Marxist Theory and the Long Depression A Guest Post by Pete Green

The panel discussion of The Long Depression, the recent book by Michael Roberts, was one of the highlights of this year’s 2016 Historical Materialism conference in London. Michael himself opened the session with a summary of the core arguments of the book, focusing on what he describes as the third great depression in the history of capitalism, triggered but not fundamentally caused by, the financial crisis of 2007-8. Jim Kincaid responded with some of the questions he has already raised on this blog about Michael’s use of data. Al Campbell, the final speaker on the panel, provided some alternative charts, based on his work with Erdogan Bakir, suggesting that the rate of profit in the US economy had been on a rising curve in the period before the financial crisis exploded in 2007. For Al this was a crisis of the neo-liberal  regime which emerged in response to the crisis of profitability of the 1970s and early 1980s, but it could not be a function of a recent fall in the US rate of profit as that is not supported by the evidence.

In this ‘guest blog’ I am not going to engage with the data, not least because I share Jim Kincaid’s skepticism about the reliance on US national income accounts as a source for corporate profitability – whilst acknowledging that there is no adequate alternative available for those engaged in empirical investigation.  Instead I want to step back a little from the immediacies of that argument and consider the theoretical framework of Roberts’ book. Critically, I want to question the assumption that reliance on Marx’s analysis of the tendency of the rate of profit to fall, and the counter-tendencies to that process over the long-term, is sufficient for an explanation of the cyclical fluctuations which have characterised capitalism since the early 19th century.  Please note that I am not denying the logical coherence or the relevance of Marx’s Volume 3 analysis of tendency and counter-tendency to analyzing the whole period since the 1960s.  I am challenging what I consider to be over-reductionist and two-dimensional applications of Marxist theory to the latest phase of global crises.

In my own paper for the HM conference which Michael Roberts mentions in passing in his recent blogTransformation and Realisation – No Problem”, I began by recommending Richard B. Day’s book The Crisis and the Crash (published by Verso back in 1981) which surveys the debates in the USSR in the 1920s and 30s over Marxist analysis of Western capitalism in that epoch. Two debates are highlighted. The first focused on Kondratiev’s theory of long-waves and featured Trotsky’s critical response of 1923. The second on Day’s account derived from the respective legacies of Hilferding and Rosa Luxemburg and came to a head in the late 1920s as a cyclical upturn in Western capitalism reached its limit with the Wall Street crash.  On the one side were those, such as Maksakovsky (who died at an early age in 1928) and Preobrazhensky, for whom imbalances  between departments of reproduction (of which more below) were critical to explaining cyclical fluctuations and who are now categorized as ‘disproportionality’ theorists. On the other side, which eventually prevailed as Stalinist orthodoxy, were those led by Varga, who emphasized the limited consumption of the masses and can be labelled as ‘underconsumptionist’.

One significant difference was that the former school consistently located crises as only one phase in a cyclical process which could change in character and amplitude (as Preobazhensky emphasized in his 1931 book The Decline of Capitalism, translated into English by Richard B. Day himself) but would not disappear as long as capitalism survived. The Varga school by comparison, especially in the 1930s, was stagnationist, denying the very  possibility of any sustained recovery of capitalism.    Marx’s tendency for the rate of profit to fall, as a function of a rising organic composition of capital, plays no role at all in these debates. The rate of profit features as a variable, especially for Maksakovsky, but the determinants of fluctuations in profitability over the cycle are rather different. The disproportionality theorists focused on Volume 2 of Marx’s Capital and in the Russian debates this emphasis derived from Lenin’s debates with the Narodniks (who denied the possibility of capitalist development in Russia) in the 1890s. They certainly did not rely, as Michael Roberts mistakenly suggests in his blog comment, on another Russian theorist, who also criticized the Narodniks for underconsumptionism, the  notorious ‘harmonist’ Tugan-Baranovsky.

