Archive for the ‘Falling Rate of Profit’ Category

Three Books on Marxist Political Economy (Pt 6)

May 21, 2017

Shaikh’s theory of money

Shaikh deals with money in two chapters—one near the beginning of “Capitalism” and one near the end. The first is Chapter 5, “Exchange, Money, and Price.” The other is Chapter 15, “Modern Money and Inflation.” In this post, I will concentrate on Shaikh’s presentation in Chapter 5. In Chapter 15, Shaikh deals with what he terms “modern money.” I will deal with his presentation in this chapter when I deal with Shaikh’s theory of inflation crises that is developed in the last part of “Capitalism.”

In Chapter 5, Shaikh lists three functions of money—considerably fewer than Marx does. The three functions, according to Shaikh, are (1) money as a medium of pricing (p. 183), (2) money as a medium of circulation, and (3) money as a medium of safety. Shaikh deals with money’s function as a means of payment under its role as a means of circulation. The problem with doing this is that money’s role as a means of payment is by no means identical to its role as a means of circulation and should have been dealt with separately.

Anybody who has studied seriously the first three chapters of “Capital” Volume I will be struck by how radically improvised Shaikh’s presentation here is compared to that of Marx. It is in the first three chapters of “Capital” that Marx develops his theory of value, exchange value as the necessary form of value, and money as the highest form of exchange value. He does this before he deals with capital. Indeed, Marx had to, since the commodity and its independent value form, money, is absolutely vital to Marx’s whole analysis of capital.

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Three Books on Marxist Political Economy (Pt 3)

February 26, 2017

The election of Donald Trump as the 45th president of the United States, combined with the rise of similar right-wing demagogues in Europe, has prompted a discussion about the cause of the decline in the number of relatively high-wage, “middle-class,” unionized industrial jobs in the imperialist core countries. One view blames globalization and bad trade deals. The European Union, successor to the (West) European Common Market of the 1960s; the North American Free Trade Area; and the now aborted Trans Pacific Partnership have gotten much of the blame for the long-term jobs crisis.

This position gets support not only from President Trump and his right-hand man Steve Bannon and their European counterparts on the far right but also much of the trade-union leadership and the “progressive” and even socialist left. The solution to the problems caused by disappearing high-paid jobs in industry, according to economic nationalists of both right and left, is to retreat from the global market back into the safe cocoon of the nation-state. Economic nationalists insist that to the extent that world trade cannot be entirely abandoned, trade deals must be renegotiated to safeguard the jobs of “our workers.”

Most professional economists have a completely different explanation for the jobs crisis. They argue that changes in technology, especially the rapid growth of artificial intelligence in general and machine-learning in particular, is making human labor increasingly unnecessary in both industrial production and the service sector. Last year—though it now seems like centuries ago—when I was talking with one of this blog’s editors about possible new topics for future blogs, a suggestion was made that I take up a warning by the famous British physicist Stephan Hawking that recent gains in artificial intelligence will create a massive jobs crisis. This is a good place to examine some of the subject matter that might have been in that blog post if Brexit and Donald Trump had been defeated as expected and the first months of the Hillary Clinton administration had turned out to be a slow news period.

It is a fact that over the last 40 years computers and computer-controlled machines—robots—have increasingly ousted workers from factories and mines. The growth of artificial intelligence and machine learning is giving the “workers of the brain” a run for their money as well. This has already happened big time on Wall Street, where specially programmed computers have largely replaced humans on the trading floors of the big Wall Street banks. No human trader can possibly keep up with computers that can run a complex algorithm and execute trades based on the results of the computation in a fraction of a second.

Wall Street traders are not the only workers of the brain whose jobs are endangered by the further development of AI. Among these workers are the computer programmers themselves. According to an article by Matt Reynolds that appeared in the February 22, 2017, edition of the New Scientist, Microsoft and Cambridge University in the UK have developed a program that can write simple computer programs.

