provided in Kliman (2009), which Husson has not addressed. And Section 7 briefly clarifies a point that Husson (2010) seems not to have understood: the current-cost “rate of profit” conjures away a portion of advanced capital, and this leads to a spurious rise in the rate of profit, when prices or the rate of inflation are falling.

2. What is at Stake Ethically?

This reply’s title and epigraph are directed at the work of physicalist-Marxist and Sraffian economists generally, not that of Husson in particular. They refer to an ethical matter, one that concerns the responsibility of intellectuals when communicating with the public.

Physicalist-Marxist and Sraffian economists use the terms rate of profit or profit rate to refer to profit as a percentage of the amount of money that would currently be needed to replace the capital assets, i.e., the assets’ replacement cost, also known as their current cost. To almost everyone else, however, what these terms mean is profit as a percentage of the book value of the capital assets. The book value is the amount of money that was actually advanced (i.e., invested) in the past the order to purchase the capital assets–their historical cost –minus depreciation and similar charges. For instance, this is how the term is defined in the MIT Dictionary of Modern Economics (1992):

profit rate. profit expressed as a proportion of the book value of capital assets.

This is how it is defined in the Encyclopedia of Small Business (http://www.enotes.com/small-business-encyclopedia/profit-margin):

the rate of profit (sometimes called the rate of return) …comprises various measures of the amount of profit earned relative to the total amount of capital invested …. [T]he profit rate measures the amount of profit per unit of capital advanced ….

And this is how Marx (1991a, p. 133, emphasis in original; 1991b, p. 91) defined it:

The surplus-value [s] or profit … is consequently an excess over and above the total capital advanced. This excess then stands in a certain ratio to the total capital, as expressed by the fraction s/C, where C stands for the total capital. We thus obtain the rate of profit[,] s/C ….

Profit . . . expresses in fact the increment of value which the total capital receives at the end of the processes of production and circulation, over and above the value it possessed before this process of production, when it entered into it.

Because this is what rate of profit means to almost everyone, when they read or hear that “the rate of profit” has consistently risen since the early 1980s, they are seriously misled into thinking that there has been a recovery in what businesses, investors, Marx, and they themselves mean by the rate of profit.

However, no such recovery has taken place. So physicalist-Marxist and Sraffian economists have a responsibility, when engaging in public communication, to avoid saying things that will inevitably be understood as statements that there has been such a recovery. Ideally, they should avoid trying to make rate of profit mean just what they choose it to mean–neither more nor less–and find a different term for what they now insist upon calling “the rate of profit.” But if this is somehow too much to ask for, they should at the very least let the public know that “what we mean by ‘the rate of profit’–which is not what businesses and investors mean, or that Marx meant, but is instead the ratio of profit to the replacement cost of capital–has consistently risen since the 1980s.”

Definitions of one’s variables that are buried in the middle of technical papers are not adequate substitutes for such clarifications. Most people who hear talks or read interviews will not read the technical papers. Even those who do read them will frequently not realize that “fixed assets valued at current cost” differs from “the amount of money actually spent to acquire fixed assets, minus depreciation” unless this is pointed out explicitly. But intellectuals–especially radical intellectuals–have a responsibility to promote understanding, not misunderstanding, among the public. If they instead become the masters of words, they likewise become the masters of public discourse rather than its servants.

8. What is at Stake Politically?

Husson (2009a) concludes his critique of my work by quoting, and taking issue with, my response to a question during the discussion period that followed a talk I recently gave on the latest economic crisis:[1]

The first question I was asked was regarding my criticisms of the claims made by Marxist economists such as Gérard Duménil and Dominique Lévy, Fred Moseley, and Michel Husson who have said that the rate of profit, especially of corporations in the US, ha[s] almost completely recovered from the low point in the early 1980s. It is an extremely important issue because it affects how we view the character of the present crisis. If there is a huge crisis in the midst of an almost complete recovery of the rate of profit, that suggests that it is purely a financial crisis that we are experiencing rather than a crisis of capitalist production as such. And it suggests therefore that what needs to be fixed is the financial system: we need regulation, we need, maybe, nationalization of banks, but a change in the character of the socio-economic system is not on the agenda. So a lot of people are moving into the camp of Keynesianism and calling for fights against financial capitalism rather than against capitalism. [emphasis added]

In response to the sentences I have italicized, Husson objects that each link of my syllogism is false. If the rate of profit is high, it is still possible that the crisis is not only a financial one, and even if the crisis is only a financial one, it is still possible that it calls into question the underlying logic of the system. But the term “syllogism” is his, not mine. When one is giving an impromptu verbal response to a question, it is not the time to try to formulate a watertight syllogism. I therefore said “that suggests” and “it suggests,” not “that implies,” or “it follows inevitably that,” or some similar expression that announces the conclusion of a syllogism.

Yet there is indeed a precise logical connection that can be drawn between the notions that profitability has rebounded, that the latest economic crisis has an irreducibly financial character, and that changes to the financial system could in principle prevent such crises in the future. That connection was spelled out admirably by Chris Harman (2009, p. 299, emphasis added) a few months before his tragic and untimely death last fall:

Those radical economists who put the stress on financialisation in creating the crisis [... characteristically] claim that profit rates had recovered in the 1980s and 1990s sufficiently to have brought about a revival of productive investment were it not for the power of financial interests. Such was the argument of the French Marxist Michel Husson, when he claimed in 1999 that there were ‘high levels of profitability”, and [Engelbert] Stockhammer and [Gérard] Duménil were saying much the same thing in the summer and autumn of 2008. If they were right, the crises that broke out in 2001 and on a much bigger scale in 2007-8 would indeed have had causes very different to previous ones, including the inter-war slump [i.e., the Great Depression--AJK], and greater control by the existing state over the behaviour of the financial sector would in the 21st century be sufficient to stop such crises. In accordance with such an approach, Duménil and [Dominique] Lévy described the “Keynesian view” as “very sensible” and looked to “social alliances” to “stop the neoliberal offensive and put to work alternative policies–a different way of managing the crisis.”

