the Fall in the Rate of Profit & Surplus Recycling Mechanisms

This post is a work in progress.

I first heard Andrew Kliman give a talk on his new study The Failure of Capitaist Production (as opposed to the failure of financialization). Tonight I’ve read his argument against the MR falling rate of profit-underconsumption theory. The MR theory finds that financial-military imperial capitalism is a distinctive phase of world capitalism. I will be discussing Kliman’s use of data and rhetoric critically.

To defend financial capital (It’s simply an implied coincidence, in Kliman’s account, that financial capital had grown to an unchecked leviathan before the Great Depression, and before the 2007.), Kliman goes all conservative neoclassical economist, including denying that economic inequality a) is in anything but equilibrium, and b) has any effect on economic systems. He tries to imply that this view on the trivialness of inequality is Marx’s view; I will refute that as I construct this blog entry over time. Although to deny inequality Kliman attacks MR and economists as illustrious as Saez and Piketty, sociologists also need to take note of his manoeuvers, which he will claim he does to ward off fascism. In his bustle to deny, deny, deny the economic impact of inequality, Kliman is disingenuous about both how he treats data and his own “prophetic” identity as well.

Tonight, I’m not going to get to a blow-by-blow analysis of Kliman’s shenanigans in his chapter 8; but suffice it to say, his much-proclaimed loyalty to the actual words of Marx falls hollow in this chapter, where he pretends that Marxists are saying only that underconsumption happens because workers consume more than rich people do. No. That is not at all only what Marx or Marxists say on this topic.

Triumphantly, and really pulling out the conservative econ dogma, Kliman declares that capitalism can proceed without workers’ consumption. This is not a revelation that Kliman is making; this is a dogma that conservative economists and politicians were steadily insisting throughout the last bubble. [See  Citigroup “Plutonomy” corporate report on how all consumption will exclude the working class now: Part 1. Part 2.]

…Only before 2007, the conservative economists also held that economic equilibrium proved that inequality is non-existent or trivial. This article shows that all recent US income growth has gone to the top 1%. It is probably no accident Kliman’s book emerges now, when capitalists can say that they have the system under perfect control, and by implication what is happening to the conditions of accumulation–what is happening to the working class economically (austerity, primitive accumulation) and the state (debt overload, via making real and public the private money debt the financial sector “innovented”) (not to mention the natural conditions of accumulation) is immaterial or restorative to the smooth functioning of capitalism.

Marx has something emphatic to say about this: No. Capital cannot proceed by exploiting other capital. The rate of profit falls because it is dependent upon the creation of value, and in capitalism, value derives solely from exploiting labor, although that derivation depends on using nature and human reproductive services as if they were an “inexhaustible” Plains bison herd. (Anglos always have difficulty with this. Recall why England had to implement reforms in the Progressive Era–because the Boers were kicking the asses of the underfed, undergrown, ricketts-plagued English cannon fodder.)

While there are many ways to eff up your capacity to exploit labor, Marx says specifically that forcing down workers wages (which should be measured relative to the basket of real costs–which include housing, education, health care, corporate tax expenditures, privatized costs–such as transportion– that could be delivered more efficiently publicly) is a major way to eff up exploitation capacity. Kliman wants to conservative-econ away capitalist contradiction.

Q. Why do a number of Marxist-identified economists cling to neoclassical econ’s dogma that economic inequality is trivial?

A. The answer is given here: Inequality and Power: The Economics of Class by Eric A. Schutz (London: Routledge, 2011), and summarized in Yates’ “The Great Inequality“.

As well, In his study “Does Income Distribution Matter for Effective Demand? Evidence from the United States,” Christopher Brown (2004) recalls that it was the conservative economists Friedman (1957) and Modigliani (1966) who established modern consumption theory, attributing no (0) importance to income distribution, and ensuring that economics textbooks maintain a nearly-complete blackout on the topic.

Other economists see inequality’s economic impact:

  • Robert H. Frank: How economic inequality inflates the prices of status goods (education, housing, etc.)
  • Dean Baker, Mark Wiesbrot & John Schmitt at CEPR: the percentage of junk jobs in your economy creates high inequality, social immobility. (Agrees with the Scandianavian power resources tradition.)
  • Monthly Review (Michael Yates)
  • Saez & Picketty
  •  Christopher Brown (2004) and S. Presssman (1997) cite the Cambridge school, including especially Kalecki (1943, 1954) as well as Robinson (1954), and Kaldor (1960), as the source for theory about the relationship between income distribution and consumption.
  • Brown (2004) shows mathematically that “income distribution can have very significant implications for effective demand (298). Then, citing Keynes, he argues that people who accumulate wealth can and do defer economic decision-making, including deferring spending. Using the Thiel index to measure economic inequality, Brown shows that increases in the Theil index correlate with slowing household spending (about 12% between 1967 and 1986) (302), and [finish with discussion of debt].

