• Aaron Jaffe: “Some Limits of Harvey’s ‘Accumulation by Dispossession’”
• Greg Gabrellas: “Morbid Symptoms: Marxist Politics and the Organic Decomposition of Capital”
• Brendan Cooney: “The Enigma of The Enigma”
• Andrew Kliman: “David Harvey and the 1970s Milieu”

• Alan Freeman
• Barry Finger
• Mike West
• Brendan Cooney
• Anne Jaclard

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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)

“Kliman’s main argument is that the fall in the rate of profit is an indirect cause of the crisis. He argues that the economy failed to recover fully from the slumps of the 1970s and early 1980s and that this problem, and policymakers’ response to it, set the stage for the latest crisis. … This book is a major contribution to the debate on the recent economic crisis. It exposes the flaws of some of the most popular arguments on the left and reinstates the centrality of Marx’s law of profitability in explaining the crisis. This is done using plentiful empirical evidence and through a series of logical steps. Everyone who is interested in understanding the roots of the crisis must read it.”

–“After the Fall,” International Socialism, issue 134 (full review here)

More reviews and comments:

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.

…..Feb. 15. WINNIPEG. 2:30-4:00 PM. Global Political Economy program, University of Manitoba; Concourse Lounge, University College. (On Feb. 16, 7:30 PM, Kliman will also talk on “Reclaiming Marx’s Capital” at the Marx Reading Group. Aqua Books, 274 Garry Street, Winnipeg. (204) 943-7555.)

…..Feb. 22. NEW YORK CITY. 8-9:50 PM. New School, talk sponsored by Student Action Initiative (open to public). 80 5th Ave., room 529. Corner of 14th St., Manhattan.

Feb. 26. MOSCOW. 4 PM. Tsiolkovskiy Bookstore.

Feb. 27. MOSCOW. 6 PM. Lomonosov Moscow State University, Marx Seminar, Faculty of Politics.

…..Feb. 29. TAMPERE, Finland. 4:15 PM. University of Tampere, Linna Building, Väinö Linna Hall, Kalevantie 5, Tampere. Part 1 of  seminar on “Origins of the Current Crises: Consequences and Political Alternatives” with talks by Alex Demirovic and Andrew Kliman. Origins of the Current Crises.

…..March 1. HELSINKI, Finland. 3:15 PM. House of the Federation of Finnish Learned Societies, Lecture Hall 505, Kirkkokatu 6, Helsinki. Part 2 of seminar on “Origins of the Current Crises: Consequences and Political Alternatives“ with talks by Alex Demirovic and Andrew Kliman. Consequences and Political Alternatives.

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

…..March 6. SALFORD / MANCHESTER, UK. 6 PM. Mary Seacole G21 (ground floor), Salford University, Manchester.

…..March 8. SHEFFIELD, UK. 7 PM. Sheffield University, Jessop West Exhibition Space (off Upper Hanover St.).

…..March 10. NEWCASTLE, UK. 5 PM. Blackbull Pub, Mulgrave Terrace, Gateshead, Newcastle.

…..Weekend of March 17-18. NEW YORK CITY – Left Fourm. Sunday March 18 at 3:00 PM. Pace University, 1 Pace Plaza, Manhattan. Panel on book. Speakers: Brendan Cooney, Barry Finger, Alan Freeman, Anne Jaclard, and Mike West.

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

Video: Kliman discusses the book at Bluestockings Bookstore in New York City, Feb. 6, 2012.

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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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.

* * *

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.

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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I’m in the process of writing a book on the latest global economic crisis. This has given me the opportunity to take a careful look at underconsumptionist writers’ support–or rather, lack of support–for some of their most important claims. The issues I’ll discuss below have to do with the underlying long-run causes of the crisis. Is the crisis ultimately rooted in contradictions of the capitalist system of production, or is it ultimately rooted–as the underconsumptionist camp claims–in falling pay for workers and/or a fall in their share of national income?

The evidence I’ll present here shows that the underconsumptionist account of the underlying causes of the crisis is incorrect for three reasons. First, the share of national income received by the U.S. working class hasn’t changed over the last 40 years, and it is a good deal higher than in 1960. Second, during the last three decades (the period for which reliable data exist), compensation of U.S. workers has risen–by as much as 35%, according to one measure–even after we adjust for inflation.