If the sentence of Harman’s I have italicized still does not qualify as a fully-articulated syllogism, it comes damned close.

Unfortunately, Husson chooses not to respond to the substantive issues at stake here. Instead, he changes the subject. The error upon which my “false syllogism” rests, he writes, is my inability to understand that “capitalism may be in crisis even as it enjoys a high rate of profit. … [T]he crisis is that capitalism is incapable of responding, and indeed refuses to respond, in a rational manner to the needs of humankind, whether these be social needs or the struggle against climate change” (emphases added).

Husson’s use of the word “crisis” here is a bad pun. My talk–entitled “La Crisis Económica, sus Raíces y Perspectivas”–was wholly about the economic crisis, Thus, when I used the word “crisis” in my “syllogism,” it was the economic crisis to which I was referring. I do not mean to suggest that social needs and climate change are “non-economic” matters. My point is rather that economic crisisis a technical term that has long had a specific and precise meaning: “A situation in which the economy of a country experiences a sudden downturn brought on by a financial crisis” (http://www.businessdictionary.com/definition/ economic-crisis.html). So when Husson answers me by employing the word “crisis” in a different sense, he is just changing the subject.

In other words, the question is not whether capitalism is experiencing some sort of crisis. Nor is the question whether there is some justification for fighting against capitalism. Rather, the questions that are at issue–and in need of a full debate–are these:

• Is the latest economic crisis a crisis of a specific form of capitalism, rather than a crisis of capitalism itself, such that a change in the form of the system can in principle prevent the recurrence of economic crises of the same sort?

• Has this economic crisis put a change in the character of the socio-economic system on the agenda, in the sense that, in order to prevent the recurrence of economic crises of the same sort, capitalism itself must be transcended?

My answer to the first question is “no” and my answer to the second one is “yes.”

To the best of my knowledge, Husson has not explicitly answered these questions. But he has characterized the latest economic crisis as one that is “shaking the foundations of neo-liberalcapitalism,” not “shaking the foundations of capitalism” sans phrase. He has written that “[t]he crisis is a glaring confirmation of the criticisms addressed to financialised capitalism,” not “criticisms addressed to capitalism” sans phrase. In the same piece, he wrote that “we have to take strength from the rout of the advocates of neo-liberalism” but he did not also warn us of the dangers we face now that the crisis has given new life to Keynesianism, social democracy, and “leftist” visions of statist capitalism.[2]

Such statements seem to suggest that Husson’s answer to the first question is “yes” and his answer to the second question is “no.” If that is not the case, it would be helpful if he would clarify his views.

[2] The quotations from Husson in this paragraph are from the first paragraph, and the first paragraph of the final section, of Husson (2008b). Emphases are mine.

One Comment on “Reply to Michel Husson on the character of the latest economic crisis”

1. 1m said at 9:44 am on February 24th, 2010:great stuff, thank you.

On Duménil and Lévy’s Cherry Picking of the Data

At last month’s Historical Materialism conference, Duménil denied that they cherry picked the data.  I replied. Then we showed what the facts of the matter are.

In these pages and elsewhere, I’ve cited Gérard Duménil and Dominique Lévy’s cherry picking of the data as one reason why they contend that the rate of profit of U.S. corporations experienced an almost complete recovery since the early 1980s. This claim is crucial to their argument that the current economic crisis began as a financial crisis that was not itself rooted in a long-term fall in the rate of profit.

I discussed this issue during a January 15 presentation at the Historical Materialism 2010 NYC Conference last month. Duménil responded vociferously that they did not cherry pick the data. I replied. The following day, members of Marxist-Humanist Initiative distributed an informational flier at the conference that documented the relevant facts. It includes screen shots of the paper in question.

The transcript of the exchange between Duménil and me, and the informational flier, are in a PDF file you can download from the “Crisis Intervention” page of my website. The file is in the “Ethics” section, and it has a “New!” bug next to it.

Listen to the panel

Listen to q&a

Another recording of this panel is available at the Radical Perspectives on the Crisis website:

http://sites.google.com/site/radicalperspectivesonthecrisis/audio-video/audiohistoricalmaterialism2010nyc-originsofthecrisis-moseleyklimanmohun

(The audio quality may be better here. The Radical Perspectives on the Crisis website also features recordings of a number of other panels at the conference.)

One Comment on “Audio: “Roots of the Economic Crisis” @ Historical Materialism 2010 in NYC”

1. 1vincent mclean said at 5:42 am on February 13th, 2010:warm greetings comrades of the marxist humanist initiative. i’ve been wanting to reach your group ever since i’ve read what had happend to the news and letters committee political event that took placed resulted in the split between you. i’m an advocate of marx’s socialism with a human face, bannered by the marxist humanist groupings in the world. i’m a revolutionary activist from the philippines whose roots stems from the marxist humanist perspective, although it did not take root in the movement, with a leninist majority advocates, which i’m also a part of. i’m a popular educator and whenever i do pop ed all of my political and capability modules can be found traces of luxemburg, dunayevskaya’s tenents. i hope to have a grasp regarding whats the trend now on the marxist humanist arena. with warm wishes and solidarity to you comrades..