What’s curious about contemporary Marxist debates, stretching back to the first serious crisis of the postwar period in the mid 1970s, is that we have a comparable polarization but now its the ‘disproportionality’ theories that have disappeared from view. Although this is to oversimplify a many-sided debate, the dominant currents evident in Marxist writing on the crisis of 2007-8 are both two-dimensional. On the one hand, there are those such as Michael Roberts, and Robert Brenner, who despite certain differences, emphasise a long-term decline in the rate of profit since the late 1960s combined with a financial system characterized by excessive debt levels. On the other there are those such as the Monthly Review current of Foster and Magdoff, and for the 2007-8 crisis at least, Dumenil and Levy, who emphasise growing inequality, with underconsumption accompanied by excessive levels of debt. Michael Roberts is quite correct to note the similarities of the latter position with that of certain left Keynesians such as Joseph Stiglitz. He is incorrect in his frequent suggestion that his own approach is the only other viable Marxist theoretical framework available.

What we  need, as an alternative to both, is a more complex multi-dimensional theory of crisis as I suggested in my paper at the HM conference and which I will seek to develop at more length in an article to be submitted to the HM journal. Here, I  will focus on what I think is missing from  Michael’s theoretical framework, at least in his latest book  and recent blogs.  One way of doing that is to consider the flow-chart which appears on page 15 of the book,  borrowed  from a San Francisco Marxist study group and described by Michael as ‘clever’:   [you may need to click on the chart to enlarge it]


I’ve omitted some of the options on the right hand side of the original chart (indicated by the …) in order to highlight the critical binaries from a Marxist perspective. Michael obviously wants readers to follow him down the left hand side of the chart with a YES, YES, YES, YES . But I’ve added in three question-marks to register my objection to the choices as presented in the chart. The first (?) arises in response to the second question and its reference to a kernel of crisis. What this fails to register is that capitalism as a system is a contradictory unity of both production and circulation. Production of value and surplus-value is primary but the process of circulation is still necessary to the ‘realisation’ of value, with the sale of commodities in the market. Volume 1 of Capital comes first with its detailed exploration of the capitalist production/labour process which, Michael correctly observes, is ignored  in the Keynesian/Kaleckian tradition. But the widely neglected, comparatively arid, Volume 2 of Capital which focuses on the  circuit of capital through its different phases (M…C…P…C…M´) is essential to understanding Marx’s analysis of the cyclical fluctuations of the system. All the participants in the Soviet debates summarized by Richard B Day understood that. In recent debates, by contrast, David Harvey and Ernest Mandel  (not least in his introductions to the Penguin volumes of Capital ) are exceptional in their attention to Volume 2.

For Michael Roberts, David Harvey can be dismissed  as just another underconsumptionist. My second smaller (?) on the chart puts in question that labelling of both Harvey and Rosa Luxemburg. Leaving Luxemburg to one side, I simply recommend Harvey’s A Companion to Marx’s Capital Volume 2 as a corrective to that oversimplistic reading and as a more innovative text than the title might suggest. I disagree with Harvey’s critique  of Marx’s ordering of the texts of Capital and his interpretation of Marx’s dialectical method. Harvey is certainly wrong, for example, to suggest that Marx assumed ‘perfect competition’ ( a theoretical construction of neoclassical economics which postdates Marx) in Volume 1, and would benefit from reading up on the theory of ‘real competition’ in Anwar Shaikh’s recent magnum opus Capitalism. But that raises another set of issues I cannot address here. What matters in this context is Harvey’s vital emphasis on capital as always in motion, across time and space. But this process through the phases of the circuit can be blocked at any point and even a slowdown in the process of circulation can precipitate a crisis. This in turn enables Harvey to locate the centrality of the credit system and banking to overcoming these blockages – and justifies his inclusion of a lengthy section on credit and the banking system in Volume 3 of Capital in a commentary on Volume 2.

