The world of neo-liberalism

Submitted by Matthew on 2 October, 2013 - 12:36

A background document for the 2013 annual conference of the Alliance for Workers’ Liberty (26-27 October), by Paul Hampton and Martin Thomas.

See below for a critical comment from Barry Finger

1. The AWL has pioneered a distinctive assessment of the development of global capitalism over recent decades, which underpins our orientation, concrete slogans and differences with much of the left.

We have argued that since 1945, global capitalism has experienced an epoch of the “imperialism of free trade”, in which it has been successively restructured into an aggregate of politically independent states which are authentically bourgeois (rather than being states dominated by pre-capitalist factions, or colonies) and which accept and internalise the discipline of the world market.

2. The step-by-step ending of the old era of colonial imperialism, and the vast expansion to new areas of industrial production for the world market, bring shifting sub-hierarchies; but they do not mean a “flat” or even development. Global capitalism remains highly uneven, and keystoned and policed by the US superpower.

3. This regime, overseeing the combined and uneven development of capitalism across the globe, survived the economic crises of the 1970s, mutating into neoliberalism. Then in the 1990s it expanded to incorporate the former Stalinist states and to include at a higher level many centres which had developed manufacturing industry for the world market at a substantial scale since the 1960s. It has thus far survived the economic downturn that began in 2007. The “imperialism of free trade”, despite many contradictions, is likely to dominate for the foreseeable future.

4. The “imperialism of free trade” — or “Empire of Capital”, as Ellen Wood has called it; or “Global Capitalism”, as Leo Panitch and Sam Gindin call it — differs from earlier periods of capitalism. It is broadly a world of capitalist states, which act to make the conditions for capital accumulation. It is a world where multinational corporations produce and trade across borders, reinforced by international institutional structures (IMF, World Bank, WTO) designed to facilitate these global production chains.

In the neo-liberal era, since the 1980s, it is increasingly a world in which capitalist states set their policy by the priority of making their territory a safe and workable area for global capital to invest in, rather than that of constructing a more-or-less integrated national industrial base.

5. This regime is also the imperialism of finance. Money capital, bank capital, credit and speculation are necessary moments in circuits of capital. Capitalism is inconceivable without them. Financial capital plays a dominant economic role, pooling and distributing the social surplus, creating credit in advance of production, disciplining wayward firms and determining channels for new investment. The relative weight and speed of global financial markets has increased enormously since the 1980s, and that trend continues.

6. The “imperialism of free trade” is superintended by the US hyperpower, which has overwhelming military superiority and uses military force to police global capitalism.

It is what Marx called “the dull compulsion of economic relations”, reinforced by states and especially the US state, rather than resort to military occupation and colonisation, which largely shapes the international economy. Bourgeois society, organising its fundamental processes of exploitation through more-or-less free market relations rather than the relations of personal subordination characteristic of serfdom or slavery, nevertheless requires much larger police forces than those older societies: in the same way the “imperialism of free trade” is accompanied by the growth of big armies acting as global police, and especially the US armed forces.

In the Cold War era, the US frequently used military might to topple regimes it thought to be too friendly to the USSR or likely to “go Communist”. It sustained dictators like Somoza or Batista, Trujillo or Pinochet or the Shah of Iran, the type it deemed to be “a son of a bitch, but our son of a bitch”. Even then, it did not seek colonial rule.

In an era when even the poorest countries had gained substantial urban populations and where national awareness was widespread, the USA judged the costs and repercussions too great. The USA’s economic strength would, with much less strict political conditions than required for colonial rule, give it enough clout; and seeking colonial rule would help the USSR gain support from and control over anti-colonial movements.

Since the early 1990s, the USA has generally preferred to sustain bourgeois democracies (of a sort, and on condition, of course, that they accept the rules of the world market, which generally they do out of the self-interest of the local bourgeoisie). The USA maintained that preference even while deploying large military actions (Kuwait 1991, Kosova 1999, Afghanistan from 2001, Iraq 2003-11).

Since George W Bush agreed, in 2008, to full US military withdrawal from Iraq, the US has been more cautious about military action. It retains a very large military machine, and the readiness to use if it sees its interests threatened seriously and in a way which military action can fix.