Kliman will be speaking on a panel with Fred Moseley and Simon Mohun entitled “Origins of the Current Crisis.” He will present a challenge to common left views of the crisis:

Various leftists are trying to have working people march behind the banner of some statist version of capitalism, as a supposed solution to the economic crisis and/or a way of preventing a recurrence of crisis. Frequently the turn to statism is justified on the basis of the claim that the current crisis is a purely financial one, caused by free financial markets, unrelated to and distinct from profitability problems within capitalist production. This paper will show that the claim is incorrect. Properly measured and assessed, there has been a persistent fall in U.S. corporations’ rate of profit and declining GDP growth, the effects of which have been continually papered over with ever-growing mountains of debt. But the excessive indebtedness leads to bubbles and the bursting of the bubbles. The latest crisis is the most severe yet. A further rise in debt is not a genuine solution to the crisis; only a new human society is. In the meantime, working people should fight for concessions without subsuming their self-activity under the agenda of some section of the ruling class.

*           *          *

Be sure to visit MHI’s book table at the Historical Materialism Conference.

For information about the conference, which takes place Thurs. Jan. 14 through Sat. Jan. 16, visit http://www.hm2010nyc.org/

Pedagogical Workshop

November 7, 2009. A workshop on the Temporal Single System Interpretation (TSSI) of Marx’s value theory with Alan Freeman and Andrew Kliman.

Watch the video.

Dialogue on the Economic Crisis

November 7, 2009. A roundtable on the economic crisis featuring David Calnitsky (Sociology, University of Wisconsin-Madison) on “Capitalist Competition, Self-Organization, and Crisis”; Brendan Cooney (Kapitalism 101 video blogger) on “Crisis, Value, and Marx’s “Order of Operations”; Radhika Desai (Political Studies, University of Manitoba) on “The Demand Problem in the Current Crisis: Marxist and Keynesian Reflections”; Alan Freeman (Visiting Scholar, University of Manitoba) on “How did 1929 end?”; and Andrew Kliman (Department of Economics, Pace University - Pleasantville) on “Contradictions of Capitalism’s Value Production: Internal, Inevitable, Insuperable.”

Watch the video.

In an October 16 article, “ISJ 124: Kliman and Choonara review” published on the website of the Permanent Revolution organization, Bill Jefferies criticizes my recent review of Chris Harman’s new book, Zombie Capitalism. Key points of contention have to do with the current economic crisis and its causes, so my response to Jefferies may be of general interest, and of interest to those who’ve read my new study of movements of profitability in the U.S. corporate sector.

I was very pleased to read Jefferies’ critique, because it was comradely (though in a comment following it that I will discuss below, he made an unsubstantiated and false charge of scholarly misconduct against me), and because he engaged with what I actually wrote. That’s something I’m not used to. I’m used to simultaneist-Marxist and Sraffian critics of Marx who lie about what I write, intentionally distort it, engage in diversionary ploys, and take actions that have threatened to deprive me of my means of earning a living. And I’m used to “Marxist-Humanist” critics who set up strawpeople and knock them down while assidously avoiding the words I’ve actually written.  So a critique like the one that Jefferies wrote is quite refreshing as well as quite commendable.

Also, here’s a big h/t to “mne.”  I’m not aware of whom s/he is, but s/he has said many good and important things about Jefferies’ critique in the comments section following it, though s/he is outnumbered there. S/he is probably the “m” that let me know about the critique by posting a comment on the MHI website yesterday. If not, an h/t to “m” as well.

1.  On my relationship to Harman, the International Socialism journal, and all that

a. Jefferies writes that “Kliman shares the Harman, Choonara and the ISJ’s view that capitalism already existed in the former centrally planned economies of China, Russia and Central Europe.”  Yes, but only in the same sense as I share “their” view that the Sun is the center of the solar system. In both cases, I arrived at my view independently of them. I am a Marxist-Humanist. To borrow a phrase that Marx used to describe his relationship to Hegel, I am a pupil of that mighty thinker, Raya Dunayevskaya, and I am politically active with Marxist-Humanist Initiative, which is endeavoring to renew Marxist-Humanism organizationally in the wake of the disintegration and retrogression of prior Marxist-Humanist organizations. Thus, when Jefferies writes that “Kliman is … from a broadly speaking similar theoretical tradition to that of the ISJ,” he is speaking very broadly.

b. Jefferies seriously misrepresents my review when he alleges that

Kliman claims that the basic problem with those who disagree with Harman is they have not broken completely with capitalist ideology and that therefore they “must always try, as Harman puts it, ‘to pin the blame on something other than capitalism as such”. Some might think that this was an attempt to shut down the debate ….

Nowhere did I say or suggest that those who disagree with Harman haven’t broken completely with capitalist ideology. I wasn’t even referring to his views at that point in the review, but to the fact that the economic crisis has not impelled many on the Left to engage in serious rethinking:

On the left there has been even less rethinking than on the right. This is because the crisis has the “form of appearance”-to use an apt Hegelian-Marxian expression-of being a crisis of free-market, deregulated capitalism and specifically a crisis emanating from the financial sector. In other words, it appears to be a crisis of things the left never celebrated (though those who spoke of a new long upturn tended to regard them as successful), and thus an ideological predicament only for the other guys.

The basic problem is that those who have not broken completely with capitalist ideology must always try, as Harman puts it, “to pin the blame on something other than capitalism as such”.

What is at issue is the lack of rethinking, not “disagreement with Harman.” There is a world beyond the shores of the UK. Thus, consider the views of the US Stalinist economist David Laibman, who I quote in my review. Not long ago, he wrote stuff like

Capitalism … maintains a certain coherence over time. The homeostatic aspects must be balanced against the transformative, crisis-provoking ones. The term “equilibrium” … has different meanings … and some of them are crucial to the Marxist enterprise.

Has there been any serious rethinking of this on Laibman’s part. No. Instead, true to tradition, the only thing that’s happened is that his line’s been changed again:

“the Marxist understanding of the inherent instability and progressive unworkability of capitalism has been vindicated!”

