From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Mon Mar 06 2006 - 16:50:00 EST
Hi Jerry, You wrote: aren't you stating the obvious? (this is not a criticism: in certain contexts, it's important to state the obvious.) So profitability typically declines at the beginning of a depression, what does that tell us? Isn't it a claim which advocates of just about every economic theory could agree with? Well, as I said, most economic historians I am aware of acknowledge that decline in profitability, as a matter of fact. But as to explaining the concatenation of events which cause economic crises in capitalism, opinions differ wildly, even within the Marxist camp. The main difference between Marxian theories and non-Marxist theories is that Marxian theories regard capitalist economic crises as system-immanent (basically due to endogenous causes), and non-Marxist theories typically attribute them to exogenous (or non-economic) factors. If you truly believe that markets, left to themselves, will rapidly balance supply and demand, any crisis can only occur because of external factors impeding the efficient operation of markets. Maybe people have the wrong psychology or habits or culture, maybe the state has done bad things, or maybe bad economic decisions were made by big players, and so on. In the real world, of course, the economy cannot be abstracted from a social totality, and so both "endogenous" (commercial) and "exogenous" (non-commercial) causes are typically at work (well, within a social totality, everything is endogenous of course). The Marxian argument in this case would be that state policy can accelerate, moderate or postpone a crisis, without actually being able to prevent it altogether. You wrote: When you go on to write: "At best Marxian economics has convincingly argued that profitability is the synthetic, overall indicator of the 'economic health' of the capitalist system ...." you are stating a conclusion that just about all of the *critics* of the TRPF would *agree* with: to claim that profitability is an important indicator of 'economic health' of capitalism is a profoundly uncontroversial claim. Not sure about that. According to the doctrine of consumer sovereignity, the economy is ruled by what consumers want, and if consumers are judged to be getting what they want, then the system is "healthy". Or, according to the doctrine of equilibrium, the economy is healthy, because it is in balance, according to some criterion. For true market fanatics, the economy is healthy, if there are free markets as such; any non-market economy cannot be healthy. You wrote: What does it mean, though, to say that capitalism is "crisis-prone"? One could examine the same historical data on cycles and just as easily write that it is "growth-prone"! Isn't saying that capitalism historically is crisis-prone simply recognizing that capital accumulation proceeds in a *cyclical* way and that in some time periods the rate of profit grows and in other periods it declines? From that perspective, isn't it a *tautology*? To say that the capitalist economy is inherently crisis-prone means in the first instance to reject Say's Law, i.e. it means saying that it is impossible for that form of economy to maintain balanced growth and economic stability for an indefinite time. This is admittedly not specifically a Marxian theory however - Hyman Minsky or Joseph Schumpeter among others also argued that. But it is not a tautology. Also, it means rejecting the idea that crises can be attributed simply to exogenous (extra-economic) factors. The concept of economic "cycles" is more controversial, it is often more an artifact of econometric measurements. You have recurrent peaks and troughs in economic activity; a sort of spasmodic development, but the idea of a "cycle" suggests a repeated (causal) sequence of events, which may not be the case at all. A slippage frequently occurs, from observed correlations, to imputing a recurrent causal sequence. The specifically Marxian idea I mentioned, is that gains in productivity eventually necessarily lead to a declining profit rate, due to a rising OCC and a fall in new value per unit of new output, on average. Writers such as Henryk Grossmann, Louis Fraina/Lewis Corey, Paul Mattick, Andrew Gamble? and Anwar Shaikh interpreted this to mean, that eventually the total volume of profit available for distribution stagnates, but there are obviously various other interpretations. Mattick is often a bit vague here, sometimes he suggests the problem is that there is not enough surplus value to valorise all accumulated capital, sometimes he suggests that additional surplus-value is produced allright, but that it is not productively accumulated, because of the expectation of a low or zero return. Generally, I think, Marx intended to show, that the forces promoting economic growth in capitalism necessarily turned into their opposite, causing economic crises, and that the same concatenation of events repeated itself at every level. However, he appeared to think economic crises could only be understood at the level of the world market, and that they expressed all the contradictions of this form of economy, in combination. You could interpret so-called "globalisation" (expansion