The global capitalist economy does not have, and is not likely to have, a proper system of bourgeois-democratic global law. We cannot and do not endorse the “liberal interventionist” illusion (Euston Manifesto, etc.) that the US military will be, or might if nudged be, an agency of a bourgeois-democratic international rule of law, even to the extent that a bourgeois police force can administer a rule of law in a bourgeois democracy like Britain.

We must distinguish the usual real role of big-power military action in the world today both from those “liberal interventionist” illusions and from the illusion that the action is just a re-run, or the beginning of a re-run, of old-style colonial conquest.

7. US hegemony persists, despite its setbacks due to the Iraq fiasco. Since the early 1980s, US economic growth, manufacturing productivity and volume of exports have been higher than other G8 countries. The US continues to dominate R&D spending and maintains its share of global high-tech production, e.g. aerospace, pharmaceuticals, computers and office machinery, communication equipment and scientific instruments.

8. American-based corporations continue to invest huge flows of capital abroad and employ 10 million workers overseas. The US also receives large inflows of capital, which are channelled into domestic consumption and investment. Its capacity to capture global savings reflects the structural strength of its imperial form of rule. The US trade deficit is not evidence of its weakness. During the recent crisis, capitalists have continued to purchase dollars and US Treasury Bills because they remain the most stable store of value in a volatile capitalist world.

9. Capitalist globalisation consists of spreading capitalist social relations and world-market imperatives into every corner of social life and to all parts of the world.

Over the last half century, close linkages have been established between the American state and the other Western states. The internationalisation of capital is now based on foreign direct investment and multinational corporations. American capital now exists as a material social force inside most other social formations, with a consequent impact on social relations, property rights and employment relations. Capitalist states compete primarily by trying to make their territorial spaces attractive as sites of accumulation for foreign as well as domestic bourgeoisies.

10. While China may perhaps emerge eventually as a pole of inter-imperial power, it is currently far from reaching that status. Contradictions and tensions persist between and within states across the globe, but China currently enjoys a symbiotic relationship with the American state. Although certain elements within the US are concerned to maintain its current unipolar power and prevent the emergence of future imperial adversaries, this is not evidence that such contenders already exist.

11. The combined and uneven capitalist development in recent decades has generated rapid economic growth in parts of the South. New centres of capital accumulation have developed, and in certain cases, sub-imperialist states vying for regional predominance have emerged. Whilst many states (particularly in Africa) remain mired in poverty, the rapid spatial extension of capitalist social relations of production and the spread of waged labour have characterised the modern epoch of capitalism.

12. An essential corollary of capitalist globalisation is the massive growth of the world proletariat. The international working class has at least doubled in size in the last 30 years. The working class in East Asia increased nine-fold — from about 100 million to 900 million workers. China’s employed working class tripled, growing from 120 million to 350 million. By the turn of the century, China had more than twice the number of manufacturing workers than the world’s largest industrial nations combined. The large size of the “semi-proletariat” in many countries — people engaged in a fluctuating combination of casual waged work, petty trade, etc. — makes it difficult to draw precise boundaries, but we have probably passed the tipping point, whereby more of the world’s direct producers do waged work than do peasant agriculture. Far from the working class disappearing, globally its social weight has never been greater.

13. The run-up to the 2007-8 crisis was a period of capitalist exuberance. The onset of crisis was not rooted in any sharp profit decline or collapse of investment. In 2006–07, profits were at peak, productivity continued to increase substantially in manufacturing (with wages lagging behind) and low-cost production chains continued to spread. In spite of some important exceptions (notably in the car industry), American corporations went into the crisis in generally solid financial shape in terms of profits, debt and cash flow.

14. The crisis was rooted in the dynamics of finance. Before it broke, the market in titles to future surplus-value inflated. It expanded particularly fast in the last period because of the growth since the 1980s of an increasing variety and depth of global financial markets. Bad debts which were fairly small on the scale of the whole system produced considerable turmoil in the global system, because no one seemed to know where the bad debt was, or which apparently sound debt might in fact depend on bad debt. What had appeared to be calculable risk of financial mishap, which could be offset and managed, was revealed to be incalculable uncertainty (so-called “Knightian uncertainty”).