(The first quote is from David Laibman, 2004, “Rhetoric and Substance in Value Theory: An Appraisal of the New Orthodox Marxism.” In Alan Freeman, Andrew Kliman and Julian Wells (eds), The New Value Controversy and the Foundations of Economics (Edward Elgar), p. 15. The second is from David Laibman, 2009, “The Onset of Great Depression II: Conceptualising the Crisis,” emphasis in original.)

Of course, some people aren’t even changing their line, since the specific form of appearance of this crisis permits them to continue to think that they can properly pin the blame on “neoliberalism” or “financial capitalism” or “deregulation” or “corporate greed” or anything and everything but capitalism itself. So that’s why, far from trying to “shut down the debate,” I’ve been trying to get one going. But I can count on the fingers of zero hands the number of times I’ve been invited, here in New York or elsewhere in the US, to debate a simultaneist-Marxist economist or any other proponent of the view that the current crisis is purely a financial crisis unconnected to a persistent profitability problem.

2. On the crisis and the persistent fall in profitability

a. Jefferies writes that my review of Harman’s book “re-treads” a “well worn road” according to which

capitalism is stagnant and has been for nearly four decades now. Throughout the period of globalisation …, capitalism has seen declining production and investment, overcapacity and low, stagnant or falling profit rates. The digital age, internet revolution and Nintendo Wii Fit are all manifestations of capital’s inability to revolutionise the productive resources.

Almost all of this is simply false. Neither in my review nor elsewhere do I claim that capitalism is stagnant, that is it unable to revolutionize the productive resources, or that there have been declining production and investment throughout the period of globalization. And “overcapacity” as such is an obvious fact (does Jefferies wish to argue that the capacity utilization rate has been 100%?).

For the same reason, it is also simply false to claim, as he does, that my review “mount[s] a standard defence of the stagnation school” or that it is “a thinly veiled polemic against those Marxists specifically including ourselves in Permanent Revolution (PR), who have demonstrated that the period of capitalist globalisation has been anything but stagnant.”

To his claim that my review is a polemic specifically against Permanent Revolution, he adds the further claim that “Kliman … goes on ‘Even some Marxists spoke of a “new long upturn”‘. Kliman is referring to PR’s 2006 article ‘Capitalism’s Long Upturn.’  Of course he does not admit it.”

Neither of these claims is true. I did not have the views of Permanent Revolution-with which I am familiar only in passing–in mind when I read Harman’s book or when I wrote my review. What was on my mind was the pervasive myth of “capital resurgent” put forward by some academic Marxist economists and, unfortunately, parroted by many on the US left. (Capital Resurgent is the title of a 2004 book by Gérard Duménil and Dominique Lévy, two people who are genuinely “academic Marxist[s]“; I am a Marxist-Humanist who happens to teach for a living.) For example, even well into the current crisis, late last year, after the collapse of Lehman Brothers and all that, the US “radical” economic “journalist” Doug Henwood spoke of the period since the early 1980s as a new long boom, or words to that effect.

And I did not refer to “PR’s 2006 article ‘Capitalism’s Long Upturn,’ which I do not recall having read and doubt that I read. I was quoting the author of the book I was reviewing. The words “Even some Marxists spoke of a ‘new long upturn’” are his, as I indicated in a footnote, though Jefferies does not bother to inform the reader of that fact.

b. Jefferies complains that

Kliman tries to prove too much. By wanting to demonstrate that profit rates have not recovered with globalisation, he actually shows that they rose in the 1970s compared with their levels in the 1960s boom, particularly after the oil crisis of 1973. It effectively destroys profit rates as a guide to the health of the capitalist economy or otherwise.

I have anticipated and responded to this argument in “The Persistent Fall in Profitability Underlying the Current Crisis: New Temporalist Evidence.” See part II, section C. The extremely short version is that the rate of profit and “the health of the capitalist economy” are different things and shouldn’t be conflated.

I also made adjustments for inflation (in the general price level and in the monetary expression of value) in part V, section D of the same paper. Nominal rates of profit did of course rise sharply in the 1970s. That’s exactly what should be expected in a period of rapidly accelerating inflation. But (as I noted in my review of Zombie Capitalism) the rise is entirely or almost entirely attributable to the inflation. The adjusted historical-cost rates of profit did not rise sharply. When a broad measure of “profit” is used in the numerator, my results indicate that the inflation-adjusted historical rates of profit fell during the 1970s.

However, in the period between the trough of 1982 and the last trough before the current crisis, 2001, there was little or no difference between the trends in the nominal rates of profit and the trends in the inflation-adjusted rates.  Depending on the particular measure of profitability, there was a very slight rise in the rate of profit, or a complete failure of the profit rate to recover, or a continuing fall in the rate of profit.

c. Jefferies contends that my way of measuring the rate of profit “is not a Marxist theory of the rate of profit” because I “exclude[ ] wages and circulating constant capital” from the denominator.

I have anticipated and responded to the “Marxist theory” bit in part II, section D of “Persistent Fall.” I do not exclude circulating constant capital, though I didn’t think a review of Zombie Capitalism was the place to go into a long discussion of the various measures of profitability I have looked at. Measures that include circulating constant capital (which are quite unsatisfactory, because they also count output that hasn’t yet been sold as advanced capital) are reported in “Persistent Fall.” One historical-cost rate of profit that includes it rose just a tad between the 1982 and 2001 troughs, while the other continued to fall.