My third (?) on the chart refers to “Marx’ law of profitability” as a response to the question “Are crises integral to the accumulation process?”. For any Marxist the question obviously demands an affirmative response. But there are at least three further questions that need to be posed. Firstly, the accumulation process as I’ve just suggested embraces the whole circuit of capital. It requires the concentration of money capital and the availability for purchase of the necessary means of production and labour-power. Nor, rather obviously, does investment in production guarantee success in the market-place. Secondly the so-called law is actually a law of a ‘tendency’ subject to counter-tendencies, and I would argue that these unfold over a longer time-period, and thus have a different temporality, to the regular business cycle which lasts from 7 to 10 years and is sometimes known as the Juglar cycle. Thirdly, the actual rate of profit received by individual capitals is subject to a variety of determinants, including the level of effective demand, and these can fluctuate over the cycle as a result of factors which are not directly a result of changes on the organic composition of capital but will influence expectations of future profitability.

Michael Roberts will respond as he does in his recent blog that “the so-called realization problem is the result of the production problem. Falling profitability and falling mass of profits lead to collapsing investment, wages and employment and then swathes of companies cannot sell their goods or services at existing prices and workers cannot buy them. This is a crisis of overproduction and underconsumption”. Indeed he seems to have his own version of Say’ law (supply creates its own demand), which Marx dismissed as nonsense, when he claims that “…investment creates its own demand”. It is certainly true that Marx at one point in Volume 2 (p486 of the Penguin edition) states, in a sentence that Michael frequently invokes,

“It is a pure tautology to say that crises are provoked by a lack of effective demand or effective consumption”.

But for Marx this sentence is prefatory to a critique of the ‘underconsumptionists’ of his time who argued that raising wages would somehow “avert the crisis”. Marx’s objective at this point is to show how  a balance of demand between Departments 1 and 2 is possible and the system can therefore reproduce itself. But as he goes on to indicate the conditions for equilibrium between the two departments are such that systemic disproportionalities will inevitably arise which may only be rectified by “ a major crash” (p596).

Michael is of course right to say that changes in aggregate levels of investment and employment are critical factors  determining changes in levels of aggregate demand. Keynes himself would have agreed. However, there appears to be one error here and a significant omission. The error lies in the conflation of overproduction and underconsumption as ‘two sides of the same coin’, when underconsumption is equated with a lack of consumer spending by workers. For Marx overproduction normally arises, in the first instance, in what he calls Department 1, producing means of production, including both machinery and raw materials.  The problem is a relative lack of ‘productive consumption’ as Marx sometimes describes it. The fall in demand, or more commonly a slowdown in expansion of demand relative to an expansion of  capacity in Department 1,  stems from other capitals in both Departments whose capacity has also grown too fast relative to demand. The omission relates to the relationship between the lifetime of fixed capital and the temporality of the cycle, which is curious because Michael Roberts does mention this at one point in his book on page 220 in the chapter on cycles. Yet it fails to play any role in the earlier analysis.

This is where a careful reading of Pavel Maksakovsky’s The Capitalist Cycle (originally published posthumously in 1928, translated into English by Richard Day and  published in the HM book series by Brill in 2004) would be helpful. This book reveals someone with a sophisticated grasp of Marx’s method and there are some fascinating passages in the opening chapter on the process of abstraction in Marx’s work. But the core of the book concerns, as the title suggests, the regular business or Juglar cycle and Maksakovsky offers only a cursory dismissal of Kondratiev’s long waves, which is regrettable. That said, the author proceeds from Marx’s emphasis on fixed capital formation as critical to explaining the cycle.

Maksakovsky moves beyond Marx, however, by dropping the assumption which Marx retains in his analysis of the relationship between Departments 1 and 2, namely that market prices always correspond to values (or indeed to the prices of production introduced in Volume 3). As Maksakovsky shows, starting from the ‘depression phase’ of the cycle, demand for investment goods will revive with the need for replacement of existing fixed capital which is worn out or has become obsolescent with technical change. If the available capacity in Department 1 has been reduced during the previous crisis with the shutdown of mines, oil wells or steel plants etc., the revival in demand will tend to raise prices above values in those sectors. Whilst the supply of such products takes time to come on stream, employment increases immediately generating an expansion of demand for consumer products. Profits will tend to rise with rising prices encouraging even more expansion in both Departments.