15. There are some signs of recovery, although the revival may be weak. It may predictably make for another crisis on similar lines before too long. But often capital ‘lives with’ that: there is no automatic, or even reliably vigorous, mechanism to make capitalist classes seek, identify, and implement more serious problem-solving or even problem-displacement. The crisis has reaffirmed the centrality of states (particularly the American state) in the global capitalist economy, while multiplying the difficulties of managing it.

16. No major state has seen the crisis as an opportunity to challenge or undermine the American state.

Rather, the integration of global capitalism has meant that there has been extensive international coordination across states in the provision of liquidity to financial system, in fiscal stimulus, the avoidance of tariff wars and in establishing new regulatory regimes for finance.

17. Neoliberalism should be understood as a particular form of class rule and state power, which emerged in the late 1970s, although on foundations laid after the Second World War. It intensifies competitive imperatives for both firms and workers; increases social inequality and luxury consumption by the rich; increases insecurity for working-class people; and increases dependence on the market in daily life and reinforces the dominant hierarchies of the world market, with the US at its apex. The ruling-class hegemony which Gramsci wrote of is today organised as much through market transaction mechanisms, shaping people to see life as “an investment”, as through parties, media, schooling, etc.

18. Predictions of the demise of neoliberalism at the outset of this crisis in 2007-08 have proven to be false. Some neo-liberal dogmas have been discredited, but mainstream neoliberalism never excluded Keynesian measures, and the political-economic conditions that gave rise to the basic parameters of neoliberalism have not been exhausted or undone by this crisis. There is currently no move to a new regime.

At the peak of the financial crisis, governments nationalised, bailed out, and ran budget deficits, on a huge scale. That shows that economic life today cannot operate without social regulation; but the regulation remained “socialism for the rich”. Governments remain intent on having such crisis measures serve a new neo-liberal push, rather than having them become the start of a new departure.

We underline, in our explanations, the proof given of the irrationalities of the capitalist market — the wisdom and efficiency of which had been so lavishly praised since the early 1980s — and we argue for a workers’ government to replace the “socialism for the rich” by “socialism by and for the working class”.

19. The programme of the coalition government in Britain — more marketisation, more cuts in welfare, more privatisation, harsher pressure on organised labour, in short, more neoliberalism — is not an anomaly. The German government is driving a sharply neo-liberal course across Europe. The US administration is more cautious about rapidly reducing budget deficits than the European governments, but remains firmly within a neo-liberal framework.

20. Many on the left proceed like generals, who overtaken by events, make elaborate plans to fight the last war.

The spectre of the 1970s (and even the 1920s) still hang over much of the left. Many socialists still regard imperialism in terms of (a garbled version of) the analysis Lenin made during the First World War. They repeat a cannibalised “Leninist”, actually Stalinist account of imperialism. On this view, the world is still divided principally between a few large imperialist states and others that are little better than semi-colonies.

21. Lenin’s 1916 analysis of imperialism, which synthesised the best of Second International geopolitics, was a more-or-less adequate assessment of the First World War conjuncture. However in many respects it was flawed even for its time: its conflation of finance capital with, alternately, the merger of bank and industrial capital, or, in contrast, purely speculative or rentier; the derivation of the drive of capital to export abroad from a supposed “glut” or absence of investment opportunities in the home country.

And the commonly-accepted version of Lenin has much worse problems than his original analysis. Since Lenin’s 1916 pamphlet contains essentially no discussion of the economic effects of imperialism in subordinate countries (because that was not Lenin’s focus in that particular text), scattered phrases and offhand polemical swipes from Lenin have been reconstructed to theorise imperialism as a simple process of plunder rather than a species of capitalist development.

The end result is to conflate “imperialism” with “whatever advanced capitalist states do internationally” and, in turn, with simple plunder. There is, of course, no lack of real evidence that simple plunder is part of the routine international activity of advanced capitalist states: the question is whether that is all there is to it, and whether plunder is a feature uniquely of advanced capitalist states rather than of all capitalist states. In the cod-Leninist discourse, “imperialism” (meaning advanced capitalism) is opposed not so much because it is capitalist as because it is advanced.

22. Kautsky’s article on ultra-imperialism, which the AWL republished in 2001 when it had long been out of print, read in 1914 as a rationalisation of the SPD’s support for its own government and an evasion of the tasks of the day in favour of speculative hopes about better conditions emerging, of their own accord, in future. However Lenin never denied the possibility of interdependence and cooperation among the powerful states.