Third, the evidence shows that the lynchpin of the underconsumptionist theory of economic crisis­­–the supposed inability of productive investment spending to grow faster than personal consumption spending in the long run–is simply false. Because this is supposedly impossible, the underconsumptionist camp claims that slower growth of personal consumption, caused by the (alleged) relative or absolute decline in workers’ pay, cannot be counterbalanced, in the long run, by quicker growth of productive investment spending. But the evidence I will present below shows that business investment spending in the U.S. grew almost five times as fast as personal consumption spending grew during the seventy-five year period between 1933 and 2008.

Workers’ Non-Falling Share of National Income

The notion that the latest economic crisis is an irreducibly financial crisis, a crisis of a particular form of capitalism dominated by finance­­–instead of a crisis of capitalist production–has become rather popular among radical economists. (See my essay “Appearance and Essence” and the longer study published by Marxist-Humanist Initiative, “The Persistent Fall in Profitability Underlying the Current Crisis.”) John Bellamy Foster and Fred Magdoff, two writers for Monthly Review, a left-Keynesian underconsumptionist publication, have recently fused the financial-crisis notion with underconsumptionism:

“It was the reality of economic stagnation beginning in the 1970s … that led to the emergence of ‘the new financialized capitalist regime,’ … whereby demand in the economy was stimulated primarily ‘thanks to asset-bubbles.’ … But such a financialized growth pattern was unable to produce rapid economic advance for any length of time, and was unsustainable….

“A key element in explaining this whole dynamic is to be found in the falling ratio of wages and salaries as a percentage of national income in the United States. Stagnation in the 1970s led capital to launch an accelerated class war against workers to raise profits by pushing labor costs down. … Chart 3 shows a sharp decline in the share of wages and salaries in GDP [gross domestic product] between the late 1960s and the present.” (“Financial Implosion and Stagnation: Back To The Real Economy,” Monthly Review 6:7, Dec. 2008, John Bellamy Foster and Fred Magdoff)

Foster and Magdoff’s Chart 3 makes use of official U.S. government data to show that wages and salaries fell from about 52% of gross domestic product in 1960 and 53% in 1970 to about 46% in 2007. It looks convincing–unless you also look at the government’s categories and realize that Foster and Magdoff have left out big and growing chunks of working people’s incomes. Data for these other components of workers’ incomes are readily available. In fact, they’re reported in the same table that Foster and Magdoff used to get their wage and salary figures.

In a piece published at the same time in Monthly Review’s MRZine, Rick Wolff reproduces Foster and Magdoff’s Chart 3 and employs it as a basis for his own analysis. (“Capitalism’s Crisis through a Marxian Lens,” MRZine, Dec. 14, 2008.) More recently, Wolff and Stephen Resnick have based their conclusion that “real wages paid workers in manufacturing remained more or less constant and even fell a bit from [the late 1970s] to today” on wage and salary data alone, disregarding the other components of working peoples’ incomes (p. 176 of Stephen Resnick and Richard Wolff, “The Economic Crisis: A Marxian Interpretation,” Rethinking Marxism 22:2, April 2010, pp. 170-86.)

What is left out when one restricts one’s attention to wages and salaries alone? First, many employers pay health and retirement benefits, and employers pay Social Security and Medicare taxes. All this is part of employees’ “total compensation.” Since the U.S. population is getting older and living longer after retirement, and since health-care costs are rising especially quickly, these additional components of total compensation have increased twice as fast as wage and salary income since 1970. In effect, workers are drawing less of their total compensation now, and saving more of it for when they’re older.

Second, the government pays people, especially the working class, a lot of “social benefits”: Social Security and Medicare benefits, veterans’ benefits, and other items such as welfare assistance and unemployment insurance benefits. As the population has gotten older and as more people have come under the Social Security system, these social benefits have also increased as a share of GDP. Of course, working people are also putting more money into the Social Security and Medicare funds than they used to. So we need to subtract what they contribute through their taxes; in other words, we should add to total compensation only the difference between social benefits provided by government and the tax contributions that partly pay for them. I’ll call this difference “net government social benefits.” Since 1970, these net benefits have increased almost four times as fast as wage and salary income.

