From outside, Marxism can appear an ideological monolith. Workers, so the story traditionally goes, involuntarily supply their employers with surplus value and watch as the capitalists’ wealth exponentially increases, while they themselves get poorer. Through some combination of the working class overcoming their false consciousness and getting wise to the real situation and the unavoidable instability and crisis-prone nature of the capitalist economic system, the crunch will come, revolution will result and everyone will live happily ever after now that class distinctions have been abolished. Amen.
The truth is more complicated. Marxian economics - and it is economics that Marx was fundamentally concerned with - is a much more contested field that you would imagine. Two recent books by American Marxists, The Endless Crisis by John Bellamy Foster and Robert McChesney and Andrew Kliman’s The Failure of Capitalist Production illustrate the dissension.
At stake is what causes economic crisis, more importantly, this economic crisis. Is it a growing gap, as Bellamy Foster and McChesney maintain, between the endless production of goods and services and workers’ finite ability to consume them, leading to stagnation? Or, as Kliman says, the decline in the rate of capitalists’ profit, leading to stagnation (alright, they do agree on some things).
We live, say The Endless Crisis authors, in a society dominated by very large monopolistic and oligopolistic corporations, a trend which is only exacerbating through constant mergers and acquisitions. The power of these giant corporations means they are able to extract more and more profit (or in Marx-speak, surplus) from their workforce; profit that needs an outlet and can’t all be absorbed by the consumption of wealthy investors. The trouble is demand can’t keep up; the value of real wages in the US is lower than it was in the 1970s. The result is slow growth and unused capacity – one-third of the capacity of the US automobile industry was unused in the run-up to the Great Recession, for example.
In these circumstances, speculative finance becomes irresistibly alluring, as the only way to effectively deploy all the money that is being made. The portion of US national income devoted to finance, real estate and insurance, say Bellamy Foster and McChesney, has risen from 35% in the early 1980s to over 90% now. But the escape promised by financial baubles like mortgage backed securities or credit default swaps is illusory because they make crashes, like the one in 2008, far more likely.
And the promised escape is actually a trap because, once a crash has happened, the political authorities can think of nothing but reinstalling the old casino economy because they regard the ‘real economy’ as irretrievably stagnant. Think of the UK economic recovery, based on near zero interest rates and rising house prices. “Rather than overcoming the stagnation problem,” write The Endless Crisis authors, “this renewed financialization will only serve at best to put off the problem, while piling on further contradictions, setting the stage for even bigger shocks in the future.”
What does stagnation mean? It means lower wages, stalled careers, unemployment and under-employment, lack of social mobility and periodic economic instability. The authors quote older economists Paul Sweezy and Henry Magdoff, who, writing in the late ‘80s, reflected on their formative experiences of fifty years before: “For us economic stagnation in its most agonizing and pervasive form, including its far-reaching ramifications in every aspects of social life, was an overwhelming personal experience” But this is not the same for people who grew up after the Second World War. “Under these circumstances,” they wrote, “they find it hard to relate to what they are likely to regard as our obsession with the problem of stagnation. They are not quite sure what we are talking about or what all the fuss is over. There is a temptation to say: just wait and see, you’ll find out soon enough.” We are now finding out.
Not quite recession
In one way, Andrew Kliman doesn’t disagree with this prognosis. He, too, thinks we live in a “new normal of not quite recession” and the future of the economy is likely to be stagnation, interrupted by crashes. But, in another, he disagrees profoundly. For he traces the problems back to a completely different source, a fall in the rate of profit. To Kliman, problems of “effective demand” (the expression is from Keynes) are a red herring. Demand hasn’t fallen and, even if it had, it wouldn’t matter. This is a complete reversal of standard left-wing economic thinking which says that companies are compelled by competition to introduce new technologies and cut costs, thus precipitating an ever-widening gap between supply and demand.
It’s fair to say Karl Marx’s theory of the tendency of the rate of profit to fall is commonly thought of, if it is thought of at all, as a historical curiosity. Or just plain wrong. Many Marxist and radical economists were convinced that the Japanese economist, Nobuo Okishio, had proved its falsity in 1961. Needless to say, Kliman says he did no such thing.
This is how the theory goes. Marx said that all value is created by labour. But as mechanisation proceeds and edges out work performed by people, value or profit decreases. Eventually this fall in the rate of profit causes a crisis. If – and this is the important part – the destruction of capital value caused by this crisis through bankruptcies, companies going bust and unemployment, is allowed to happen unimpeded, the whole process can begin afresh. It becomes much cheaper to buy companies and rate of return on profit resumes at a new peak. A new boom ensues.
Even if they don’t explicitly reject the theory, many Marxists say profit isn’t falling. The Endless Crisis authors say that the rate of profit fell during the nineteenth century under conditions of competitive capitalism but it has risen since as monopolistic corporations have ruled the roost. Indeed the rising amount of profit or surplus is a prime reason for the crisis because it is diverted into speculation, having nowhere else to go. Probably the most famous contemporary Marxist, Richard Wolff, says profit has gone wild in the US as a result of falling wages.
Capitalism hasn’t changed
Kliman says this is all mistaken. “Capitalism has changed far less than many people – its critics as well as its supporters – want to think,” he writes. The rate of profit has fallen, though this has been masked, initially by inflation and then by the fact that economists used the wrong measure of profit. Kliman says radical economists, for some reason, measure profit by what it costs to replace machinery as opposed to the more common sense method of judging the rate of return on advanced capital.
Not since the Great Depression of the 1930s, says Kliman, has there been a free market response to an economic downturn. Every subsequent downturn has been washed away with government subsidies and debt guarantees. This ensures that the downturns have not been half as severe as they otherwise might have been but also that there could be no resultant boom because capital value was not destroyed. The US economy, he says, has never properly recovered from the recession of 1974. And because of this the rate of profit has continued to fall, and is reflected, in a delayed fashion, in increased debt and financial speculation.