Kautsky’s scheme of a fixed division between “industrial” and “agrarian” territories was of course false. His idea that the big capitalist states would ally stably on a more-or-less equal basis was false too: the “ultra-imperialist” features of the current era rely on the role of the US as superpower. Yet a century on, after further capitalist development and state formation, and in the absence of socialist revolutions internationally to overthrow capitalism, some aspects of Kautsky’s picture are visible in the current mode of bourgeois rule and the global relations.

23. Many left analysts claimed that the crisis proves the US empire is in decline. They argue by analogy with Britain as the declining hegemon in the late 19th century, that the US is driven to war and occupation by its loss of power, prestige and position, e.g. in Afghanistan, Iraq and Syria. But this ignores the continuing centrality of the American state in global capitalism and its role in policing capitalist relations i.e. a more specifically capitalist form of imperialism, rather than the colonial imperialism of earlier epochs.

The Iraq fiasco was produced by overconfidence of a US ruling class drunk on success (collapse of the USSR 1991, Kuwait 1991, Kosova 1999, and, so they wrongly thought in 2003, Afghanistan 2001). It was not a desperate resort of a ruling class scared of eclipse by rivals. To posit a terminal decline in U.S. imperial power is to attempt to accomplish in theory what remains to be done in political struggle.

24. Yet many analysts argue that relations between the developed states of the “North” are characterised by the declining power of the hegemon (the US) and consequently rivalry leading ultimately to war. Every sign of disagreement between the big powers and the US is treated as the prelude to the anticipated repetition of earlier historical patterns and the mechanical, reasoning-by-analogy replication of previous inter-imperialist rivalry.

25. For others on the left, relations with other states of the “Third World” are governed by dependency and impeded capitalist (under)development. Such an assessment underestimates the development of the working class and the potential for an organised labour movement. It implies a nationalist alliance with the domestic bourgeoisie rather than the struggle for independent working class political representation.

26. There is a common assumption in Marxist discussion that crises — or, at least, serious crises, “Marxist” crises — are preceded, initiated, set off, by falls in the average rate of profit. But in fact they are not — or not always. In the recent discussions, few economists have based themselves on the old Marxological “tendency of the rate of profit to fall”, but that tendency has been much referred to on the activist left, and it casts a very large shadow on all discussions of the relation between profit rates and crisis.

27. The argument is that as capital expands, the ratio of constant capital (machinery and materials) to variable capital (laid out on living workers) rises. Profit is produced only by living labour. Therefore, even as the absolute mass of profit increases, its ratio to the total stock of capital required to produce it, the profit-rate, tends to fall. However theoretically, Marx identified numerous counter-tendencies, arising from the same processes that give rise to the downward tendency. We cannot assume a “law of the tendency of the rate of profit to fall”. A long-lasting tendency for the rate of profit to fall cannot be substantiated at the general level of argumentation by Marx in Capital. The rate of profit may tend downwards over a long-ish period. However, the rate of profit can also rise over long periods, as it did between the mid-1980s and 2006-7.

Whatever the trends, a downward tendency cannot provide a sufficient explanation for all capitalist crises, including the latest downturn.

28. Many on the left argue that the crisis of the 1970s was never resolved. They say that a decline in profitability which led to that crisis had continued. (To make the statistics fit this thesis is difficult, but, given the complexities of exactly defining profit rates, not impossible). Or they say that ruinous over-competition which triggered that crisis has continued because of inadequate scrapping of industrial overcapacity and constant growth of new industrial capacity in new areas. Thus stagnation: what appeared to be growth was only superficial flurries thanks to spatial-temporal fixes, asset-bubbles and other ad-hoc measures.

This is no adequate explanation for the neo-liberal resurgence of bourgeois power and of profitability from the mid-1980s. Nor does it yield an adequate prognosis of the current crisis and the prospects for revived working class struggle in the near future. If capitalist income as measured by the capitalists rises, that is a capitalist expansion whatever refiguring may be done to try to show that strict Marxist definitions could deflate the statistics. If growth was not as fast in Europe, Japan, and the USA as it was in the 1950s-60s “Golden Age”, it has been faster elsewhere (in East Asia, for example); and anyway growth does not have to be at “Golden Age” pace to be growth. If the growth was, on a certain level, a matter of unstable flurries — when is capitalist growth ever anything else?