Figure 1 compares Foster and Magdoff’s results with the results we get when we look at total compensation and when we also add in net government social benefits. Between 1960 and 2009, the wage and salary share of GDP fell by 7.0 percentage points, but the total compensation share fell by only 0.8 points, and the total-compensation-plus-net-government-social-benefits share rose by 5.5 points. Between 1970 and 2009, the wage and salary share of GDP fell by 8.3 percentage points, but the total compensation share fell by only 3.9 points, and the total-compensation-plus-net-government-social-benefits share rose by 1.4  points.¹

Click here to view Figure 1

I do not mean to imply that working people are living well. That isn’t the case. But the reason it isn’t the case doesn’t have to do with the alleged but nonexistent decline in the share of national income they receive. It has to do with a sharp decline in GDP growth that began in the mid-1970s and has more or less persisted ever since. Since GDP isn’t growing fast and working people are getting a close-to-constant share of it, their incomes aren’t growing fast.

Workers’ Non-Falling Real Compensation

Foster and Magdoff then write that the fall in the wage-and-salary share of GDP

“reflected the fact that real [i.e., inflation-adjusted] wages of private nonagricultural workers in the United States (in 1982 dollars) peaked in 1972 at $8.99 per hour, and by 2006 had fallen to $8.24 (equivalent to the real hourly wage rate in 1967), despite the enormous growth in productivity and profits over the past few decades.”

One problem with this statement is that, once again, Foster and Magdoff are looking only at the trend in wages and salaries, not at the trend in the total compensation of a working population that is receiving a larger and larger share of its compensation after retirement. Another problem is that there are different ways of adjusting for inflation. Not surprisingly, Foster and Magdoff have chosen the method that makes the growth in real pay seem smaller. To remove the effect of the portion of pay increases that is due to inflation, they use the Consumer Price Index for urban wage earners (CPI-W). A readily available alternative is the Personal Consumption Expenditures (PCE) price index that the government publishes along with the GDP. I’m not suggesting that one price index is better than another. My point is rather that Foster and Magdoff should have informed readers of the different methods of inflation adjustment and the different results to which they lead.

A third problem is that they use pay data for “production and nonsupervisory workers” in the private sector. Several years ago, the U.S. government announced that it would discontinue publication of this series (though it later decided not to do so), partly because the category didn’t make much sense to the people who answered the government’s survey questions. As the Department of Labor noted in 2005,

“the production and non-supervisory worker hours and payroll data have become increasingly difficult to collect, because these categorizations are not meaningful to survey respondents. Many survey respondents report that it is not possible to tabulate their payroll records based on the production/non-supervisory definitions.”

As I will discuss a bit later, the production/nonsupervisory data also lead to a very peculiar conclusion concerning pay inequality. In light of that problem and the doubtful quality of the survey responses on which these data are based, it is dangerous to draw conclusions from them.

For this reason, Figures 2a and 2b also consider compensation data for all U.S. workers in the private sector. Data on their wages and salaries are available only for the period since 1976. Data on their total compensation are available only for the period since 1980, and since total compensation data for production/nonsupervisory workers are not available at all, it is difficult to say what happened to total compensation during the 1972-2006 period with which Foster and Magdoff are concerned. But I have taken my best guess.²

Figure 2a uses the PCE index to estimate real (i.e., inflation-adjusted) compensation. This adjustment procedure leads to the unambiguous conclusion that real compensation has risen, not fallen, whether we consider wages and salaries or total compensation, and whether we consider just production and nonsupervisory workers or private-sector workers. Since 1972, production and nonsupervisory workers’ real wages and salaries have risen by 12%, and their real total compensation has risen (according to my estimate) by 25%. Real wages and salaries of private-sector workers as a whole have risen by 22% since 1976, and their real total compensation has risen by 35% since 1980.

Figure 2b adjusts for inflation by using the CPI-W. Once again, when we focus on total compensation, we find that workers’ pay has risen. Real total compensation of all private-sector workers has risen by 25% since 1980 and (my estimate of) real total compensation of production and nonsupervisory workers has risen by 8% since 1972. Real wages and salaries of all private-sector workers have also risen, by 7% since 1976. The only series that declines is the one for the wages and salaries of production and non-supervisory workers, which has fallen by 4% since 1972. This is the series that Foster and Magdoff chose to present.

The upshot of the above analysis is that, in order to arrive at the conclusion that workers’ real pay has declined, one must do all of the following:

(1) look only at wages and salaries, not the more meaningful total compensation figures;

(2) use the CPI-W to adjust for inflation, while ignoring the PCE, the use of which yields the opposite conclusion; and

(3) look only at the production and nonsupervisory workers series, which is of doubtful validity, and not (also) the figures for all workers.