But towards the peak of the expansion phase the new investment begins to result in extra supply being thrown into the circulation process. Now just a slowdown in demand for additional machinery from Department 2 will generate excess capacity in Department 1 (here Maksakovsky anticipates the accelerator  of Keynesian business-cycle theory without the rigid formalism). Prices and profits will fall and the process goes into reverse. The law of value begins to prevail (i.e. relative prices fall to the new lower values set by socially-necessary labour-time) but only after a “prolonged interval of time”. The cyclical fluctuations Maksakovsky suggests will occur independently of what happens in the world of finance and are driven by changes in investment, as the evidence stressed by Michael Roberts confirms and which is not in dispute. But only when the overaccumulation of capital is fuelled by an overextension of the credit mechanism and fictitious capital does the turning-point from boom to depression take the form of a crisis or a financial crash.

The previous two paragraphs provide only a brief sketch of a sophisticated but  highly abstract analysis of the cyclical pattern which has characterized capitalism since the early 19th century when fixed capital became a significant component of the production process. Preobrazhensky in his Decline of Capitalism of 1931 develops this type of analysis more concretely in the context of the post-crash depression.  He stresses the impact of monopolization and international cartels and the creation of excess reserves of fixed capital in the 1920s, making the recovery from the crisis after 1929 much slower than in the classic cycle of earlier periods. Comparable work is needed on the changing cyclical patterns of recent decades. But it is not difficult to extend the analysis to, for example, the patterns of overinvestment in the telecommunications/IT sector in the late 1990s, or in the oil and mining sectors globally in the second half of the 2000s. That last example should also remind us of the need to consider the uneven and combined development of the system globally and the  global imbalances emphasized by astute mainstream commentators such as Martin Wolf. A fully-developed multi-dimensional theory of crisis also needs to take into account the uneven capacities of nation-states for intervention and the impact of class struggle, including the sustained drive of international capital to raise rates of exploitation through outsourcing and global restructuring.

But what of the longer-term tendency of the rate of profit to fall as a function of the rise in the organic composition of capital (the ratio of dead to living labour in the system)? Unlike some critics  I am not rejecting the relevance of this or the equally significant role of counter-tendencies raising profitability over the long-term. Indeed I would endorse to a degree Michael’s emphasis on longer waves in profitability (pp225-6 of his book) but link them more closely to Kondratiev waves (which is how I interpret Shaikh’s sketchy remarks on this question at the end of his book). But these longer waves, which underlie the 7 to 10 year Juglar business cycle, lack the regularity imputed to them by Michael. What can be shown in my view is that when the underlying rate of profit is falling the business cycle fluctuations are more severe as is evident from the late 1960s to the early 1980s, and when the underlying rate is rising, the amplitude or the severity of recessions is reduced as in the 1990s and early 2000s. What’s new in the 2000s however is the unprecedented rise in the share of financial profits in total corporate profits as Lapavitsas and Mendieta-Munoz explore in a recent article in Monthly Review (July-August 2016). But that is yet another story.

One final point.  Michael is fond of suggesting that to say crises are a result of a lack of effective demand is like saying the weather is wet because it’s raining. What I’m suggesting here is that to claim crises like those of 2007-8 are a result of a long-term tendency of the rate of profit to fall is like saying storms and hurricanes are simply a result of global warming – there are a lot of mediations or causal links missing from the analysis, even if the data on the underlying trend confirm the thesis, which on the plane of global capitalism is much more questionable than for climate change.

Michael Roberts on US Profit Rates: A Critique and an Alternative View

Michael Roberts has emerged as one of the leading Marxist analysts of current economic developments.  For many of us, his blog, The Next Recession, has become an indispensable and challenging resource. He has also recently published his second book, The Long Depression, a lively summary of his current research which also extends the arguments of his blog in some important and interesting ways.  For example, detailed accounts of the Long Depression of the late 19th century and the Great Depression of the 1930s.