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Three Books on Marxist Political Economy (Pt. 2)

November 6, 2016

Profit of enterprise and monopoly profit

As we saw last month, Marx’s prices of production are not identical to the marginal cost = equilibrium prices of “orthodox” bourgeois microeconomics. The biggest difference is that prices of production include not only the cost price and interest on capital but also the profit of enterprise. Modern bourgeois microeconomic orthodoxy holds that in “general equilibrium” any profit in excess of interest will be eliminated by “perfect competition.”

In contrast, Marx—and the classical economists before him—did not believe that competition had any tendency to eliminate the profit of enterprise. Instead, they believed that in addition to interest, there is an additional profit of enterprise that is appropriated by the commercial and industrial capitalists. Profit of enterprise is defined as total profit minus interest. The profit of enterprise must not be confused with monopoly profits. The only monopoly necessary for the profit of enterprise is the monopoly of the means of production by the capitalist class.

True monopoly profits do exist. But within the classical-Marxist tradition, monopoly profit is an addition to the profit of enterprise. Anwar Shaikh affirms that monopoly profits exist but he has little to say about them in his “Capitalism.” Instead, Shaikh is interested in “real competition,” which quickly eliminates any profit beyond the profit of enterprise.

Shaikh’s failure to analyze monopoly profit is in full accord with his rejection of the Monthly Review and heterodox post-Keynesian schools, which often treat any profit, or at least any profit beyond interest, as monopoly profit.

Shaikh’s lumping together of these two quite different theories of a monopoly capitalist stage—the Hilferding-Lenin and the “Monopoly Capital” theories—is in my opinion a legitimate criticism of Shaikh’s “Capitalism” and his “fundamentalist school” in general. In “Monopoly Capital,” Paul Baran and Paul Sweezy were quite clear that they were not simply repeating or writing yet another popularization of the Hilferding-Lenin theory of monopoly capitalism. They found that theory inadequate and developed another, quite different theory of monopoly capitalism.

I believe that Shaikh is correct in seeing the influence of the Leon Walras-inspired theory of perfect competition in “Monopoly Capital” and other theories of modern capitalism influenced or inspired by Baran and Sweezy’s “Monopoly Capital.”

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Three Books on Marxist Political Economy

October 9, 2016

The year 2016 will be remembered for an exceptionally toxic U.S. election cycle. More positively, it will also be remembered for a series of new books on Marxist political economy. Among these, two stand out. Oxford University Press published “Capitalism, Competition and Crises” by Professor Anwar Shaikh of the New School. Monthly Review Press published John Smith’s “Imperialism in the Twenty-First Century.” Smith, unlike Shaikh, has spent most of his adult life as a political activist and trade unionist in Britain.

This year also marks the 50th anniversary of the publication of Paul Baran and Paul Sweezy’s “Monopoly Capital.” Monthly Review writers, led by editor John Bellamy Foster, treat this book as a modern-day classic playing the role for monopoly capitalism that Karl Marx’s “Capital” played for classical competitive capitalism. Monthly Review magazine devoted its special two-month summer edition to marking the anniversary.

Shaikh’s “Capitalism,” published 50 years after “Monopoly Capital,” can be viewed, at least in part, as the “anti-Monopoly Capital.” In sharp contrast to the Monthly Review school, Shaikh has held throughout his career that the basic laws of motion governing today’s capitalist economy are the same as those that governed the capitalism of Adam Smith, David Ricardo and Marx. This is what Shaikh attempts to prove in his “Capitalism” and what Baran and Sweezy denied. We can expect that Shaikh’s “Capitalism” and Baran and Sweezy’s “Monopoly Capital” will be dueling it out in the years to come.

Monopoly stage of capitalism, reality or myth?

Shaikh rejects the idea that there is a monopoly stage of capitalism that succeeded an earlier stage of competitive capitalism. He rejects Lenin’s theory of imperialism, which Lenin summed up as the monopoly stage of capitalism. According to Shaikh, the basic mistake advocates of this view make is to confuse real competition with “perfect competition.”