29. To depict the last forty years as a constant crisis of global capitalism is also to slur over the specificity and the drama of the actual crisis which opened in 2007-8. It looks like leading into a stretch of depression rather than any quick recovery. The Tory government’s current ballyhoo about economic recovery in Britain glosses over the fact that capitalist business investment continues to shrink. The instabilities which set off the 2007-8 crisis are still in the system, and are likely to set off similar crises in future. The political repercussions of the economic crisis are as yet very far from being fully played out, and in substantial part depend not only on the general mechanisms but also on the character and energy of the working-class response. We shall see.

Our focus should be on fighting through the contradictions within capitalist development, and helping the increased economic weight of the working class find political expression, not on hoping for capitalism to bring itself down through (illusory) permanent crisis.


Submitted by AWL on Wed, 01/01/2014 - 23:15

By Barry Finger

Martin and Paul have presented an analytically rich background document on “The World of Neo-Liberalism.” I am in fundamental agreement with the politics of the argument. But where the argument fails me is in this. In its emphasis on the novelty and specificity of the current crisis, Martin and Paul dismiss any attempt to place this crisis in a larger historical context as futile. They are at pains to dismiss the tendency for the rate of profit to fall, which marks them in agreement with the preponderant opinion of academic Marxists, but at odds with business economists such as those from Deloitte, who, as I have previously argued in Solidarity, have clearly demonstrated in their "Shift Index" that the rate of profit (in the US) has fallen since the mid 1960s. These conclusions have been discussed in such ruling class sanctuaries as the Harvard Business Review and Forbes. This divergence – this inversion -- itself should be a cause for note, if not concern.

And of course, Martin and Paul argue consistently. Once the tendency for the rate of profit to fall is found wanting, there is no other general dynamic of capital accumulation through which the current crisis can be contextualized. “Underconsumptionism” is a dead end. It argues, at least in its Marxist forms, that accumulation requires additional sources of demand outside the framework of the capitalistically generated market place. Rosa Luxemburg, for instance, famously argued that capitalism needed a third (external) market of consumers who are not producers of value to offset values for which there are no (internal) consumers. And “disproportionality”, rarely today cited as an alternative, is so general – so all applicable -- as to be functionally meaningless.

Yet the underconsumptionist argument had one great merit. It situated imperialism at the very center of capitalist accumulation. Militarism, war and colonialism were seen as essential to keeping national capitalist economies afloat in part by providing a state generated third market for armaments but, more vitally, by defending and expanding captive markets at the expense of global competitors.

The problem with Martin and Paul’s analysis, I fear, is that it fails to identify any alternative explanation that links the politics of imperialism with the economics of accumulation. It suggests, instead (am I misreading this?), an imperialism that is a contest of force, in part, between established and rising capitalist powers. It is true that they talk about the “imperialism of free trade” and “global production chains.” But if what is meant by these are the amounts extracted directly through profit and interest repatriation form oversees investment, such numbers are relatively paltry. American corporate profits extracted from the rest of the world (and that prominently includes the other advanced capitalist economies) amounted to $430 billion in 2012, less than a third of the profit total ostensibly generated domestically. The proposed defense budget in the same year, prior to the sequester, was $671 billion. If we presume that this is required to police the “imperialism of free trade”, it is hardly a cost-effective tradeoff.

But perhaps Martin and Paul mean that the US, as the imperial hegemon, bears the burden of policing the global south for the benefit of the developed economies as a whole. In which case, the extraction of profits and interest flowing from south to north should be the crucial determinant and relevant comparison. Very well. But where has the case been made that most of the profits and interest redistributed among the advanced economies originate in the South rather than within the developed nations themselves? In fact, that proposition, should it be asserted, could probably not be sustained.

Why even dignify the essential economic relationship of the advanced to the developing capitalist economies with the grandiloquent term of imperialism, if the direct extraction of value is so apparently marginal, even dispensable, to the well being of the capitalist metropolises?

More important, what is there to capitalism that requires imperialism? I can’t really find an answer to this in Martin and Paul’s piece. Underconsumptionism is not a problem even worth raising; profitability is not a problem worth considering. What unanswered need is addressed by imperialism?