I did not include wages, because data on the turnover time of wage payments are unavailable. The turnover time is important because, although the total wage bill is large, the turnover of wage payments is rapid, so little capital is advanced in the form of wages. As an exercise, I have just assumed that wages turn over twice a month on average and have thus included 1/24 of the annual wage bill in the denominators of the rates of profit. The trends in the rate of profit are scarcely altered. (My data are in a spreadsheet available to all on my website, in the same location as “Persistent Fall,” so you don’t have to take my word for it.)

d. Jefferies writes, “leaving [circulating constant capital and wages] out of the equation means that an accurate measure of profit rates cannot be established.” I have anticipated and responded to this argument in part II, section C of “Persistent Fall.”

e. Jefferies also objects to my use of historical-cost rates of profit (the only genuine rates of profit there are):

There is also a debate amongst Marxists economists, as to whether to use historical or current cost of fixed assets when determining the value of assets in the calculation of the rate of profit. Kliman thinks it is correct to use historical cost. Marx on the other hand explained that as the socially necessary labour time required for the cost of capital production changed so would the value of fixed assets. If a capitalist buys an expensive machine it may be working fine, but if a new cheaper machine is invented that is no consolation to him (probably it’s a bloke). He cannot insist that his machine cost him hard money and he wants it back. The capitalist will simply be unable to sell his now expensive and out of date product. Instead the cost of the capitalists historic investment will be devalued immediately to the level of the most efficient competitor i.e. its current replacement cost. Historic investments will be written down to their present cost of reproduction, i.e. the socially necessary labour time they cost now.

Yeah, I know. I’ve read Marx, too, and well enough to know that this is irrelevant at best. (Actually, the devaluation of the capital causes the rate of profit to fall, not rise, when the loss is written down, which is a hugely important phenomenon in this crisis.) Jefferies is simply confusing the value (or price) of means of production with the capital that was advanced to acquire them. A rate of profit is the ratio of profit to advanced capital, not the ratio of profit to the value or price of means of production. [Two irrelevant sentences in original post removed by me on 10/24/09--AJK]

A fuller critique of current-cost “rates of profit” can be found in “Persistent Fall,” especially part V, and in my 2007 book, Reclaiming Marx’s “Capital”: A refutation of the myth of inconsistency.

… Speaking of which-and speaking of inconsistency-I believe that it was Bill Jefferies who not only published a favorable review of the book on the Permanent Revolution site, but also specifically endorsed its repudiation of physicalism and simultaneous valuation:

Marx’s critics assert that it is the physical quantities of things, the amount of useful things produced in excess of the initial quantity of inputs that create exchange value.

This is known as “physicalism” and it runs alongside two other key propositions, “simultaneism” … and the idea of a “dual system”….

Physicalism could only be correct in a static world, where production does not take place in time, i.e. it is not temporal, and where inputs and output are priced simultaneously.

… of course Marx’s account does produce a difference between input and output prices, but far from this being an inconsistency in his account, it is absolutely consistent with his explanation of the derivation of prices from values.

In other words Marx had a temporal, single system method.

Was the author of these excellent passages unaware at the time that current-cost “rate of profit” is inherently physicalist, or that it is an inevitable by-product of simultaneous valuation?  Hardly. I repeatedly stressed this in my book. Also, at the end of the review of the book in Permanent Revolution, we find the following:

profit rates are measured against the actual cost [historical cost] of fixed capital … rather than its notional cost [current cost or replacement cost]. … If the rate … of profit is measured against the new notional value i.e. its value if it had to be paid for at present prices [i.e., at the current cost of fixed capital], then it is possible to show that rates of profit are low or falling, even when they are high and rising. [Bracketed material inserted by me-AJK]

So why has Jefferies now defected to the side of the physicalist-simultaneist academic-Marxist critics of Marx-basically the same people who use their simultaneous-valuation model to “prove” that Marx’s value theory and law of the tendential fall in the rate of profit are internally inconsistent and therefore false?  Why does he no longer understand that a rate of profit is the ratio of the profit of one moment to the sum of capital that was actually advanced at earlier moments, not the amount that would have been advanced if the means of production “had to be paid for at present prices”?  Might it have something to do with the fact that he suddenly doesn’t like the conclusions that flow from temporalism?

Ironically, it is “bill j” who accuses me of choosing a particular concept of profitability in order to get the conclusions I want! “The reason Kliman prefers the historic fixed cost measure is because it reduces profit rates now” (22 Oct, 2009, comment on his article). He does not substantiate this extremely serious allegation of gross scholarly misconduct.

The allegation is completely false. I first criticized current-cost “rates of profit” publicly more than two decades ago, in a 1988 conference paper that was then published in a journal (”The Profit Rate Under Continuous Technological Change,” Review of Radical Political Economics 20:2, Summer 1988). This is publicly available proof.

I of course had no way of knowing way back in the 1980s that current-cost “rates of profit” would rise while historical-cost rates of profit would level off or continue to fall into the current decade. And I’veconsistently (a term I use advisedly here) put forward and developed my critique of current-cost “rates of profit” over two decades.

In “Permanent Revolution - our way forward,” Permanent Revolution says that “Our starting point is that we are an organisation that tells the truth.” But their “bill j” has not done so.

f. Jefferies does not like the fact that I assess trends in profitability by means of trough-to-trough comparisons:

Kliman would claim that he ends his series in 2001 as this was the trough of the last recession. The problem with that is we are attempting to establish the reasons for the recession in 2008 not 2001. If we want to know why there was a recession in 2008 we need to know the direction of profit rates then not seven years before.

