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Alan Freeman 27 April 2013

THE PROFIT RATE IN THE PRESENCE OF
FINANCIAL MARKETS
THE DISCUSSION ON THE US PROFIT RATE


Most Marxists claim it is has been rising
 Dumenil-Levy,



Mohun, SSA, Moseley
...
WHY THIS DISCUSSION? WHY NOW?




Not „Zombie Marxism‟
Not about the „pugnacious‟ Kliman and Freeman
Surrogate debate a...
THE STRANGE CASE OF THE UK PROFIT RATE
30%

25%

20%

15%

10%

5%

0%
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1...
THE REAL STATE OF THE UK ECONOMY


Real GDP growth
1949-1973 = 3% average; >1974 = 2.1% average
 2 years –ve growth in a...
WHY THE UK MATTERS
In the US, the „rate of profit‟ appears to fall and
then (according to one school) appears to rise
 In...
DISPUTES ABOUT THE NUMERATOR


What is the right measure of wages?






What is the right measure of profit?





...
WHAT IS CAPITAL?


All Marxists regard capital as fixed assets –
machinery, buildings, and so on




In a crisis, what ...
Net purchases of financial assets
2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996...
WHAT IF UK FINANCIAL ASSETS ARE COUNTED AS CAPITAL?
120%

25%

100%

20%

80%
15%
60%
10%
40%
5%

20%

Corporate Value Add...
THE CORRECTED US PROFIT RATE
14%

r=0.1235e-0.014t

30%

12%

(annual decline of 1.4%)

25%

10%

20%

8%

15%

6%

10%

4...
WHY IT MATTERS: THE CRISIS THAT WON’T GO AWAY


Now in the seventh year of this crisis. What
is this not?
 Not

a „norma...
AN UNCOMFORTABLE TRUTH


The „left‟ has no theory to explain this crisis
„Blip‟ theories – a one-off event with no past
...
A CRISIS OF ACCUMULATION
The critical failure is a failure of investment.
Why?
 Marx, Volume 1


The principal long-term...
MARX: THE SPECTRE HAUNTING MARXISM


1936-1979: Marxism without Marx
 “We



don‟t really need Marx at all”

1979-2000 ...
WHAT’S AT STAKE?


This is a very critical time
Crisis in advanced countries from which it cannot
recover without „subver...
WHAT CAN WE AGREE ON?


Most basic agreement required is
 Long-term

decline
 Rooted in accumulation
 No self-restorat...
JOIN THE DEBATE!
Journal of Australian Political Economy
 Discussion opens May 15th
 All welcome
 Try to be constructiv...
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The profit rate in the presence of financial markets

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To accompany the paper of the same name at https://www.academia.edu/3518756/Profit_Rate_in_the_presence_of_Financial_Markets_Slides_Video_and_Paper. Note that this paper (at 1 January 2014) has not yet been uploaded to Repec so best to wait a week

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The profit rate in the presence of financial markets