But even when one does all this, one still cannot obtain the result that the pay of U.S. workers has fallen in real terms during the era of “financialized capitalism”–i.e., since the 1980s. Real wages and salaries of nonproduction and supervisory workers have risen by 9% since 1981, the year in which Ronald Reagan took office.

Click here to view Figures 2a & 2b

It might help to comment here on the notion that the pay of regular workers, working-class workers, has fallen or stagnated. If we consider total compensation­­–which is the pay measure that matters–there is little evidence of a decline or stagnation. Assuming for the moment that the figures for production and nonsupervisory workers validly measure regular workers’ compensation, the estimates in Figures 2a and 2b suggest that their real total compensation is higher now than in the early 1970s. But it is only slightly higher when the CPI-W is the index used to adjust for inflation. So can we say that the rise in real compensation of all workers is mostly due to a rise in the compensation of managers and professionals?

It is difficult to answer this, in part because of the dubious validity of the data on compensation of production and nonsupervisory workers. One problem, noted above, is that the quality of survey information about such workers is questionable. Another is that the production and nonsupervisory workers series suggests that inequality of pay has not increased since 1986, a conclusion very much at variance with other data.

If we look at the period between 1986 and 2009 in Figures 2a and 2b, we see that production and nonsupervisory workers’ wages and salaries, and wages and salaries of workers as a whole, have increased by the same percentage. This implies that the wages and salaries of the better-paid “nonproduction” and “supervisory” employees increased by the same percentage as well. So the relative gap between better-off and less-well-off workers didn’t increase–if we assume that the data on production and nonsupervisory workers are valid.

However, other data published by the same government agency, the Bureau of Labor Statistics (BLS), flatly contradict this conclusion. A very large majority of private-sector “nonproduction” and “supervisory” employees work in “management, business, and financial occupations.” And a very large majority of the rest work in “professional and related occupations” or “office and administrative support occupations” in the manufacturing, mining, and construction industries. As Table 1 indicates, the increase in the wages and salaries of these groups was considerably greater than the increase for all workers–between 4.6 and 7.2 percentage points greater if we use the CPI-W index to adjust for inflation, and between 5.0 and 7.8 percentage points greater if we use the PCE index. Since the overwhelming majority of “nonproduction” and “supervisory” employees are in one of these occupations, their wages and salaries must have increased by much more than those of production and nonsupervisory workers. But if one accepts this conclusion one has to accept that the data on production and nonsupervisory workers are invalid, or, at minimum, that we have to take them with a pillar of salt.

Click here to view Table 1

The underconsumptionist camp is therefore faced with the following dilemma. If it wants to use the production and nonsupervisory worker data, in order to say that regular workers’ total compensation has increased only slightly since 1972, then it must also accept that inequality of pay has not increased over the last 24 years. If it wants to say that such inequality has increased, it must reject the production and nonsupervisory worker data and accept the consequence that it lacks valid evidence that the total compensation of regular workers has increased only slightly since the early 1970s. It can’t have it both ways.

I distrust the production and nonsupervisory worker series and accept the data in Table 1 which indicate that inequality of pay has increased. But these data also indicate that it would be highly misleading to present the rise in inequality of pay as a matter of well-off managers and professionals further enriching themselves at the expense of an undifferentiated mass of regular workers. The first full year for which there are data on pay in particular occupations and industries is 1986. Since then, total compensation of office and administrative support (i.e., clerical and secretarial) workers–who are disproportionately women and who are not typically well-paid–has risen faster than total compensation of managers and professionals. And total compensation of workers in the relatively low-paid service-providing industries has risen by almost as much. Since 1988, the first full year for which there are data for workers in utilities industries, their total compensation has also increased faster than total compensation of managers and professionals.

So, although the data suggest that inequality of pay has increased, Foster and Magdoff’s talk of “an accelerated class war against workers” is an overgeneralization–an overgeneralization that does more to fuel resentment than to account for the phenomena. And it is an agent-centered overgeneralization that diverts attention from the economic laws of capitalism that are the main underlying cause of the rise in inequality of pay.³

Production for the Sake of Production

Finally, I turn to the lynchpin of the underconsumptionist theory of economic crisis, which is that economic crises are ultimately rooted in things like a fall in wages or a fall in workers’ share of national income. We’ve seen that they haven’t fallen, but let’s set that aside for now and focus on the notion that if workers do worse, then the economy will also do worse.