Before that can be answered, we need to take a step back. Martin and Paul concede that capitalism did suffer from a crisis of profitability prior to the current neo-liberal phase that originated in the 1980s. But they, assert, the subsequent opening of the former Stalinist economies to capitalism and the offshoring and outsourcing of production combined with the massive growth of the third world proletariat turned that crisis around, arresting and reversing the fall in the rate of profit that climaxed – according to them – in the crises of the 1970s.

Again, if not by the massive infusion of profits from Eastern Europe and the third world, then how? Perhaps (in part) by suppressing the wage demands of the western working classes threatened by third world competition, thereby massively jacking up the metropolitan rate of exploitation? And then (also in part) by unequal exchange based on global wage disparities that allow the capitalist Triad to diminish the costs of imported inputs and thereby increase the spread between cost and revenue.

Martin and Paul do not discuss the latter proposition. And while neither do they expressly discuss wage suppression, such a conclusion might not be too far a leap, nevertheless. But had they made they made either of these propositions explicit it would bring the argument full circle. It reintroduces the question of functionality. Imperialism serves primarily as a bulwark against the resurgence of a falling rate of profit. It restores that tendency to the center of our consideration compelling us to ask what forces within capitalism arise to periodically fend off the very dynamic that Martin and Paul deny the existence of.


Even so, has imperialism reversed, or even eliminated, the falling rate of profit as a factor in the current crisis? I would argue – no.

There is, I believe, a prior inherent shortcoming on how we conceptualize the rate of profit, once the stripped down framework of Capital is extended to encompass movements in a modern – corporate dominated -- capitalist economy over time. Marx’s purpose was not to demonstrate that there is a tendency for the rate of profit to decline. This proposition was accepted by all classical economists. Even Keynes argued that there was a long term tendency for the “marginal efficiency of investment” to diminish. What Marx attempted to demonstrate was how this tendency is rooted in the process of commodity production itself -- in the very warp and woof of capitalism, a demonstration that bedeviled classical economists.

But Marxists have tried to shoehorn our arguments, both pro and con, about the consistency and empirical relevancy of this proposition and within the all too restrictive framework of Marx’s discussion. Corporations do not measure their rate of profit against capital invested in structures and equipment. They own a spectrum of assets that generate income streams, among which are not only tangible means of production, but also a variety of financial assets such as consumer and corporate loans, CDs, treasury bills and so on. All these pool together to comprise corporate profits. In practice it is very difficult on a macro level to map the stream of income associated with each individual class of assets. It is therefore difficult to isolate that stream solely associated with productive investment from all the other sources of income, such that asset A is associated with income stream a, B with b, etc. Of course, for individual corporations who need to periodically rebalance their assets this knowledge is crucial to maintain profitability. But the point is this. Corporate profitability measures the sum of all these income streams with respect to the entirety of its assets, including cash on hand, which, in the absence of deflation, yields no appreciable return.

And that is precisely what most Marxists have failed to do. Much of the literature is focused on taking the sum of corporate income streams and comparing its growth against the increase in tangible assets. This invariably invites a degree of randomness. It neglects the fact that consumer loans, and installment credit, imposed on workers constitutes a second stream of exploitation that takes place outside the production process. The extraction of interest on consumer debt converts paid labor time into unpaid labor time. It is a reversion to a form of absolute surplus value extraction. Similarly, state taxation of wages (net of the flowback as extra-market wage supplements) to pay banks also constitutes a reduction in paid labor. To the extent that capital holds public bonds and securitized debt, it retains for itself a supplementary source of surplus-value that it counts as income. And it is the rise of this secondary source of surplus value that gives heft and sweep to the so-called financialization of capitalism. It means that capitalism is increasingly focused on bypassing production as a means of supplementing surplus value.

The increasing emphasis on detour, at the expense of productive investment, suggests how deep the crisis of manufacturing profitability had been. Yet the financial sphere, by multiplying claims on surplus value, without expanding the productive base, pumps up one avenue of surplus value while suppressing what might otherwise be translated into an increase in relative surplus value. And in either case it, and like all other means, for the extraction of surplus value faces natural and cultural limits.

So if, on the other hand, we were to more accurately measure the movement of income streams with the totality of assets that are associated with such streams, we would generate an entirely different picture of how the rate of profit moves over time. This I have tried to do by plotting corporate profits before taxes against corporate assets valued at historical cost for the nonfinancial sector of the American economy. This yields the following result.