Some of Michael’s recent posts show him at his formidable best.  To take just one of many examples, on 9 Oct 2016, a discussion of the anxieties being expressed in recent reports by bodies like the IMF and BIS about the growing problem of high debt levels.  In a brief, but notably clear and well documented account, Michael surveys some of the main vulnerabilities in the system today – the fragility of corporate balance-sheets in many emerging economies, the dangerous levels of non-performing loans which threaten leading banks in major economies such as China, Germany and Italy, the general failure of monetary policy and zero interest rates to generate adequate levels of investment and growth in production, productivity and trade.  Here also there are calculations by Michael which show that that the latest policy nostrum being advocated by the IMF and in many other quarters – i.e. big increases in state spending on infrastructure – can’t realistically be nearly large enough to revive a serious increase in overall rates of growth.

Michael believes that there is now, ‘the prospect of a new global slump on a fast approaching horizon’.  I think it is quite possible that he will be proved right about this.

One of the signal virtues of Michael’s work that he is committed to norms of scientific practice and tries wherever possible to back up his analysis and conclusions with evidence.  He is resourceful in ferreting out relevant data from official statistical sources, and in finding vivid ways of presenting his results graphically. In addition, Michael is willing to make his working spread-sheets available to other researchers.  Earlier this year when I was working on profit trends in the US economy I took up a general invitation which Michael had made in a footnote – and he immediately sent me a pile of relevant work sheets and explained detail in a covering letter. Many thanks for this.

I have been able to assess more closely a dimension of Michael’s work which I believe is open to question.  A central theme in much of his analysis is that it is a declining rate of profit which is the underlying cause of the sequence of crisis which has afflicted the major industrial economies since the late 1990s.  As the biggest by far of the industrial economies, the US has been the main battleground in the debate about this thesis.

Using the same definition of the profit rate as does Michael, I have checked his spread-sheets against the original sources in the US official statistics, and redone the calculations.  I get the same results – as did a Swedish researcher, Anders Axelsson,  who had made an earlier check of  the material.

However, there is a problem.  I do not think that Michael’s data about US profit rates actually support some of the conclusions he draws about trends over the past 20 years.

In his Post of 4 Oct 2016, Michael once again summarises the findings of the analysis of US profit rates from 1946-2014 which he published in December 2015.  Here in Figure 1 is the graph which he published in his December post in support of his conclusions.  Note that the definition of profits used in Figure 1, is the same as the one chosen by Andrew Kliman in his book-length study of US profit rates, The Failure of Capitalist Production (2011 pp.99-101). Profits of the financial as well as the non-financial sector are included in the corporate total. All figures are for the US domestic economy only – overseas investment, production and profitability of US firms are excluded. (Kliman p.75).


From the data in Figure 1, Michael draws four conclusions in his Post of 4 Oct 2016 [  ].

  • The secular decline in the US rate of profit since 1945 is confirmed … the US corporate profit rate is some 30 per cent below where it was after World War 2 and 20 per cent below the 60s’. This is clearly correct, but we should be careful about how we use the term ‘secular’. If a direct trend line is drawn between the 1950s and 2015 it certainly slopes downward.  But Michael is sometimes assumed by his less critical readers to be saying that there has been an continuous fall in US rates of profit over the past 60 years.  However the trend line which he has calculated in Table 1 shows a cyclical pattern – two periods of fall, followed by two periods of recovery, though on a dampened scale. The post-2000 recovery is especially significant given that it preceded, in 2008, the most severe crisis of the post-war period. The causality here has to be more complex and dialectical and needs to focus on cyclical patterns, not a unilinear and continuous trend.

Michael next argues that:

  • Profitability … peaked in the late 1990s after the neoliberal recovery. Since then the US rate of profit has been static or falling’.
  • Since about 2010-12, profitability has started to fall again’.
  • Finally, the fall in the rate of profit in the US economy has now given way to a fall in the mass of profits’.

To test the latter three propositions we need to look more closely at rates of profit in the past 20 years. In Figure 2 I have used Michael’s own data for this period with only two changes: adding in the 2015 figures which have since been published, and a revision upwards of his 2014 rate of profit (because the figure for Gross Value Added in that year has since been raised in the on-line data source by about $90 billion.

Apart from these, Figures 2, 3 and 4 are based on Michael’s own spreadsheet (No. 9)


Source: Profit = net GVA = Gross Value Added MINUS Annual Depreciation MINUS Employee Compensation.