I think Kliman doth protest too much at the start of chapter 8 in The Failure of Capitalist Production, and I don’t believe he’s going to be straight up (in the conclusion) about what political result he’s hysterically trying to circumvent.  TBD… Kliman’s chapter 8 doesn’t give me much confidence about his falling rate of profit argument; but since I’m inclined to find Dumenil & Levy, et al’s argument against it also distorts the Marxist theory and misinterprets the data, I will see if that earlier portion of the study is more reliable.


I was listening to a talk by the unprepossessing Andrew Kliman yesterday. While I was intrigued and impressed by his argument that all the Marxists would measure the fall in the rate of profit incorrectly (But why would they? Ideological and conceptual infection by conservative econ, at least partly, I think.), I have objections to Kliman’s accompanying refutation of underconsumption crisis–his measurement of the distribution of production proceeds between capital and labor. His story is that since 1960 in the US, although the ratio of capitalists’ aggregate profit to aggregate income (both workers’ & capitalists’ wages) has been constant in the US (indicating in his view a capacity to consume in equilibrium), capital’s rate of profit (s/c+v) declined.

By this Kliman concludes that the falling rate of profit theory is correct, but underconsumption crisis is incorrect. Crisis is strictly an effect of falling profit. Capitalist profit suffers, though workers continue to have the same capacity to consume. (I am as yet unclear how the Wall Street crash of 2007/2008 and the ongoing austerity and European Union crises resulted from mere falling profit, in Kliman’s account. Why would workers default on loans en masse if their consumption capacity remains robust?)

I think a major implication of his analysis is that neoliberalism has done a terrible job managing capital’s interest, if the profit motive is declining though the working class share of the social wealth is a constant. The problem with capitalism in Kliman’s view is simply too much built-up fixed capital, due to excess state intervention. Like Pyne’s bourgeois story of the state suppressing fire and creating tinder, in Kliman’s account, built-up fixed capital is what’s impinging on profit, and it needs to be destroyed; hence, the “crisis” is just voluntary capitals destruction.

On this basis, Kliman argues that there is nothing distinctive about global monopoly capitalism, or financialization. In Kliman’s account, trade is in equilibrium, financial capital is not overgrown and does not reduce productive investment, and introducing more able Surplus Recycling Mechanisms–ameliorating excessively-skewed distribution–cannot defer crisis.

Indeed, if Kliman is right, and the only problem is excess fixed capital, shouldn’t austerity be a lot more effective in restoring profitability than anything else (eg. the Iceland solution), or than it’s looking, when we compare the impact of austerity in the UK and Ireland to the capital accountability approach in Iceland?

I’m dubious about what Kliman’s measuring.

Verify:

  • To support this argument, Kliman does not disaggregate wages going to capitalists from wages going to people dependent on wages. 
  • I do not think he measures consumption v. profits, but rather wages (+ benefit costs) v. national income.
  • He counts increasing health care costs as income going to wages and consumption. He treats all increasing commodity costs uniformly as increased working class share of national income and consumption. Servicing debt does not detract from working class consumption in his account. He counts housing price inflation as increased worker income/consumption, rather than an anti-Surplus Recycling Mechanism stripping working class income and sending it directly to the black hole of Wall Street unproductive speculation. 
  • Kliman’s finding of a constant working class share of national income is not a per capita measurement, but an aggregate ratio, that does not take into account population increase. It is not immaterial (as feedback) to the rate of profit that the economy is not growing fast enough or distribution is not occurring broadly enough (these are interchangeable, although they switch the system qualitatively from capitalism to socialism) for workers to consume at a constant or increasing individual or family rate without borrowing money from financial capital.
  • To be continued…

Questions for reading Kliman:

Is a commitment to rejecting underconsumptionist / distributive crisis helpful or necessary? Why is Kliman intent to try to argue that the only economic squeeze in the US is on capitalists, and that squeeze has not been deferred to working class Americans in such a way as to impact the economy?

A distributive crisis does not mean you have to have a Keynesian analysis. The fall in the rate of profit is all about the excessive ratio of dead labor (constant capital) to exploited live labor. In capitalism, which is what we’re talking about, that implies a history of market-rational, productivity-increasing, social wealth maldistribution.  For a capitalist, increasing productivity by replacing humans with machines or oil is awesome for profits, up to a point, and so long as no one else replaces humans with machines or oil, which is not a possibility. Meanwhile, in capitalism, for workers, the only thing worse than being exploited is not being exploited. That history results in a falling rate of profit, and meets up with the pre-programmed accumulator’s response to a declining rate of profit: 1)  ratcheting up the rate of exploitation by any means necessary, and 2) primitive accumulation.

 I don’t see why we want to strive so hard to divorce the tendency to the falling rate of profit from underconsumption crisis. Marx didn’t. Productivity-maximizing behaviour is a competitive, collective phenomenon. It’s not as if the tendency to falling profit is important as a threat to the individual capitalist’s profit (There’s a reason we measure it aggregately.) whereas only underconsumption crisis is an irrational effect of aggregated individually-rational capitalist behaviour.

Refusing to acknowledge worsening social wealth maldistribution does not really support the falling rate of profit hypothesis; and it unnecessarily implies that global monopoly capitalism and predatory financial capital are not distinctive, logical, systemic late-capitalist developments. Rather, financialization and accompanying imperialism are surely the non-trivial, corrupt and corrupting products of aging capitalist cores.