Real competition, according to Shaikh, is what exists in real-world capitalism. This was the competition Adam Smith, Malthus, Ricardo and Marx meant when they wrote about capitalist “free competition.” The concept of perfect competition that according to Shaikh is taught in university microeconomic courses is a fiction created by post-classical bourgeois marginalist economists. Nothing, according to him, even approximating perfect competition ever existed or could have existed during any stage in the development of capitalist production.

In this month’s post, I will take another look at Baran and Sweezy’s “Monopoly Capital” and contrast it with Shaikh’s “Capitalism.” I will hold off on reviewing John Smith’s book, since his book is in the tradition of Lenin’s “Imperialism” published exactly 100 years ago, which Shaikh considers severely flawed. There are other important books on Marxist economics that have recently been published, and I hope to get to them next year, which marks the 100th anniversary of the Russian Revolution.

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Capitalist Economists Debate ‘Secular Stagnation’ (Pt 5)

September 13, 2015

Rudi Dornbusch predicts unending capitalist expansion

“The U.S. economy likely will not see a recession for years to come,” economist Rudi Dornbusch (1942-2001) wrote in 1998. “We don’t want one, we don’t need one, and, as we have the tools to keep the current expansion going, we won’t have one. This expansion will run forever.”

In the late 1990s, the Internet was making rapid progress. Fueled by various technologies including the digital computer, the transistor and electronic circuit board—the “computer on a chip”—and the GNU/Linux computer operating system, world communications were, and are, being revolutionized. And this technological revolution was no illusion.

For the first time, home computer users could connect to the Internet, which now featured its own graphical user interface called the World Wide Web. No longer was the Internet confined to text but would soon include audio and video files. With such a great technological revolution under way, many capitalist economists—and this was echoed by some Marxists as well—foresaw an era of never-ending capitalist expansion. The Clinton boom of the late 1990s was to be just the beginning.

During the Clinton administration, stocks soared on Wall Street while the rise in the NASDAQ stock index—which lists “high-tech” stocks—seemed to know no limit. Goldman-Sachs economist and financial analyst Abby Joseph Cohen’s (1952- ) predictions of continuing soaring stock market prices drew skepticism from many seasoned stock market veterans, yet she continued to be proved right. Until March 2000, that is. Then things began to go horribly wrong as the NASDAQ index sagged and then crashed.

“Her reputation was further damaged when she failed to foresee the great crash of 2008,” Wikipedia writes. “In December 2007, she predicted the S&P 500 index would rally to 1,675 in 2008. The S&P 500 traded as low as 741 by November 2008, 56% below her prediction. On March 8, 2008, Goldman Sachs announced that Abby Joseph Cohen was being replaced by David Kostin as the bank’s chief forecaster for the U.S. stock market.” Although Internet technology continued to make great strides and stock markets both crashed and soared, the world capitalist economy entered into a period of slow growth—interrupted by the the turn-of-the-century recession that included the NASDAQ crash that Cohen missed and then the much deeper “Great Recession.”

Indeed, the world economy has, since Dornbusch made his prediction of unending capitalist prosperity, seen the worst growth figures since the 1930s Depression. The situation has gotten so bad that some capitalist economists have revived the term “secular stagnation,” last widely used among economists in the late 1930s. What did Cohen and Dornbusch and so many others miss?

They were right about the technological revolution. They left out only one little thing: the contradictions of the capitalist mode of production. But perhaps we shouldn’t be too hard on them. Though both Dornbusch and Cohen were/are highly trained economists, they didn’t learn about the contradictions of capitalism in their university studies. It wasn’t part of their course work. For that, they would have had to turn to the work of Karl Marx, and that they apparently neglected to do.