Corporate sector (Financial and Non-financial Companies. Domestic Economy only)

GVA Domestic Corporate Business – BEA NIPA Table 1.14, line 1

Employee compensation – BEA NIPA Table 1.14, line 4.

Fixed asset annual depreciation (Historical Cost)  – BEA Fixed Assets Table 4.6, line 17.


On my reading, the data in Figure 2 do not support conclusions (2) and (3).

  • Since the late 1990s the rate of profit has not been ‘static or falling’. The rate was higher in 2005 and 2006 than in the 1997-8 peak. It seems unlikely that that the financial crisis which started in 2007, and went critical in 2008  was caused by a profit rate in 2007 at the same level as the late 1990s. The 2008 crisis was far more severe in its impact on jobs, wages, growth and trade than the dotcom downturn of around 2000.  Yet the impact on profitability was considerably briefer and more limited.  Profitability fell in 2008 and after as a result of the financial crisis rather than as its cause.
  • Profitability did not ‘start to fall after 2010-12’. After rising sharply from the 2010 low point, profit rates stayed level in 2013, rose fractionally in 2014, and only in 2015 was there the beginnings of a fall.
  • Michael also holds that a drop in the rate of profit is normally followed by a rise in the mass of profit which is only a temporary phase. Figure 3 shows that this was not the case in the recent period.


Source: As for Table 2.  Gross Domestic Income – BEA NIPA Table 1.10, line 1.

In Figure 3 the mass of profit is measured as a proportion of Gross Domestic Income to eliminate the effect of inflation. When a comparison is made with Figure 2, it is evident that the two downturns in the rate of profit were not followed by a rise in the mass of profit which was only temporary.  The mass of profit recovered more quickly from the downturn of 2008, and that rise was sustained right through to 2014.  The rate and mass of profit track each other quite closely until 2006 when both rates were exceptionally high.  But the recovery after 2008 was more rapid for the mass than for the rate, and was not temporary, but continued through until the 2015 drop.


An alternative explanation

That the mass of profit has been relatively high in the last 10 years gives some support to the broader argument I have been developing that in this period the system has been contending, not with falling rates of realised profit, but rather with an excess of profit relative to the levels of investment which have been lagging.

I have spelt out the arguments in an article which is in the latest issue of HM (24.3).  Also I have added further evidence in a series of posts on my website. See especially the posts of May 15 and April 26 2016.

The system is being wracked and distorted by the malignant consequences of the effectiveness of neoliberal profit raising counter-tendencies. Profit rates have been driven up, and investment constricted, by a potent combination of market forces, aggressive campaigns by capital to raise the rate of exploitation, financialisation, state policies, and a deep change in the mode of regulation of the corporate sector (shareholder value etc.).  The operation of these forces has generated a global surplus of capital in the money form which is too large to be completely recycled back into productive investment.  Thus what we have is not a crisis of Keynesian lack of consumer demand, nor a Monthly Review crisis of monopoly profits.  But instead, a crisis of a particular sort of disproportionality – between available accumulations of money capital and the capacity of the system to absorb them.

Official statistics are not the only source of support for this thesis.  See, for example, an authoritative study by the Toronto based McKinsey Global Institute Global Competition (2015). The data in this research covered about 28,000 large firms from 42 countries  (i.e. companies with turnover equivalent to over $200 million per annum). MGI found that: since 1980 corporate cash holdings have ballooned to 10 per cent of GDP in the US, 22 per cent in Western Europe, 34 per cent in South Korea and 47 per cent in Japan.

Corporate accumulation of cash reserves is only one source of an overall excess of liquid capital in the system.  Other major channels are: (1) the investible capital piling up in the global economy as the numbers and average wealth of the ultra-rich continue to rise; (2) international current account imbalances. In the pre-2008 period the US current-account deficit was a huge 5.6 per cent of GDP in 2006; China’s current account surplus was 10 per cent of GDP in 2007 – the counterpart flows of capital from China for lending and investment in the US were thus enormous.

