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