This notion seems rather strange, since we’re talking about a capitalist economy here. When workers’ pay is reduced, what they lose is of course a gain to the companies that employ them, extra profit, and profit is the fuel that powers the capitalist system. What creates problems for the system isn’t a rise in the rate of profit, but a fall.

However, the underconsumptionist camp points to the fact that workers, being less well off than managers, owners, etc., spend a bigger fraction of their incomes on consumer goods and services. So, if workers’ pay and/or share of income are falling, personal consumption demand will tend to fall. This would indeed reduce profits, and it could set the stage for an economic crisis or recession, unless the decline in personal consumption demand is offset by a rise in another component of demand.

Let’s consider productive consumption demand, which we usually call “investment” demand nowadays. Investment demand consists of spending by businesses to build things like factories, malls, and offices, as well as purchases of machinery, other equipment, and software. So if investment demand rises, and the rise is large enough to offset the fall in personal consumption demand, a decline in wages or workers’ share of income does not lead to a decline in total demand, and it therefore does not lead to an economic crisis or recession.

But underconsumptionists claim that investment demand cannot grow faster than personal consumption demand in the long run. Why not? Well, they say, if businesses invest in new factories and machines and so on, and use them to produce more stuff, they then have to sell the stuff–ultimately to people. But why is that? Why can’t they sell to each other? For instance, why can’t mining companies sell iron to companies that use the iron to make steel? And why can’t the steel companies sell the steel to companies that use it to build mining equipment. And why can’t the companies that build mining equipment sell it to the mining companies? And so on and so forth. (Of course, I’m not talking about a system without any production of consumer goods, just one in which production of consumer goods and the demand for them rise less rapidly than production of and the demand for investment goods.)

The underconsumptionist camp has never managed to provide a real answer. The best they’ve done is to assert that, in the long run, “the process of production is and must remain, regardless of its historical form, a process of producing goods for human consumption.” [Paul M. Sweezy, The Theory of Capitalist Development, New York, Monthly Review Press, 1970 [1942], p. 172]. This statement isn’t meant to deny that investment goods are produced, or that some investment goods are used to produce more investment goods. The point is rather that the process ultimately results in more shoes and iPods, and only as much additional investment goods as are needed to produce more shoes and iPods–not more iron, steel, and mining equipment that doesn’t result in additional shoes and iPods. However, the underconsumptionist camp hasn’t provided any evidence or argument to support its assertion that production is always production for human consumption. It’s just a dogma.

And it’s a dogma that’s factually incorrect. At least it’s factually incorrect in the U.S. case. Figure 3 shows the growth of real (inflation-adjusted) personal consumption demand and real investment demand by private businesses on structures, equipment, and software, as well as the growth of real GDP. Everything fell in 2009 because of the recession. But in the three-quarters of a century before that, real investment demand grew 73-fold, while GDP grew only 18-fold and personal consumption demand grew only 15-fold. So investment demand grew four times as rapidly as GDP and almost five times as rapidly as personal consumption demand. (For further discussion, see the Appendix, which follows the endnotes.)

Click here to view Figure 3

What was that about investment demand not being able to grow faster than personal consumption demand in the long run? What was that about all production ultimately being production for human consumption? How long do we have to wait? Until, in Rosa Luxemburg’s famous phrase, “the extinction of the sun”?

The distinguishing feature of capitalism, that which makes it different from all prior modes of production, is that it is a system of “production for the sake of production,” not a system of “production for the sake of human consumption.” In other words, production of means of production, investment goods, grows faster than production of consumer goods. What makes this possible is that, as the above data indicate, demand for investment goods also grows faster than demand for consumer goods.

This was the core of Marx’s argument against what is now called “trickle-down” economics–the notion that what’s good for General Motors ends up being good for working people as well–which is also based on the dogma that all increases in demand are “ultimately” increases in the demand for consumer goods (see Capital, vol. 1, chap. 24, section 2). And the primary reason why Raya Dunayevskaya held that Stalinist Russia was a (state-)capitalist society is that its economic development was based firmly on capitalism’s distinguishing feature, production for the sake of production. Just as in the “West,” investment demand in Russia grew faster than personal consumption demand. The latter actually fell for a long time, and the lives of tens of millions of peasants and workers were ruined and shortened. (See Dunayevskaya’s Marxism and Freedom, chap. 13 for a discussion of Russia, and her Rosa Luxemburg, Women’s Liberation, and Marx’s Philosophy of Revolution, chap. 3 for a discussion of “production for the sake of production.”)

