the profit rate in the presence of financial markets
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THE PROFIT RATE IN THE PRESENCE OF FINANCIAL MARKETS
Alan Freeman 27 April 2013
THE DISCUSSION ON THE US PROFIT RATE Most Marxists claim it is has been rising
Dumenil-Levy, Mohun, SSA, Moseley Only a small number maintain it is
falling Kliman, Freeman based on TSSI reasoning Brenner based on mass of empirical
evidence But all Marxists are discussing it – not
just the defenders of Marx
WHY THIS DISCUSSION? WHY NOW?
Not ‘Zombie Marxism’ Not about the ‘pugnacious’ Kliman and Freeman Surrogate debate about the US economy
Marxism is saddled with a theory that the US was doing wonderfully until 2008
Some even maintain it still is! Also saddled with theory it is ‘top dog’ Actually in long-run decline since the early 1970s Never consolidated role as ‘planetary ruler’
The only indicator of ‘health’ is the ‘rate of profit’ But is the rate of profit being measured correctly?
THE STRANGE CASE OF THE UK PROFIT RATE
0%
5%
10%
15%
20%
25%
30%
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
Corporate Net Surplus/Corporate Capital stock
Private NFC net surplus/PNFC stock
THE REAL STATE OF THE UK ECONOMY Real GDP growth
1949-1973 = 3% average; >1974 = 2.1% average 2 years –ve growth in all three downturns >1974
Unemployment never below 1 million since 1974
Investment/GDP Declined continuously 1969-1981 Negative in 1981, 1993 and ever since 2009 Rises continuously while ‘profit rate’ falls Falls while ‘profit rate’ rises
WHY THE UK MATTERS
In the US, the ‘rate of profit’ appears to fall and then (according to one school) appears to rise
In the UK, the ‘rate of profit’ rises unambiguously from 1973
There is no room for a ‘story’ that it had a crisis in 1974, then recovered, then went into a ‘crisis of neoliberalism’ EITHER the profit rate has no bearing on the health
of the economy (so why cite it as evidence of US health?)
OR it is being calculated wrong
DISPUTES ABOUT THE NUMERATOR
What is the right measure of wages? Exclude supervisory workers? Exclude social benefits? Etc etc etc
What is the right measure of profit? Before tax or after With or without the financial sector Corporate sector or whole economy? Etc etc etc
But what about Capital? (1) Temporalism – use historic not current cost
Does not deal with the UK cost (2) Are we including everything we should?
Note that (1) and (2) are complementary, not opposed
WHAT IS CAPITAL?
All Marxists regard capital as fixed assets – machinery, buildings, and so on for Marx, capital is all commodities including money.
In a crisis, what happens? Capital accumulates as money – now, as credit-money
Credit money competes directly with productive capital as a claim on the total surplus If we include this in the capital used when calculating the
rate of profit, it falls unambiguously Not a ‘diversion’ from ‘productive’ to ‘financial’
The standard Marx-Keynes explanation – idle money Credit-money is the form taken by money in this crisis
NET PURCHASES OF FINANCIAL ASSETS, UK
0
100
200
300
400
500
600
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
£million
Net purchases of financial assets
WHAT IF UK FINANCIAL ASSETS ARE COUNTED AS CAPITAL?
0%
5%
10%
15%
20%
25%
0%
20%
40%
60%
80%
100%
120%
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
Corporate Value Added/Corporate Capital Stock 'Denominator includes securities (right scale)
THE CORRECTED US PROFIT RATE
0%
2%
4%
6%
8%
10%
12%
14%
0%
5%
10%
15%
20%
25%
30%
35%
1946
19
49
1952
19
55
1958
19
61
1964
19
67
1970
19
73
1976
19
79
1982
19
85
1988
19
91
1994
19
97
2000
20
03
2006
(Unadjusted) Operating Surplus of Private Enterprises/Fixed Assets of Private Enterprises [left scale](Corrected) Operating Surplus of Private Enterprises/(Fixed Assets of Private Enterprises plus Marketable Financial Securities owned by US agencies and persons) [right scale]
r=0.1235e-0.014t
(annual decline of 1.4%)
predicts with R2 = 0.9559.
WHY IT MATTERS: THE CRISIS THAT WON’T GO AWAY Now in the seventh year of this crisis.
What is this not? Not a ‘normal’ crisis Not a ‘banking’ crisis, Not the result of ‘financialisation’ Not a ‘blip’ Not a crisis of a capitalism that
‘recovered’ in 2000
AN UNCOMFORTABLE TRUTH
The ‘left’ has no theory to explain this crisis ‘Blip’ theories – a one-off event with no past ‘Recovery’ theories – it was all going fine till 2007 ‘Astrological’ theories - it’s all part of a great cycle
This leads to ideas that simply are not credible That capitalism has no real problems That capitalism is doing too well for its own good
(‘overconsumption’) That the only problem is banking (‘financialisation’) The eternal search for the next hegemon
A CRISIS OF ACCUMULATION
The critical failure is a failure of investment. Why?
Marx, Volume 1 The principal long-term tendency of capitalism is
the expansion of the constant element of capital in relation to the variable
The rate of profit is no more nor less than an index of this tendency
This expresses itself in a range of crisis tendencies The cause is that capital cannot actually expand
without limit, but is compelled to do so.
MARX: THE SPECTRE HAUNTING MARXISM 1936-1979: Marxism without Marx
“We don’t really need Marx at all” 1979-2000 Marxism overturns Marx
“Marx simply does not work” 2000-2008 Marxism forgets Marx
“Capitalism has recovered” 2008-2013
“oops”
WHAT’S AT STAKE?
This is a very critical time Crisis in advanced countries from which it cannot
recover without ‘subverting’ private capital It will try anything instead (austerity etc) but this
will not work Sooner or later, either
the working class has to put forward and win alternatives or
capitalism will look for methods of state intervention that can ensure the working class will be prevented from asserting itself
WHAT CAN WE AGREE ON?
Most basic agreement required is Long-term decline Rooted in accumulation No self-restoration Marx has a legitimate account of it Which contains superior explanations to
anything ‘Marxism’ has come up with
JOIN THE DEBATE!
Journal of Australian Political Economy Discussion opens May 15th
All welcome Try to be constructive If you can’t be constructive, be
reasonable If you can’t be reasonable….
Don’t ignore the facts
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