  1. 1. Alan Freeman 27 April 2013 THE PROFIT RATE IN THE PRESENCE OF FINANCIAL MARKETS
  2. 2. THE DISCUSSION ON THE US PROFIT RATE  Most Marxists claim it is has been rising  Dumenil-Levy,  Mohun, SSA, Moseley Only a small number maintain it is falling  Kliman, Freeman based on TSSI reasoning  Brenner based on mass of empirical evidence  But all Marxists are discussing it – not just the defenders of Marx
  3. 3. WHY THIS DISCUSSION? WHY NOW?    Not „Zombie Marxism‟ Not about the „pugnacious‟ Kliman and Freeman Surrogate debate about the US economy       Marxism is saddled with a theory that the US was doing wonderfully until 2008 Some even maintain it still is! Also saddled with theory it is „top dog‟ Actually in long-run decline since the early 1970s Never consolidated role as „planetary ruler‟ The only indicator of „health‟ is the „rate of profit‟  But is the rate of profit being measured correctly?
  4. 4. THE STRANGE CASE OF THE UK PROFIT RATE 30% 25% 20% 15% 10% 5% 0% 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 Corporate Net Surplus/Corporate Capital stock Private NFC net surplus/PNFC stock
  5. 5. THE REAL STATE OF THE UK ECONOMY  Real GDP growth 1949-1973 = 3% average; >1974 = 2.1% average  2 years –ve growth in all three downturns >1974   Unemployment   never below 1 million since 1974 Investment/GDP Declined continuously 1969-1981  Negative in 1981, 1993 and ever since 2009  Rises continuously while „profit rate‟ falls  Falls while „profit rate‟ rises 
  6. 6. WHY THE UK MATTERS In the US, the „rate of profit‟ appears to fall and then (according to one school) appears to rise  In the UK, the „rate of profit‟ rises unambiguously from 1973  There is no room for a „story‟ that it had a crisis in 1974, then recovered, then went into a „crisis of neoliberalism‟  EITHER the profit rate has no bearing on the health of the economy (so why cite it as evidence of US health?)  OR it is being calculated wrong 
  7. 7. DISPUTES ABOUT THE NUMERATOR  What is the right measure of wages?    What is the right measure of profit?     Exclude supervisory workers? Exclude social benefits? Etc etc etc Before tax or after With or without the financial sector Corporate sector or whole economy? Etc etc etc But what about Capital?  (1) Temporalism – use historic not current cost    Does not deal with the UK cost (2) Are we including everything we should? Note that (1) and (2) are complementary, not opposed
  8. 8. WHAT IS CAPITAL?  All Marxists regard capital as fixed assets – machinery, buildings, and so on   In a crisis, what happens?   Capital accumulates as money – now, as credit-money Credit money competes directly with productive capital as a claim on the total surplus   for Marx, capital is all commodities including money. If we include this in the capital used when calculating the rate of profit, it falls unambiguously Not a „diversion‟ from „productive‟ to „financial‟   The standard Marx-Keynes explanation – idle money Credit-money is the form taken by money in this crisis
  9. 9. Net purchases of financial assets 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 £million NET PURCHASES OF FINANCIAL ASSETS, UK 600 500 400 300 200 100 0
  10. 10. WHAT IF UK FINANCIAL ASSETS ARE COUNTED AS CAPITAL? 120% 25% 100% 20% 80% 15% 60% 10% 40% 5% 20% Corporate Value Added/Corporate Capital Stock 2005 2000 1995 1990 1985 1980 1975 0% 1970 0% 'Denominator includes securities (right scale)
  11. 11. THE CORRECTED US PROFIT RATE 14% r=0.1235e-0.014t 30% 12% (annual decline of 1.4%) 25% 10% 20% 8% 15% 6% 10% 4% 5% 2% 0% 0% 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 35% (Unadjusted) Operating Surplus of Private Enterprises/Fixed Assets of Private Enterprises [left scale] (Corrected) Operating Surplus of Private Enterprises/(Fixed Assets of Private Enterprises plus Marketable Financial Securities owned by US agencies and persons) [right scale] predicts with R2 = 0.9559.
  12. 12. WHY IT MATTERS: THE CRISIS THAT WON’T GO AWAY  Now in the seventh year of this crisis. What is this not?  Not a „normal‟ crisis  Not a „banking‟ crisis,  Not the result of „financialisation‟  Not a „blip‟  Not a crisis of a capitalism that ‘recovered’ in 2000
  13. 13. AN UNCOMFORTABLE TRUTH  The „left‟ has no theory to explain this crisis „Blip‟ theories – a one-off event with no past  „Recovery‟ theories – it was all going fine till 2007  „Astrological‟ theories - it‟s all part of a great cycle   This leads to ideas that simply are not credible That capitalism has no real problems  That capitalism is doing too well for its own good („overconsumption‟)  That the only problem is banking („financialisation‟)  The eternal search for the next hegemon 
  14. 14. A CRISIS OF ACCUMULATION The critical failure is a failure of investment. Why?  Marx, Volume 1  The principal long-term tendency of capitalism is the expansion of the constant element of capital in relation to the variable  The rate of profit is no more nor less than an index of this tendency  This expresses itself in a range of crisis tendencies  The cause is that capital cannot actually expand without limit, but is compelled to do so. 
  15. 15. MARX: THE SPECTRE HAUNTING MARXISM  1936-1979: Marxism without Marx  “We  don‟t really need Marx at all” 1979-2000 Marxism overturns Marx  “Marx  simply does not work” 2000-2008 Marxism forgets Marx  “Capitalism  2008-2013  “oops” has recovered”
  16. 16. WHAT’S AT STAKE?  This is a very critical time Crisis in advanced countries from which it cannot recover without „subverting‟ private capital  It will try anything instead (austerity etc) but this will not work   Sooner or later, either the working class has to put forward and win alternatives or  capitalism will look for methods of state intervention that can ensure the working class will be prevented from asserting itself 
  17. 17. WHAT CAN WE AGREE ON?  Most basic agreement required is  Long-term decline  Rooted in accumulation  No self-restoration  Marx has a legitimate account of it  Which contains superior explanations to anything „Marxism‟ has come up with
  18. 18. JOIN THE DEBATE! Journal of Australian Political Economy  Discussion opens May 15th  All welcome  Try to be constructive  If you can‟t be constructive, be reasonable  If you can‟t be reasonable…. Don’t ignore the facts 

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