___________________________________

Notes

1. I have counted all net government social benefits as income of workers and working-class people because the data that would be needed to apportion it between them and other recipients are not available. The overwhelming majority of the net benefits do accrue to workers and working-class people; on average, about three-fourths of the net benefits consist of assistance to the poor and to low-income and disabled workers, and net retirement, disability, and veterans’ benefits make up the majority of the remaining net benefits. Because my estimates overstate workers’ income only slightly, it cannot plausibly be argued that their share of GDP has declined by any significant extent since 1970.
2. To obtain my estimates, I first computed the ratio of total compensation to wages and salaries for all private-sector workers since 1980, estimated the trend in the ratio, and “backcasted” it to 1964. The resulting series measures the growth of their total compensation in relationship to their wages and salaries. I then assumed that production and nonsupervisory workers’ total compensation grew in relationship to their wages and salaries at the same rate, and therefore multiplied their wages and salaries by this ratio to obtain an estimated index of their total compensation.
3. Since capitalism is a system of value production, the price that a company can get for its product is governed by the socially necessary cost of the product. A company can’t just pass unnecessary costs on to the purchaser. So capitalists have to eliminate unnecessary costs, especially when the going gets tough. Where it got toughest in the 1970s and 1980s, and where unnecessary costs were the greatest, was in the goods-producing industries. Their workers were disproportionately male and unionized, and they were relatively well paid. So production moved to non-unionized areas here and abroad, unions were busted, giveback contracts became common, and so forth. This process largely accounts for the disparity between compensation growth in office and administrative support occupations and in goods-producing industries, and the increased supply of service and sales workers that resulted from the relative loss of goods-producing jobs largely accounts for the slow growth of compensation in these occupations.

Appendix

The investment data in Figure 3 exclude government investment spending, spending to construct new homes, and investment spending on imports and exports. Between 1933 and 2008, real government investment spending grew faster than government consumption spending. I excluded spending on the construction of new homes because the status of such spending is ambiguous. The U.S. government classifies it as investment spending, but, more often than not, people purchase homes principally in order to consume the “housing services” they provide. It is difficult to draw any conclusion about the remaining component of GDP, the difference between exports and imports, because the U.S. government’s data for them begin only with 1967 and because the statistical tables fail to break down spending on some imports and exports, like cars, into investment spending and consumption spending.

The investment figures presented in Figure 3 are figures for “gross” investment, i.e., investment before subtraction of depreciation. It is not possible to estimate the growth of “net” (post-depreciation) investment by private businesses on structures, equipment, and software since 1933 because it was negative in that year. It was also negative throughout the whole 1931-1944 period, except in 1937, 1940, and 1941. Between 1945 and 2008, real net private investment on structures, equipment, and software grew 7.0 times as fast as real personal consumption spending, and 9.9 times as fast as real GDP. But because net investment is extremely volatile, the amount by which it increased between a certain year and 2008 is greatly affected by the choice of the starting year. If I had chosen 1930, 1937, 1940, 1941, or 1946 as starting year, the results would have been quite different. Real net private investment would have grown between 1.5 and 93.4 times as fast as real personal consumption spending and between 1.6 and 89.5 times as fast as real GDP. So the long-run comparisons based on the net investment figures are not particularly informative.

In nominal terms, i.e., when no adjustment is made for inflation, gross private investment on structures, equipment, and software grew 3.0 times as fast as personal consumption spending, and 2.6 times as fast as GDP, between 1933 and 2008. Net private investment on structures, equipment, and software grew 2.4 times as fast as personal consumption spending, and 3.1 times as fast as GDP, between 1945 and 2008.

But why have I been concerned to begin my analysis with 1933, or as close to it as possible? In this year, the trough of the Great Depression, investment spending was exceedingly low. Am I not cherry picking the data and thereby exaggerating the increase in investment demand over time? No. This starting point is the right one to select in order to test what underconsumptionists claim. They regard the Depression as a return to equilibrium, the point at which growth of means of production, which had temporarily outstripped growth of personal consumption, was forcibly brought back in line. Because 1933 or thereabouts is an equilibrium, they would predict that the relationship between investment demand and consumption demand that existed in or around 1933 is the relationship that is sustainable in the long run. In other words, they would predict that any subsequent increases in investment relative to personal consumption would be only be temporary and self-negating, not a permanent feature of the post-Depression economy. In fact, underconsumptionists such as Alvin Hansen did predict a return to Depression conditions after World War II, and Paul A. Baran and Paul M. Sweezy argued in 1966 (Monopoly Capital, Harmondsworth, England: Penguin, p. 177) that “if the military budget were reduced to 1939 proportions, unemployment would also revert to 1939 proportions.”