Because it allows us to dance around the fantasy that dead labor is exploitable in capitalism (As if you can get increased value-controlling profit without human exploitation.), and thereby creates mystified fictitious capital, financial capital is very important in that it allows capitalist elites to use speculation with fictitious capital to pursue primitive accumulation. You need to primitive accumulate if capitalists have lost confidence in the whole capitalist investment thing, and yet won’t quit their capitalist order, as they will not. Capitalists are typically ideologically convinced  that workers are superfluous to an economy; so capitals destruction is a byproduct of this, not, to capitalist minds, a sufficient condition of profitable investment. (Verify with Hilferding and Sweezy/Baran on this. See note on Varoufakis and Freeman on the role of global war–a form of both primitive accumulation and an SRM–in resuscitating capitalism, below.)

We have to ask ourselves: Are capitalists really always concerned to re-establish the profit incentive per se, as many Marxist-identified economists assume? Or are capitalists primarily concerned to promote and dominate accumulation, in whatever way the system currently permits? Because the profit incentive is not always the only or most currently-exploitable way accumulation can occur. Think about primitive accumulation. Think political economy, not economistically.

What if Over Time, Distribution Becomes Essential to Functioning Economies, and Capitalism Has Severe Issues with Distribution?:
Surplus Recycling Mechanisms

The Marxist argument is that the capital-flow incentive system tends to break down, on multiple levels, as capitalist accumulation develops. Accumulation creates uneven development on many scales, and that clogs up capital. If capital liquidity is a problem, how does capital normally flow? Ideally, in capitalism, capital flows via profitable productive investment incentives (exploitation potential).

Marx (Capital v. III chapter 14 on countermeasures to the fall in the rate of profit), Harvey, and Varoufakis explain how this endemic capitalist structural problem, capital clotting, can be addressed, partly with variable, political, capitalist collective actions delegated to the state–we can call these GSRMs or SRMs (Global Surplus Recycling Mechanisms, or any Surplus Recycling Mechanisms), distinguished from and a crutch to the built-in (and preferred, because it is based in capitalist autonomy) and dysfunctional-tending profit motive. SRMs will vary with elite ideology. Dependent upon that ideology and their own capacity, state regimes perform a variably vigorous, more or less able role in looking out for the mid-term interest of capital, or defibrillating capitalism. 

As well, from a Marxist viewpoint, you can argue that each defibrillation (SRM reform) defers a growing contradiction between capitalist accumulation and the dispossession and depletion of the growing mass of humanity and the environment, possibly reducing SRM capital-defibrillation effectiveness and options in the future. Perhaps we’re there. Perhaps we are not experiencing elite ideology-based failure; perhaps the twitching, tattered remains of the inadequate SRMs at the bottom of the barrel are all that is left to us at this point in history.

However, I tend to agree with Dumenil & Levy and Varoufakis that one problem with current GSRMs is that they are subordinated to the hegemony and violent coercion of the 20th century capitol of capitalism, the US. I also agree with Varoufakis and Alan Freeman that the only SRM that class-conscious capitalists will reliably submit to is global war. Perhaps because global war is not just a GSRM and a destroyer of excess capitals, but also a primitive accumulation bonanza. Global war is a triple threat. (Quadruple, if you also count that it fosters working class patriotism and acquiescence, and targets, takes out, and disrupts wide swaths of working class and peasant humanity.) Although Varoufakis argues that US capitalists were open-hearted in the Global Plan GSRM, more typically SRMs are highly begrudged by capitalists, and insufficiently supported, or opposed. In that way, capitalists are risk averse; they just want to grab as much surplus as they can right now, and use it to stay on top of the heap, whatever the hell may come.

More and more I get the feeling that the Left’s economic illiteracy is not ameliorated by the fact that Marxist-identified economists today are all overly infected by the conservative neoclassical econ tradition they’ve been immersed in, including both its incompatible methods and its prejudices. These economists’ partial analytics cannot see both falling rate of profit and underconsumption–And primitive accumulation and what it means, politically and economically, is hopelessly off their radar. Increasingly, while I find their partial debates of intellectual interest, economist-kings I suspect are not what the Left needs today.

Fragmented: The contemporary version of Marx.

Given C. Brown, then F. Barager & R. Chernomas: Increased debt servicing = increased rate of exploitation (greater proportion of the working day going to the capitalist class). The capitalist class has greater income, the working class less. What does the consumer do with the income?
Q. i) If the capitalist class, per Kalecki-Sweezy can uniquely “defer” consumption, and the way it did so was to use excess profits to speculate (instead of using their increased consumer demand to create a larger capitalist consumer market to replace the working class consumer market)–then isn’t speculation the capitalist consumer market that neoclassical economists see replacing the working class consumer market?  ii) If “consumption” occurs in speculation when speculators lose, then iii) governments that bail out failed speculation, in effect, are governments preventing consumption to occur, thereby creating a crisis of consumption, preventing investment growth.
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