This pattern seems to be compatible with Henryk Grossmann’s formulation of a secular decline in profitability expressed through cyclical movements in asset (capital) accumulation and destruction. And it is a remarkably tight fit over a protracted period of time, roughly the entire post-war epoch.

What it does not do is verify Marx’s argument per se. And in this Martin and Paul are dead right. It certainly may not be the case that the fall in the rate of profit during any of these cycles – or for the period as a whole -- can be explained solely by the rise in the organic composition of capital invested in the sphere of commodity production in relation to the stream of surplus-value extracted exclusively through production.

But why is that essential? To prove our “orthodox” Marxist bona fides?

Capitalism is not simply a mode of production, but a mode of social reproduction. It develops primarily by expelling labor from the process of production, while multiplying the claims on surplus value through the accumulation of capital – not just means of production, but commercial capital, banking capital, speculative capital. It is this contradictory tension that it is at pains to suppress. The system holds together as long as it can expand the mass of profits. When the countervailing forces of imperialism -- of wage suppression and unequal exchange -- of innovation and rationalization of the production process no longer suffice to that end, crises are needed as a last resort to restart the clock by eliminating excess claims on surplus-value.

If we are going to understand neo-liberalism, why not start here?

Submitted by PaulHampton on Sun, 01/05/2014 - 20:49

In reply to by AWL

Hi Barry,

Thanks for the comments. The document was meant as a very compressed broad-brush summing up of the assessment we’ve made of the current period, i.e. slightly longer term and therefore much less on the recent specific crisis.

I’m not convinced by the TRPF as an explanation for this crisis. At least some data shows the rate of profit rising in the years immediately prior to this crisis. That’s not to say longer term trends are irrelevant – and indeed I think a stronger case might be made for the crisis in the 1970s. There may be something to it in some national contexts e.g. the US, although I’m not sure this can be generalised for the world economy as a whole.

I’ve read two other pieces recently, which make an argument in favour of the TRPF:

Deepankar Basu and Panayiotis Manolakos, Is There a Tendency for the Rate of Profit to Fall? Econometric Evidence for the U.S. Economy, 1948-2007, Review of Radical Political Economics March 2013 45: 76-95.

They found weak evidence of a long-run downward trend in the general profit rate for the US economy for the period 1948-2007, though are cautious beyond that.

Michael Roberts, From global slump to long depression, International Socialism 140, October 2013

I know Michael and I read his blog regularly. There’s no doubting his knowledge of political economy nor the impressive empirical detail he brings to bear. However it is striking that his figure 12, estimating a world rate of profit, is far less connected to the recent crisis than the early 1970s data.

His discussion of debt and finance - i.e. the more proximate causes of the current crisis - is also interesting. I’m not sure how this exactly connects up with the earlier discussion of the TRPF – it reads more like a bolt-together than a fully worked through explanation.

That sums up the problem for me. There may be a long run TRPF, but exactly how it feeds through to crises (and states’ responses to crises) is not at all resolved.


Submitted by Barry Finger on Mon, 01/06/2014 - 15:25

Hi Paul

I appreciate the issues you raise. But there is no necessary contradiction between the studies you cite and my conclusions. My point is that such studies – not to mention the overwhelming bulk of Marxist economic analyses – do not build on the framework of Capital. Instead they mirror it. That is, Marxists continue to adopt the formulation for the rate of profit Marx used in his studies. But Marx was seeking to devise a formulation adequate to a specific task, namely to demonstrate why commodity production itself gives rise to a fall in the rate of profit. And that formulation is adequate for that purpose and that alone. By “proving” this tendency in this way, Marx believed himself to have stripped the analysis to its bare essentials, thereby eliminating any extraneous considerations that might otherwise have obscured his argument.

Our task, in contrast, is not to provide a “proof” for the necessity of a proposition – the tendency for the rate of profit to fall -- widely accepted by classical economists. We need to have a measurement of the rate of profit that is relevant to how corporate capitalism, and not just corporate capitalism for that matter, gauges its performance.

The point is that we, and by that I mean the studies you cite and myself, are measuring two different things. The question is, which one actually reveals something essential about the empirical world of capitalism, and which one fails to extricate itself from a concept inappropriate and inadequate to the wider subject?