The tendency of the rate of profit to fall, which Marx correctly identified, has been reversed in the recent period by the strength of a range of countertendencies. The rate of exploitation has been driven up, the turnover of capital has accelerated, the expansion of labour-intensive service sectors has slowed the rise in the organic composition of capital.

Investment levels in the major economies have lagged in money terms, as the value and price of investment goods has fallen in relative terms.  Corporate strategies in the productive and financial sectors have shifted over the past three decades to defensive and aggressive operations in the mergers and acquisitions market for corporate control, and to the maintenance of high share-prices.  These objectives require large war-chests of money capital, and a careful rationing of investment expenditure. Corporate tax evasion has soared, based on the holding of profits in money form, and laundered through tax havens rather than reinvested in production. Generous payments to executives and shareholders have also been a priority in surplus-value allocation.

From these various sources, from around 2000 a  rising surge of surplus loanable capital was being transferred into the banks and financial markets to be lent out and invested by them. The consequences were contradictory.  Large profits, initially, in the financial sector, but then increasing difficulty in finding a large enough supply of safe assets and reliable borrowers.  Disaster hit in 2007 after more than $1 trillion dollars had been lent in unsustainable subprime mortgages in the US, and securities based on these mortgages had been sold on a huge scale to banks in the US and Europe.  Severe strains also arose in Europe because banks in the Northern countries had lent lavishly to finance unsustainable booms in the peripheral economies of the EU.

And since then, a seemingly intractable combination of ultra-low interest rates, stressed banking systems, demand deficiency, faltering growth in key sectors of the world economy – and, since mid-2015, indications that profit rates may be starting to fall. Governments and markets have been testing new ways of coping with the problem of excess money capital.  The  patterns of stress in the system have altered.  Large sums of money have been absorbed by the major banks in the reconstruction of their balance-sheets. Leverage ratios have been driven down and their reserves in the central banks hugely increased.  In the short run this is a safer (if much less profitable) way of dealing with surplus liquidity in the financial circuits than handing it out in subprime mortgages or as loans to Spanish property developers.  But the crisis then takes the form of stagnating growth in investment and trade.

Since 2008 one of the three channels through which excess money capital is being transferred into the financial system has diminished. The US current-account deficit fell from 5.8 per cent of GDP in 2006 to 2.7 per cent in 2014  However, the numbers and net worth of the global wealthy keep rising.  And the continuing build-up of corporate cash piles remains a further and potent source of excess money capital in the system.

We have to remember the scale of the trends being summarised in the US in Figures 1-3 above.  For example, from its low point in 2008, the mass of profit in the US (using Michael’s definition) rose from about $2 trillion to over $3 trillion. This is a very sizable increase, given that Gross Domestic Income in the US was just over $18 trillion in 2015.  Since investment levels were relatively static in this period the result was a rapid rate of accumulation of corporate cash reserves. Notoriously, much of this flow is booked through tax havens to evade US taxation of profits.

The question of tax evasion leads us back to the definition of profits which Michael and Andrew Kliman use in their work. Here I stress that none of the ways in which Marxist researchers define profit rates and use official statistics are entirely satisfactory. Mine own included.  However if we want to do science rather than peddle myths we have to use the data available, but, obviously, with critical care and caution about their limitations. In all the sciences, research at the edge of knowledge is endemically plagued with problems and controversies about the meaning and validity of the data being used.

Marx defined the rate of profit as follows: s/ C + v.  I.e. surplus-value divided by capital advanced (constant capital + wages). But this can be construed in two ways:  either (1) as the capital advanced and surplus value extracted by companies – the corporate rate of profit; or, (2) a social rate of profit, which Michael calls a whole economy rate of profit.  The latter is a measure of the surplus generated within the whole economy in a given year, after deducting, (a) the amount of productive capital consumed in the private capitalist sector and, (b) total wages of all employees (not just those employed in the capitalist sector).

In the work which is summarised in Figures 1 to 3 above, and in common with Kliman, Michael used the corporate definition of profit.  He now prefers, he says, a whole economy rate of profit and this is what he employs in his latest book, The Long Depression.  I’ll discuss this, and the problems it poses, another time. But Figure 4 shows much the same pattern as the corporate profit rates in Figures 2 and 3 – a higher rate in 2005-6 than in the late 1990s, a sustained, if unspectacular, recovery after 2008, and a small drop in 2015.