… [We need to know about] the period after 2001 … The period which preceded the present crash and which explains it …

First, I do not “end the series.” I make trough-to-trough comparisons when assessing trends in profitability, but I provide all of the data through 2007 and do not ignore it (though again, my review of Zombie Capitalism didn’t go into all the details of my study of profitability). Second, Jefferies is guilty here of cherry picking peaks and troughs, a procedure I criticize in Persistent Fall, part IV, section B. To avoid such cherry-picking of the years one prefers, one must look at comparable points in any series of data, such as profit-rate data, that exhibit pronounced short-run cyclical fluctuations. Third, “I measure trends in the rate of profit by comparing one trough to another … in order to ascertain whether a sustainable recovery in profitability took place” (”Persistent Fall,” p. 4, emphasis in original). A short-term cyclical spike in profitability, driven by a huge asset bubble, that ends in the worst crash since the Great Depression (or worse-time will tell) is not a sustainable recovery.

As for Jefferies’ belief that what occurs immediately prior to an event is what explains the event, I wonder whether he would maintain that when a chronically and terminally ill person is taken to the hospital and then dies, the cause of death is that she was cared for by the medical staff? Let me also note that I anticipated and responded to this line of reasoning in “Persistent Fall,” part III, section B, where I discuss intermediate links between falling profitability and crisis, and I explain why time lags are to be expected and why they pose no problem for Marx’s law of the tendential fall in the rate of profit but are, instead, part and parcel of it.

3.  Other points

a. Jefferies quotes the following passage in my review of Harman’s book:

The title Zombie Capitalism reflects Harman’s focus on capitalism itself. Taking seriously Marx’s theory of the “fetishism of the commodity”, he characterises the system as a zombie, an undead creature[,]

He then comments that the relationship between “Return of the Living Dead” and “Marx’s theory of alienation has been until now an undiscovered quality.”

Maybe it hasn’t been discovered by Jefferies, but it was Marx himself who wrote, in an essay that–significantly–bears the title “Alienated Labour,”

The worker puts his life into the object, and his life no longer belongs to himself but to the object . . . . The alienation of the worker in his product means not only that his labour becomes an object, assumes an external existence, but that it exists independently,outside himself, and alien to him, and that it stands opposed to him as an autonomous power.  The life which he has given to the object sets itself against him as an alien and hostile force.

Nor was this only the view of the “young Marx,” the “philosopher” rather than the “mature” “economist.” In Capital, Volume I, Chap. 25, which deals with capitalist accumulation, he wrote,

Just as man is governed, in religion, by the products of his own brain, so, in capitalist production, he is governed by the products of his own hand. [end of section 1]

Is Jefferies really unaware of this?

b. My review noted that when Harman started work on Zombie Capitalism, well before the current crisis erupted, he wanted “to criticise … the belief that ‘capi talism had found a new way of expanding without crisis.” Later I noted that he “was convinced, before the crisis erupted, that another capitalist crisis was inevitable.” In a third reference to this point, I wrote that “he predicted the current crisis.” Jefferies takes the last phrase out of the above context in order to argue that “Harman did not predict the crisis.” What he apparently means is that that Harman didn’t predict the timing of another crisis, but “only” the fact that there would be yet another capitalist crisis–as if that were somehow an insignificant matter! In any case, I said nothing about him predicting the timing of the crisis, and what I meant  should have been clear from the context.

c. I also wrote that Zombie Capitalism endeavors to “account for the major economic events and trends of the past 90 years, booms as well as busts.” Jefferies responds: “As for Harman explaining booms and busts from the last century on in his little book, well he does not do that either.” But he provides no evidence or argument in support of this claim, so there is nothing of substance here for me to address.

[the above is the revised version of Oct. 24]

2 Comments on “Reply to Bill Jefferies and the Permanent Revolution organization”

1. 1bill j said at 6:56 am on October 24th, 2009:Hi Andrew

   we are going to do a more thorough review of your longer piece in our next journal. Hope that’s ok?

   cheers
   Bill

2. 2Richard Brenner said at 5:39 pm on January 5th, 2010:My critique of Bill Jefferies and the PR group’s position from July 2008 is here:

   http://www.fifthinternational.org/content/globalisation-and-myth-new-long-wave

I’m surprised at how many self-professed Marxists say that the LTRPF [law of the tendency of the rate of profit to fall] is somehow flawed, or cannot explain the current outbreak of crises. Marx himself described it as central to his critique of political economy. I can see no other alternate explanations coming forward that even begin to approach an adequate explanation. I’ve seen plenty of Keynesian explanations that blame the lack of regulation, or neo-con orthodoxy.

The advent of the microprocessor showed the world that technology in late capitalism was now wiping out more jobs than it would ever create as opposed to earlier technological innovations of capitalist society that caused more new jobs to be created than they eliminated. That is to say, the weight of the constant element of capital hangs so heavily on capitalist production that the only thing a sensible capitalist can do currently is to entirely remove his capital from the messy productive process altogether and achieve profits through what could be called fictitious or speculative capital.

Even in my high school when I asked my leftist teacher about the falling rate of profit, which even in the eighties made a great deal of sense in explaining the crisis, the only answer I got was that rates of profit don’t fall, they go up. The trouble with this was that this only took into account the years of post-war prosperity, and conflated this forty year period of relative prosperity in a handful of imperialist powers to a universal constant that “disproved” the Law of Falling Rates of Profit.

A machine will consistently depreciate in value as soon as it is put into production. A commercial CNC board cutting machine, in order to pay for itself must produce a maximum amount of product in order to realize its value. This too causes the value of the machine to depreciate at an even faster rate. A worker can be laid off and rehired at a lower wage. The value of the machine starts to deteriorate through wear and tear from the day it first is put into use in production. I can see this tendency at work, where I work. It isn’t an abstraction. I would argue that it is an observable phenomenon that workers see and experience.

In light of this current outbreak of open crisis within capitalism that the detractors on the left were spectacularly wrong. The collapse of the USSR and the collapse of the US dollar today are a part of the same process in capitalist society, a tendency which has been at work and observable since the early seventies. Having global currency allowed US capital to have what is in essence the largest corporate welfare scam in history-the US dollar itself. This situation is coming to an end as are the post-Marxian certainties of bourgeois economic thought. I’ll never again be able to do anything other than laugh at those who used to tell me that the working class no longer existed or that rates of profit do not fall.