I’m not interested in analyzing the world to verify Marx’s propositions. Suffice it to say, if one accepts the axioms upon which the proof rests, the conclusion follows. Relax, or qualify the axioms, and the law becomes a tendency. Revoke the axioms and the law falls apart. How much more ink needs to be spilled on the issue of Marx’s proof?

Where you and I may differ, is that I believe Marx’s proof is adequate but only adequate for his purpose. It’s larger importance is as a suggestive framework for examining empirical movements, all the more so in a post-industrial capitalism where employment in commodity production and value creation is relatively shrinking; where, in other words, fewer and fewer dollars of investment ever come into direct contact with productive labor. [In the larger world of global capitalism, this is certainly less true. But I’ll return to this.]

Those who employ Marx’s measurement of the rate of profit (surplus value compared to the money invested in structures, machinery, inventories, etc) are looking to the world to exonerate Capital or perhaps to jettison it. I look rather to a rate of profit that examines movements in the rate of return on assets, which is a far broader and, as I will argue, more appropriate base against which profits – from all sources -- are compared.

So let’s look at some facts. Every department store, every car manufacturer, every housebuilder, every hospital and every veterinarian in the US offers consumer credit. Unlike transactions among businesses that involve credit, the interest earned from workers are earned outside the sphere of production. Such interest payments convert paid labor to unpaid labor, but do not redistribute values previously extracted in production. This interest is an additional stream of profits. So when the Marxists you cite look at business income, they of course lump this in with profits realized in commodity production. This procedure raises the rate of profit, oblivious to the fact that such profits are not earned in production. Moreover, each time credit is extended, capitalists create an asset for themselves that is expected to provide a steady stream of interest. These assets can be securitized, bundled and sold in the market place. What are these assets, but so many claims on surplus value? They are therefore capital and must be treated as such. Should workers default on their debts, the money lent is lost and investments are destroyed. How should capital register these gains or losses? Against the capital invested in machines and brick and mortar? Or against the asset base it created to extract this unpaid labor in the first place?

We can do the same with a whole variety of financial instruments. That is why I believe my approach is superior to other approaches. Financial capitalism is distinctive precisely because it is the form that post-industrial capitalism assumes to supplement profitability when the extraction of surplus value through production is deficient.

But now let’s take another look at the world prior to neo-liberalism. This was a world in which we both concur that the fall in the rate of profit has been empirically established. But it is also a world in which wages, including that of production workers, grew in tandem with productivity and inequality began to flatten out. It was the so-called golden age of capitalism for workers in the advanced economies.

What does it mean that wages grew with productivity? Remember, mainstream concepts of productivity use a measure of value-added that is significantly different from what Marxists may mean by that. Their concept of value added (GDP) includes preexisting values transferred in the process of production, including amortization on constant capital and the wages of nonproductive workers engaged in commerce and finance. Our concept of value added embraces only variable capital (the wage bill of productive workers) and surplus value extracted through commodity production.

If we were to call the mainstream concept of value added, the gross product and the Marxist concept -- the net product (as distinct from NNP which includes nonproductive wages), it would be obvious that in post-industrial capitalism gross production and therefore gross productivity grows faster that net productivity. If real wages were to rise in proportion to net productivity, there the rate of exploitation would have remained unchanged; if they lagged behind, the rate of exploitation would have risen.

But they rose in proportion to gross productivity and therefore the rate of exploitation fell.

This appeared to capital as a profit squeeze. And it triggered a myriad of responses. The first was massive inflation. Inflation was a desperate attempt to break the connection between real wages and productivity. Then there was a turn towards austerity, to claw back taxes on capital from the state and to create a lax labor market that could put downward pressure on wages.

And finally (and this is requires a completely separate treatment), there is globalization, which is based on wage arbitrage and the unequal exchange that arises from it. This unequal exchange drains values from third world economies and redistributes them northward, while placing additional downward pressures on first world wages. This is what I think gets to the heart of the imperialism of free trade and the massive relocation of the heart of commodity production to the global south. It has resulted in an enormous transformation of the world economy and delivered equally enormous dividends to first world capitalists. It explains in no small part why capitalism in the advanced nations can still reap massive profits without massive investments.

And yet, this too has been of limited success.

What capitalism has yet to do is to purge itself of the excess of capital needed to arrest the decline in profitability.