Gross Domestic Income NIPA, Table 1.10, line 1.

Employee Compensation  NIPA Table 1.10, line 2.

Consumption of Fixed Capital  Fixed Assets, Table  1.10, line 23.

Private Non-Residential Fixed Assets  –  Table  4.3, line 1. (hist cost).

These differing definitions raise questions about Michael’s claim that the cause of a fall in the rate of profit is a rise in the organic composition of capital which is faster than any rise which has taken place in the rate of exploitation.  This is certainly a crucial mechanism.  But it does seem unlikely that in the cyclical variations in recent profit rates, a rise in the organic composition of capital plays a significant role.  Marx himself saw the organic composition of capital as changing over longer  periods of time, not as the cause of short-run movements in the business cycle.

It needs emphasise that both the corporate and the whole economy rate of profit in US official statistics have one large limitation. They cover the domestic economy only. The source for corporate value added figure is: NIPA Table 1.14 Gross Value Added of Domestic Corporate Business; for the whole economy rate of profit the source is NIPA Table 1.10 Gross Domestic Income by type of income. See for more discussion, my Post of April 13.

The Methodological Handbook for the US National Accounts explains that:

Domestic profits include all profits made by companies from operations in the United States as a geographical territory, irrespective of the nationality of the company. (i.e. where its headquarters are located)  Crucially, as the Handbook explains, “The profits component of domestic income excludes the income earned abroad by US corporations”. (Section 13 – 5).

We need not assume that all profits booked through tax havens are necessarily missing from the profits figures in the National Accounts: there are many loopholes which allow profits to escape taxation and to be reported in the corporate tax returns and company accounts which the Washington statisticians rely on.  But the balance of probability is that the exclusion of foreign-sourced profits from the National Accounts must mean a large underestimate of actual profit rates in the current period.  Thus it is by no means certain that US profit rates have in fact been 20 per cent lower than in the 1960s. For example, in the business press, in recent years, it is usually assumed by journalists, without any question, that profit rates in countries like the US have been at their highest in the post-war period, both before the downturn of 2008, and in the recovery since 2010.

There are of course other problems with the concept of domestic profits as used in the National Accounts of the US and other high-income economies.  As John Smith and Tony Norfield have explained in their recent and valuable books, much of the surplus-value which appears to be generated in the domestic economy is derived from the exploitation of labour in the low-wage economies. Here there are fundamental questions to be further explored.

 Some conclusions

Michael Roberts’ overall argument has many dimensions.  He acknowledges that different crises are sparked by different triggers. Due recognition is given, for example, to financialisation, and the instabilities generated by increasingly levels of debt in the major economies.  There are interesting sections on these aspects of the crisis in his book on The Long Depression  But in his work there is an constant theme – namely that the crucial underlying cause of the crises of the post-2000 period is that the rate of profit peaked in 1997 and has not recovered since.  Behind this is a logically questionable assumption, that if crises are recurrent (even though different in form) there must be a single and common cause.

I have shown above, that as Michael’s own empirical work makes evident, there has not been, over the past 20 years, a simple linear fall in the US rate of profit.  Rather what we see are cyclical patterns of oscillation.  Falling rate of profit tendencies are battling it out against counter-tendencies, with complex results which have to be explained dialectically and not by looking for a single unilnear cause.

We should always be searching for causality of course.  But capitalism is a complex adaptive system.  The contradictions as they evolve (‘find room to move’ in Marx’s phrase) change the immediate configuration of the system. The tendency of profit rates to fall is not in itself a contradiction.  Michael’s own work on cycles (see the chapter in his Long Depression book on cycles within cycles) has taken promising directions, and resumes themes explored by some of the great Marxist economists of the interwar period (e.g. Preobrazhensky, Maksakovsky) If the research programme of cycles within cycles is to advance, as I hope it will, its creative implementation will require the sort of exceptional statistical and analytical skills which Michael possesses.