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.
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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.

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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

Working people need to mobilize in order to protect themselves during the economic crisis.  But winning concessions from the government is not a solution to the crisis or pathway to a new boom.  Consider the notion that the crisis is due to an upward redistribution of income that supposedly has depressed demand. This doesn’t hold water, and it’s dangerous as well.

* * *

As people begin to search for an explanation of what has gone wrong and a different way of life, we need to be prepared to meet them halfway with a clear understanding of how capitalism works; of why, when push comes to shove, it cannot work for the benefit of the vast majority; and of what exactly must be changed in order to have a viable and emancipatory socialism. Rather than slogans, they need genuine theories and concepts that provide real understanding.

One thing that’s important for people to understand is that there’s nothing inherently progressive about the new shift away from the “free-market.” Yes, during the New Deal, intervention and regulation were accompanied by some progressive social welfare policies, but that was because a gigantic mobilization of working people forced the U.S. government to make concessions in order to save the capitalist system. If it can save the system without giving such concessions, increased intervention and regulation will be just that–intervention and regulation, period. We have seen that the bailout money isn’t there to make our lives better.

As in the 1930s, working people need to mobilize in order to protect themselves during the crisis as well as they can. By getting their demands met, they will help themselves in the short run.  We should be aware, however, that any concessions they wrest from the government are not a solution to the economic crisis, not a pathway to a new boom.

For instance, there’s a notion floating out there that the crisis is due to an upward redistribution of income that supposedly has depressed demand. Economically, this notion (undeconsumptionism) doesn’t hold water. The rich also spend. And companies spend their profits to construct factories and malls, purchase equipment, and so on. This isn’t consumer demand–it is investment demand–but demand is demand. Even more importantly, capitalism is a profit-driven system, so what is good for capitalism–what’s good for the capitalist system, as distinct from the majority of people living under it, is high profits, not low profits. It needs to be understood that there is no solution to this dilemma within the confines of capitalism system.

I’m not advocating some abstract revolutionism. Yes, during the economic slump, working people will certainly need to struggle for downward redistribution–concessions that protect their incomes and homes and jobs–but it is important not to fall prey to the illusion that this is helping “the economy,” much less a path out of the crisis. Concessions do not restore profitability, but as long as we remain within the confines of the capitalist system, a new boom will require the restoration of profitability. So downward redistribution of income will tend to destabilize the system even further. It is very dangerous to sow illusions that a fairer division of the pie will solve the crisis. What if the pie does get divided more fairly, and the actual effect of this is to reduce profitability further, send the economy into a depression, and trigger renewed panic in the worlds’ financial markets? The stage will have been set for a virulent reaction, perhaps even fascism. Working people need to be prepared to confront that, but they will not be prepared if they’ve been led to believe the trickle-up notion that what’s good for the working class is good for capitalist America.

So working people need to fight like hell for concessions, while at the same time understanding that these concessions will certainly not solve the economic crisis, and that the only real solution that will benefit them is a new socioeconomic system, socialism, in which what’s good for people is what’s good for the economy, rather than the current system in which the interests of people and the interests of “the economy” are antagonistic.

One Comment on “How (Not) to Respond to the Economic Crisis”

1. 1Gerald Keaney said at 4:39 am on May 7th, 2009:Cool, but a couple of things:1. How is government intervention a “shift away from the free-market ?” Think of Soviet intervention: Wanna buy some guns? cars? vodka? We’ll even throw in some blonds. Governments are always corporate.2. May be a bit less controversially, class struggle for wages will move the economy away from reliance on “fictitious capital,” and so could save the market from a bit of toxic waste the short term. Marx reckons you force economic change as better-paid workers increase the demand for better food and clothing etc, and the economy has to restructure to meet the need. Successful wage struggle means increasing worker control of the economy, and in the shorter term saner economics. (In the longer term hopefully it means real communism).