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Capitalist Economists Debate ‘Secular Stagnation’ (Pt 2)

June 21, 2015

Recently, I have been looking at Thomas Piketty’s book “Capital in the Twenty-First Century.” Piketty, a French bourgeois economist, created a sensation by pointing out that over the last 45 years a growing proportion of national income—wages plus surplus value in Marxist terms—has been going to profit at the expense of wages. Piketty is alarmed that if this trend isn’t reversed capitalism will be seriously destabilized.

The title of his book is, of course, inspired by Marx’s great work “Capital,” though it predictably rejects Marx’s anti-capitalist revolutionary conclusions. Naturally, I was interested in what Piketty had to say about Marx.

What I found striking was that Piketty did not understand Marx at all. The reason is that he views Marx through marginalist lenses. Essentially, Piketty treats Marx as a fellow marginalist. Marx’s theory of value and surplus value, so completely at odds with the marginalist theory of value and surplus value, is literally beyond Piketty’s comprehension.

In examining the current debate about “secular stagnation” among economists like Larry Summers and Ben Bernanke, we must never forget how deep the gulf between their economic theories and Marxism really is. This is true even when their terminology is similar. This month, I will contrast the theories of two economists of the 20th century, Joseph Schumpeter and John Maynard Keynes, regarding capitalist growth and stagnation. Both men were marginalists, even if not the most “orthodox” ones, and therefore had much more in common with each other than with Marx.

Next month, I will begin to contrast their views with Marx and the views I have been developing in this blog. (1) But before we reach the “Marxist mountains” we will have to slog through the plains of modern bourgeois economics. Only when we begin to ascend into the Marxist mountains will we be able to explore whether any of the ideas of Schumpeter can be integrated into Marxism. I have already dealt with Keynes quite extensively in this blog. (See, for example, six-part series beginning here.)

Joseph Schumpeter (1883-1950) was the most famous marginalist economist to deal with the question of technological changes, or “innovation,” under capitalism. Schumpeter was an Austrian economist in the sense he came from Austria, though he spent his last years in the United States as a professor at Harvard University. He was certainly influenced by the “Austrian economists” as well as other schools of post-classical bourgeois economics current in his day. Like the Austrian economists proper, Schumpeter preferred to communicate his ideas in natural language as opposed to mathematics.

Also like the Austrians, he was a hardcore supporter of capitalism, disliked “socialism”—proposals to reform capitalism in the interest of the workers—and was an opponent of the “Keynesian revolution” in bourgeois economic theory of the 1930s. He was what would be called today a “neo-liberal.” Like the Austrian economists proper, Schumpeter took a dim view of democracy, which he was convinced would inevitably lead to socialism. Yet he was a friend of Paul Sweezy and therefore had a certain influence on the Monthly Review school.

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Che Guevara and Marx’s Law of Labor Value

March 1, 2015

This March marks the 30th anniversary of the election of Mikhail Gorbachev to the post of general secretary of the then-ruling Communist Party of the Soviet Union. At first, the election of Gorbachev seemed to involve a long overdue shift of power to a new generation of Soviet leaders. As we now know, it involved a lot more.

A process was unleashed that was soon to be called “Perestroika.” In the name of “radical economic reforms,” the Soviet planned economy was progressively dismantled. Perestroika ended not only with the restoration of capitalism but the breakup of what had been the Soviet federation.

The combined process of the restoration of capitalism and breakup of the Soviet federation was accompanied by a massive collapse of both industrial and agricultural production. The living standards and life expectancy of the working class plummeted. A generation later, the economies of not only the Russian federation but the economies of the other former republics are yet to recover.

Perestroika led to a wave of capitalist counterrevolutions that in 1989 swept through eastern Europe with the active support not only of imperialism, as would be expected, but also the Gorbachev government. As part of this process, Germany was reunited on a capitalist basis while staying in NATO. The former socialist countries that had been members of the now dissolved Warsaw Pact joined NATO as did the former Soviet Baltic republics of Latvia, Lithuania and Estonia. The Georgia Republic—Stalin’s homeland—is very close to NATO and openly striving to become a formal member, while the new right-wing government in Ukraine has joined NATO in all but name.