of foreign trade and trade liberalisation) as a method to stem the tendency of the profit rate to fall (indeed Marx mentions foreign trade as one of the "counteracting factors"). As I emphasized in my short wiki entry, inspired by something Dr Carchedi wrote, the tendency of the rate of profit to decline as such wasn't a specifically Marxian idea, and I might add in fact Marx himself was well aware of this. Indeed, that is precisely why he could say it was "the most important law of political economy", i.e. many political economists had referred to it, or noticed it already. The scientific challenge, however, was to explain why the decline necessarily happened, and certainly Marx believed it wasn't a matter of accident, but a necessary consequence of the specifically capitalist mode of development. Prof. John Weeks among others has tried to explicate how the law of value asserts itself, precisely through crises. However, as I mentioned, the TRPF is a generalisation which is difficult to prove definitively, in a scientific sense. The economic evidence can always be read in different ways, using different theoretical frameworks. Therefore, the debate really concerns which theoretical perspectives have the most explanatory power, in the light of the observable evidence. But obviously the debate isn't purely "scientific" either, but also ideological, inasmuch defenders of capitalism are motivated to accentuate some factors, while its opponents accentuate others, even regardless of logic or evidence. Capitalism is a system based on competition between many different interests, and that gets in the way of an objective view of things; the scientific debate is typically distorted by moral notions and what Marx called "the furies of private interest". I personally think that the data available shows that average industrial profitability 1973-2006 is lower than 1947-1973, and that real net output growth since 1973 is roughly half or less of what it was in 1947-73. I think, that this had the consequence of an exit of capital from the sphere of industrial production, as well as a furious "rationalisation" and global restructuring process, in which the working class suffered big defeats, in terms of its organisational capacity and losing previous gains. The corollary of that, is that a much larger portion of business income nowadays takes the form of interest, rent, capital gains and royalties (property income) rather than industrial profit from production. The macroeconomic problem then is how, given stagnating real wages for the majority, you can nevertheless expand markets, and ultimately, that is a question of globally integrating more people into markets that were not so integrated before. That is, however, a process which takes time, often cultural and political obstacles have to be overcome, but the hope is, that with better global credit facilities, you can "tide things over" meantime, and create demand where it did not exist before, and thus, that eventually things will turn around. The problem though is that, in this "meantime" or transitional epoch, the inequalities of income and assets are becoming ever more extreme, in consequence of marketisation, i.e. a critical mass of people are not able to "trade up" as fast as is desirable in terms of their real income. That creates social instability and discontent, which in turn reacts back on the ability to extend more credit. The longer the lines of credit become, the more the credit system depends on social trust (cf. Fukuyama, who articulates this point ideologically; others refer to social capital), and the more easily the financial system can be severely shaken up by a breakdown of social trust. Terrorism in this context is an important issue, not so much because of the relatively few direct casualties of it (far more people die in e.g. traffic accidents), but because it causes a breakdown of social trust and panics, which can seriously upset a dodgy financial structure. Hence leading policy makers are nowadays agreed on the central importance of promoting beliefs of public confidence and trust, for the future of the economy, regardless of whatever current financial problems may be. They can be solved, provided you have sufficient cooperation, and getting/maintaining that cooperation is the trillion dollar question (a trillion dollars is what the world's governments spend on arms each year). Obviously, the snag is that if the masses of the people find that they cannot make significant gains, they are more likely to be cynical and distrustful, rather than confident. Somehow, people have to be maneouvered into a position where they deserve credit, literally and figuratively... and this becomes a dominant theme in popular culture as well. Jurriaan Lordy only believe, only believe All things are possible If you'll only believe My Lordy, only believe, yes only believe All things are possible If you'll only believe I met God one morning my soul feeling bad Heart heavy laden I felt fire doubt ahead Well He lifted all my burdens, yeh! right now I'm feeling glad All things are possible If you'll only believe I believe, yeh! I believe, All things are possible If you'll only believe
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