Kliman’s explanation does differ profoundly from what he calls the “conventional Left account” and, rather than rejecting it or accepting it in toto, I think it needs some interrogating. I think the most important questions are:
Firstly, Kliman uses a method of measuring the rate profit – the rate of return on advanced capital – which he says is meaningful to most people and to business itself. Given that, a discernable decline in the rate of the profit should have been a major concern of business over the past thirty years or so and hotly debated in the business press. I’m not aware of this, so why hasn’t it happened?
Secondly, Kliman says that in order for a fall in the rate of profit to be actualised, prices have to fall. But inflation has been the norm at least since the Second World War. The only area of decreasing prices for Western consumers I’m aware of, is in the realm of cheaper clothes and the reason for that is super-exploitation of garment workers in countries like Bangladesh and Vietnam, not mechanisation. And mechanisation, according to the theory, has to occur in order for prices to fall and the rate of profit to drop.
Thirdly, I don’t believe demand is so irrelevant to capitalist economic health as Kliman says. Kliman is a dyed in the wool demand-sceptic. He claims the post-World War Two boom was not due to pent-up consumer demand or government stimulus but to a resumption in a high rate of profit. But why did this reinvigorated rate of profit not kick in in the late ‘30s, when the US slipped back into recession as government stimulus was temporarily withdrawn? The pre-conditions of a new boom were present, as capital value had been destroyed utterly in the downturn of the early ‘30s. So why did it take the Second World War to put the Great Depression out of everyone’s misery?
Kliman maintains that the final consumer is not as important to capitalist economic health as most radical economists think. Businesses can and do sell to other businesses and investment spending has risen much more markedly than consumption spending in the US, over the last 75 years. That is why the economy grows at all. He is also at pains to point out that only with a very selective use of statistics, can you demonstrate that real wages have fallen in the US since the 1970s. Using another method of calculating inflation, Kliman says, wages have risen markedly. And if you measure total compensation, including employer social security and medicare contributions, they show an unmistakable rise.
It is widely accepted, certainly not just by the left-wingers or Keynesians, that consumer spending supplies an integral part of economic growth, nearly two-thirds of economic activity in the UK. And it is indisputable that real wages are falling now - by an eye-watering 8.5% in Britain since 2009, according the state Office for National Statistics. At the same time, consumption is forming a large part of the headline rise in GDP, an increase that, in the absence of wage increases, can only come from savings or borrowing. Thus, I think you can safely conclude that consumer spending is vital for economic health and an important component of the profits of the financial sector. Consumer demand is, at the very least, part of the story.
You can’t buck the market
But, in spite of these reservations, I do think Kliman’s insights are valuable, because he has realised something that many Left Keynesians and Marxists don’t want to face up to. Namely, that capitalism depends for its vitality on periodic destructiveness and, in this sense, you can’t buck the market. Keynesianism was predicated upon ending this instability but failed, as shown by the large-scale recession that occurred in the mid-1970s. There is a fascinating table on page 53 of Kliman’s book that gives GDP statistics for all regions of the world. It shows that economic growth was higher in every single region of the globe between 1950 and 1973 than it was between 1973 and 2008. In many places, after 1973, growth fell like a stone. Post-1973, the growth rate in Japan, Europe, Latin America and Africa plunged by more than half. Yes, you can say post-war reconstruction petered out, but a seismic economic jolt clearly occurred in the 1970s, which no amount of neoliberalism, declaring war on organised labour, exponentially increasing credit or providing government support to failing financial institutions, has been able to correct. As Kliman points out, all of our current economic malaises – slow growth, slowly rising wages, spiralling inequality, financial instability and debt crises – date from the 1970s, not the 1980s. In other words, from before the neoliberal era and the supremacy of Thatcher and Reagan.
In this acceptance that capitalism’s problems stem ultimately from the 1970s and that Keynesianism, despite the hype, could not overcome the internal dynamics of capitalism, Kliman has an equivalent in Britain, the economist Harry Shutt. Shutt isn’t a Marxist and doesn’t believe that falling profit is to blame, rather he traces the malaise to the need to find investment outlets for an ever increasing volume of funds (a ‘wall of money’) and a decline, in the digital age, in the demand for large-scale capital investment. Nevertheless Shutt, too, thinks that governments attempts to evade recurrent system crashes by intervening with subsidies and debt guarantees, have only resulted in insipid growth, more instability, spiralling debt and a “postponing of the evil day”. To him, Keynesianism is the problem, not the solution. As with Kliman, Shutt thinks that the corporate debt overhang is too great to permit sustainable growth. Artificial stimulation, from the outside, can’t work.
The lesson of his analysis, according to Kliman, is that new regulations or laws cannot break with the laws of capitalist production. A “somewhat comprehensive socialisation of investment” as Keynes called for, won’t change the fact that banks still have to exist in a capitalist economy. “Investment decisions cannot be based on what would enhance workers’ well-being or fulfilment of public policy objectives,” writes Kliman. “… a bank that dared to pursue these goals would soon find that lenders and investors would not supply it with the funds it needed.”
The pessimistic conclusion, although Kliman would describe it as sober and realistic, is that institutional structures don’t matter. Neither enterprises controlled by their workers or state enterprises represent a rupture with the laws of capitalism and will just reproduce its flaws. In order to transcend those flaws, you need a society governed by new methods of production and exchange. Yet, workers’ control, or worker self-directed enterprises, is thought of by growing numbers of people as a cure for capitalism. It is to this debate that I want to turn to, next.