Perestroika, therefore, resulted in a massive expansion of the U.S. world empire into the one area of the planet—the Soviet Union and its allies—that remained outside the Empire after World War II.

The destruction of the Soviet Union and the Soviet bloc and their planned economies would have been enough if that was all that was involved. But it was not. The capitalists and their spokespeople everywhere pointed to the Soviet collapse as final proof that “socialism had failed.” The result was a wave of demoralization that spread through a workers’ movement that was already in retreat before the neoliberal capitalist offensive symbolized by such political figures as Ronald Reagan and Margaret Thatcher.

National liberation movements were also pushed back, though the hopes of political figures such as Ronald Reagan and George W. Bush that the old-fashioned colonialism that had dominated the world in 1914 would return—with the difference that the United States and not Britain or France would be the chief colonizer—has not been so easy to achieve.

Between November 7, 1917, when the Bolshevik-led Congress of Soviets seized power, and the election of Gorbachev as general secretary of the CPSU Central Committee in March 1985, the peoples of the oppressed nations got accustomed to the idea that they should be independent and not colonial slaves of the West. Therefore, attempts by the U.S. world empire to push these nations and peoples back into something like pre-1914 colonial relationships have met, to the chagrin of the imperialists, unexpected and growing resistance.

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David Harvey, Michael Roberts, Michael Heinrich and the Crisis Theory Debate

February 1, 2015

Recently David Harvey, the well-known writer on Marxist economics, criticized Marxist economics blogger Michael Roberts’ views on crisis theory. According to Harvey, Roberts has a “monocausal” crisis theory. What Harvey objects to is Roberts’ emphasis on Marx’s theory of the tendency of the rate of profit to fall (FRP for short) as the underlying cause of capitalist crises.

Harvey goes further than simply criticizing Roberts’ FRP-centered crisis theory. He says that he is skeptical that a tendency of the rate of profit to fall even exists. He indicates that he agrees with the views of the German Marxist economist Michael Heinrich on the invalidity of Marx’s theory of the falling rate of profit. Heinrich’s views are developed in “An Introduction of the Three Volumes of Karl Marx’s Capital” (Monthly Review Press, 2004). He elaborated them in this article.

In this work, Heinrich tries to demonstrate that Marx himself in the final years of his life moved away from his own theory of the tendency of the rate of profit to fall. Heinrich holds that an examination of Marx’s manuscripts that form the basis of Volume III of “Capital” show that Marx had moved toward a theory of crises centered on credit. Heinrich accuses Frederick Engels of editing the manuscripts in such a way as to hide Marx’s alleged movement away from an FRP-centered theory of crises to a credit-centered theory of crises.

In his defense of the falling rate of profit school from the criticism leveled by Harvey, Roberts makes an indirect reference to this blog: “… recently, one Marxist economist from the overproduction school called me a monomaniac in my attachment to Marx’s law of profitability as the main/underlying cause of capitalist crises (see Mike Treen, national director of the New Zealand Unite Union, at the annual conference of the socialist organization Fightback, held in Wellington, May 31-June 1, 2014, and a seminar hosted by Socialist Aotearoa in Auckland in November 10, 2014 http://links.org.au/node/4156).”

Mike Treen, a New Zealand Marxist, is indeed an organizer of the New Zealand trade union Unite (not to be confused with the U.S. trade union of a similar name, UNITE HERE, which also organizes fast food and other low-wage workers). The “overproduction school” Roberts refers to is actually the position of this blog, of which Mike is an editor.

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Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 4

September 29, 2013

Heinrich on crises—some background

A century ago, a discussion occurred in the Second International about the “disproportionate production” theory of crisis. This theory holds that crises arise because of disproportions between the various branches of industry, especially between what Marx called Department I, which produces the means of production, and Department II, which produces the means of personal consumption.