Confronting Capitalism’s Economic Crisis

-Meeting & 4-part Seminar-

all events at TRS, 44 East 32nd St., 11th floor,
New York, NY, from 7 pm to 9 pm

Sponsored by Marxist-Humanist Initiative.
======

TUESDAY, JUNE 23: PUBLIC MEETING

“The economic crisis and left responses,” a talk by Andrew Kliman, author of Reclaiming Marx’sCapital: A refutation of the myth of inconsistency

“A new organization for a time of crisis,” a talk by Anne Jaclard, National Secretary, Marxist-Humanist Initiative

Talks followed by open discussion. Donation requested.

======

SEMINAR SERIES

Tues., June 30
Introduction: purpose of seminar series; overview of crisis theories; definition of “crisis”; history of capitalist crises; why crisis theory?
Led by Josh Skolnik

Tues., July 14
Underconsumptionism: does paying workers more boost profit?
Led by Seth Weiss

Tues., July 21
Marx’s law of the tendential fall in the rate of profit.
Led by Andrew Kliman

Tues, July 28
The crisis of the free market and the turn to state-capitalist ideology.
Led by Anne Jaclard

As the worst economic slump since the Great Depression calls into question the viability of the capitalist system, and as people increasingly doubt whether capitalism is desirable or even necessary, we need to unite theory with practice and an understanding of the current crisis in order to respond effectively. We invite everyone seriously interested in this task to join us in the seminar series. Participants will be expected to have done the readings prior to each session.

Donations are requested, but no one will be turned away because of inability to pay.

Please call us at (888) 579-2245 or write to us at mhi@marxisthumanistinitiative.org in order to register for the seminar series and obtain the syllabus.

3 Comments on “Confronting Capitalism’s Economic Crisis, Meeting & 4-part Seminar”

1. 1chris said at 7:19 pm on July 1st, 2009:any audio/video recordings?
2. 2A said at 7:22 pm on July 1st, 2009:Chris,We should have a video up for the June 23 meeting up very soon.

   - A

3. 3G said at 10:47 am on August 10th, 2009:Greetings,Will you be posting videos from the rest of the meetings?

   Thanks!

   G

By Andrew Kliman, Author of Reclaiming Marx’s “Capital“: A refutation of the myth of inconsistency.

As I noted in a post last month, some prominent Marxist economists-including Fred Moseley and Gérard Duménil-have recently asserted that the rate of profit in the U.S. has recovered from the fall it underwent through 1982.  Therefore, they contend, Marx’s law of the tendential fall in the rate of profit is of little value, if any, when trying to explain the roots of the current economic crisis.  Instead, they attribute the crisis to financial-sector phenomena -which they portray as largely unrelated to and separable from movements in profitability.

Indeed, Moseley and Duménil both contend not only that the rate of profit has recovered, but also that the recovery is “almost complete.”  Earlier this year, Moseley (2009, pp. 300-01) wrote: “the rate of profit is now approaching the previous peaks achieved in the 1960s … The last several years especially, since the recession of 2001, has seen a very strong recovery of profits ….  I conclude that there has been a very substantial and probably almost complete recovery of the rate of profit in the U.S.”

Estimates by Gérard Duménil and Dominique Lévy (2005) indicate that the rate of profit of the overall business sector in the U.S. has not recovered so substantially.  Yet with regard to the corporate sector, their view echoes Moseley’s; as of 1997, the rate of profit of the “Corporate sector … recovered to its level of the late 1950s. … Considering the evolution of the profit rate since World War II, the recovery of the profit rate appears nearly complete within the entire Corporate sector” (Duménil and Lévy 2005, p. 9, p. 11, emphases omitted).

But why do Moseley and Duménil say this?  One reason, as I noted in my post  of last month, is that when they discuss the tendency of the rate of profit, they’re discussing the tendency of the physical“rate of profit,” which isn’t a rate of profit in any real sense.

Yet there’s another reason as well:  both of them fail to distinguish between cyclical variations in profitability and longer-term (secular) trends in profitability.  It is obvious that, in order to ascertain the trend, one needs to set aside or control for cyclical effects.  Otherwise, one might take a completelytrendless data series (such as the sine wave depicted see Figure 1) and conclude that it exhibits a rising trend simply by cherry-picking a trough point (A) and comparing it to later peak point (B).  Or one might say with equal validity (i.e., none) that the series exhibits a falling trend, simply by cherry-picking a peak point (B) and comparing it to a later trough point (C).

Figure 1. 

But this is exactly what Moseley and Duménil-Lévy do. Let’s look at how they discuss the estimates of the rate of profit that they’ve computed:

When he asserts that the rate of profit has almost completely recovered from its prior fall, Moseley is comparing his rate of profit during the trough or near-trough years from the mid-1970s through the early 1980s with the rate during the peak period of 2004-2007 or 2005-2007-even though it is clear to him that an unsustainable asset-price bubble was underway during the latter period (Moseley 2009, esp. section 5).  Had he compared the troughs in his data, Moseley would have reported a rise in the rate of profit from 10% in 1980 to 14% in 2001, rather than the rise of twice that amount (to 17%-19%) that induced him to refer to an “almost complete recovery” of the rate of profit.  And he would have reported no recovery in trough rates of profit from 1987 through 2001, the most recent trough year.

Similarly, Duménil and Lévy (2005) chose to analyze movements in profitability only through 1997.  They made this choice, for reasons they do not explain, even though their paper actually presents data through 2000, and even though a few more years of data, including data for the trough year of 2001, were available when they published their paper.  But 1997 was a peak profit-rate year.  Thus when they state that the corporate sector’s rate of profit fell sharply through 1982 and then underwent a “recovery [... that] appears nearly complete,” Duménil and Lévy are comparing a trough to a peak.