This led to speculation on the part of some Social Democrats that the growing cartelization of industry would be able to limit and eventually eliminate the crisis-breeding disproportions. This could, these Social Democrats speculated, give birth to a crisis-free capitalism, at least in theory. The revisionist wing of the International, led by such figures as Eduard Bernstein—the original revisionist—put its hopes in just such a development.

Assuming a rising organic composition of capital, Department I will grow faster than Department II. The Ukrainian economist and moderate socialist Mikhail Tugan-Baranovsky (1865-1919), who was influenced by Marxism, claimed there was no limit to the ability of capitalism to develop the productive forces as long as the proper relationship between Department I and Department II is maintained. The more capitalist industry grew and the organic composition of capital rose the more the industrial capitalists would be selling to their fellow industrial capitalists and relatively less “wage-goods” to the workers.

Tugan-Baranovsky held that capitalism would therefore never break down economically. Socialism, if it came at all, would have to come because it is a morally superior system, not because it is an economic necessity. This put Tugan-Baranovsky sharply at odds with the “world-view Marxists” of the time, who stressed that socialism would replace capitalism because socialism becomes an economic necessity once a certain level of economic development is reached.

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Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 3

September 1, 2013

In this month’s post, I will take a look at Heinrich’s views on value, money and price. As regular readers of this blog should realize by now, the theory of value, money and price has big implications for crisis theory.

As we have seen, present-day crisis theory is divided into two main camps. One camp emphasizes the production of surplus value. This school—largely inspired by the work of Polish-born economist Henryk Grossman, and whose most distinguished present-day leader is Professor Andrew Kliman of Pace University—holds that the basic cause of crises is that periodically an insufficient amount of surplus value is produced. The result is a rate of profit too low for the capitalists to maintain a level of investment sufficient to prevent a crisis.

From the viewpoint of this school, a lack of demand is a secondary effect of the crisis but by no means the cause. If the capitalists find a way to increase the production of surplus value sufficiently, investment will rise and demand problems will go away. Heinrich, who claims there is no tendency of the rate of profit to fall, is therefore anathema to this tendency of Marxist thought.

The other main school of crisis theory puts the emphasis on the problem of the realization of surplus value. This tendency is dominated by the Monthly Review school, named after the magazine founded by U.S. Marxist economist Paul Sweezy and now led by Monthly Review editor John Bellamy Foster.

The Monthly Review school roots the tendency toward crises/stagnation not in the production of surplus value like the Grossman-Kliman school but rather in the realization of surplus value. The analysis of this school is based largely on the work of the purely bourgeois English economist John Maynard Keynes, the moderate Polish-born socialist economist Michael Kalecki, and the radical U.S. Marxist economist Paul Sweezy.

Kalecki’s views on markets were similar to those of Keynes. Indeed, it is often said that Kalecki invented “Keynesian theory” independently and prior to Keynes himself—with one exception. Kalecki, like the rest of the Monthly Review school, puts great emphasis on what he called the “degree of monopoly.” In contrast, Keynes completely ignored the problem of monopoly.

Needed, a Marxist law of markets

A real theory of the market is necessary, in my opinion, for a complete theory of crises. Engels indicated in his work “Socialism, Utopian and Scientific” that under capitalism the growth of the market is governed by “quite different laws” than govern the growth of production, and that the laws governing the growth of the market operate “far less energetically” than the laws that govern the growth of production. The result is the crises of overproduction that in the long run keep the growth of production within the limits of the market.

This, however, is not a complete crisis theory, because Engels did not explain exactly what the laws are that govern the growth of the market. Unfortunately, leaving aside hints found in Marx’s writings, Marxists—with the exception of Paul Sweezy—have largely ignored the laws that govern the growth of the market. This, I think, would be a legitimate criticism of what Heinrich calls “world view Marxism.” As a result, the theory of what does govern the growth of the market has been left to the anti-Marxist Keynes, the questionably Marxist Kalecki and the strongly Keynes- and Kalecki-influenced Sweezy.

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