Why do Moseley and Duménil- Lévy choose to cherry-pick their data in this manner?  I do not know.  I can only speculate that they “see” the increases in profitability, but not the subsequent declines, as significant, and that this stems from a “pre-analytical vision” of Capital Resurgent (Duménil and Lévy 2004), in which a neoliberal, free-market counter-revolution gave rise to a new, sustainable boom on the backs of the working class.  This vision has helped many on the Left find an “objective basis” for both the hopelessness and feelings of impotence they have experienced and for the resignation to the status quo, or mildly reformist alternatives to it, that they have taken to advocating.   The data themselves do not tell such a clear-cut story.

References

Duménil, Gérard and Dominique Lévy, 2005, “The Profit Rate: Where and How Much Did it Fall? Did It Recover? (USA 1948-1997).”  Available at http://www.jourdan.ens.fr/levy/dle2002f.pdf .

Moseley, Fred, 2009, “The US Economic Crisis:  Causes and Solutions,” Marxism 21, Vol. 6, No. 1, pp. 296-316.

2 Comments on “Cherry-Picking Peaks and Troughs”

1. 1kmb said at 9:02 am on May 15th, 2009:Clear analysis. However…

   My main problem that still remains is that I don’t see a precise model of HOW a drop in profitability leads to economic slowdown and the resulting problems (debt, asset bubbles etc.).
   Now I know that this article is for a wider audience, and this is not a scientific journal, so it would be silly of me to demand a quantitative model here…but, my problem is that I’m unaware of any such quantitative macroeconomic models in Marxian studies. This may very well be my own limitation, since I’m basically a newcomer to the whole field…do they exist?

   So, once again, the question I would ask is: do we know for certain, has it been quantitatively demonstrated, that investment growth and aggregate economic growth is always profitability-led?
   It sure seems logical (in Marxian theory), but is it true for all economies all the time?

   (post-keynesians/Kaleckians talk of stagnationist and exhilarationist economies…the former (if I understood it correctly) are not profitability-led (or not profit-share-led, which is not quite the same, but similar))

   It seems, there are at least certain cases, when they are not: recently I read some studies by PK economists Ö Onaran and E Stockhammer where they analyse (using regression models) the growth patterns of the Turkish economy and find that it is not primarily led by profitability, rather by aggr. demand…this also seems to be true for certain developed European economies.
   So: even if the LTRPF is correct, I’m not sure if pointing out a fall in profitability is enough to explain economic slowdown and the emergence of crisis tendencies.

   Thanks,
   Mihaly Koltai (Hungary)

2. 2Andrew Kliman said at 10:17 pm on May 22nd, 2009:Hi kmb,

   1. Actually, my argument is not that “a drop in profitability leads to economic slowdown and the resulting problems (debt, asset bubbles etc.).”

   My argument is rather that the drop in profitability has led to rising debt and asset bubbles. It could be that policy has been orienting to restoring profitability directly rather than restoring economic growth. I’m not saying that this is so, I don’t know. The point is just that my argument doesn’t stand or fall on a direct relationship between profitability and growth of GDP and/or investment.

   Also, one facet of my argument is that the increasing indebtedness pumps up economic growth and profitability artificially. So I wouldn’t *necessarily* expect to see a slowdown in economic growth here as a result of the drop in profitability (though average annual per-capita GDP growth in the U.S. was about 25% less in the 1973-2003 period than in the 1950-1973 period).

   An appropriate empirical test would look at what the relationship between movements in the rate of profit and movements in what economic growth *would have been* in the absence of the debt expansion. That’s a very tricky thing to try to get at.

   2. One thing that does seem clear is that changes in profit have caused changes in investment, not vice-versa. Using BEA figures, I computed the correlations between the annual change in before-tax profits and the annual change in gross investment (for all corporations) between 1948 and 2003.

   The correlation between THIS year’s change in investment and THIS year’s change in profits is 0.39.

   The correlation between THIS year’s change in investment and NEXT year’s change in profits is -0.11. So it doesn’t look as though changes in investment spending have caused changes in profit.

   The correlation between THIS year’s change in investment and LAST year’s change in profits is 0.52. So changes in profit do seem to have been a factor causing changes in investment spending.

   3. You ask, “do we know for certain, is it quantitatively proven, that investment growth and aggregate economic growth is profitability-led? It sure seems logical (in Marxian theory), but is it true for all economies all the time?”

   I don’t know how anyone could know what’s true for all economies all the time. I’m certainly making no such claims. I’m trying to explain the phenomena that *have* taken place, not say what *must* take place.

   The reason why the link between profitability and capital accumulation is logical is that, BY DEFINITION,

   (cap. accum. rate) = (share of profit accumulated) x (rate of profit)

   So if the rate of profit falls, then-all else being equal-the rate of capital accumulation will fall. But it’s not possible to say that this must be true at all times in all places, not would I expect it to be true at all times in all places. That’s because, if the rise in the share of profit accumulated is greater, in percentage terms, than the fall in the rate of profit, then the rate of capital accumulation will rise.

   But why should I care whether something is true at all times in all places? It’s not true at all times in all places that if you drop an object, it will tend to fall.

   BTW, nothing above is meant to endorse the notion that economic growth has ever, anywhere, been led by aggregate demand rather than profitability. I don’t know that this is so and, in fact, I don’t even know what it means. If economic growth is growth of GDP, and aggregate demand is GDP (or GDP minus inventory accumulation), then the “fact” that changes in aggregate demand lead to changes in economic growth is either a tautology or extremely close to one.