Tag Archive for The Failure of Capitalist Production

Explaining the crisis: A response

In the April and May issues of Socialist Voice an opinion article raised a number of questions about an article on economics in the January issue. It proposed that the review of Andrew Kliman’s book The Failure of Capitalist Production counterposed the “declining rate of profit” thesis with the Monthly Review thesis of “financialisation.” It proposed in turn that distinctions between the competing explanations are exaggerated and are reconcilable. Yet this misses important points of demarcation. Furthermore, the subsequent counter-explanation advanced has a number of shortcomings for understanding crisis in capitalism.

Too much or too little surplus value?

The first matter is whether there is indeed a significant difference between the Monthly Review approach and those scholars who emphasise profit cycles. Fundamentally, the Monthly Review thesis represents a theory of “under-consumption.” As a consequence, this thesis views the cause of economic crisis in capitalism as emanating from the excessive exploitation of workers: that is, crisis and stagnation are a result of the rate of surplus value being too high. According to the “under-consumptionist” thesis, capital has appropriated lots of surplus value but it cannot ultimately find enough buyers for the vast quantity of commodities it is able to produce; the spread between surplus and variable capital is highly skewed towards the former.

So it is a problem of investment realisation. The result is either acute economic crisis at periodic intervals or long-term economic stagnation, with many workers and machines lying idle. This is pretty close to the Monthly Reviewthesis, although it should be noted that in their explanatory framework they do not use core Marxist economic categories such as surplus value or indeed the labour theory of value. In contrast, other radical economists, from Henryk Grossman to Andrew Kliman and Alan Freeman, have tended to emphasise a different set of variables in explaining capitalist crisis.      Crucially, this school sees the cause of crises as being the exact opposite of what the Monthly Review school and other under-consumptionists claim it is. The “falling rate of profit” school holds that it is an insufficient rate of surplus value that leads to acute capitalist economic crises. Too little, as opposed to too much, surplus value is being produced for the needs of the capitalist system. The problem is not that there is too much surplus value, with few profitable investment outlets, but the realisation of surplus value itself.

Conceptual demarcations matter

Conceptually, these two theses of crisis theory are completely opposed to one another. Furthermore, the two theses might lead to quite different political conclusions.

The “under-consumption” thesis implies that if a more equal distribution of the national income can be achieved under capitalism—a lower rate of surplus value—the problem of crises and mass unemployment can be overcome within the capitalist system.

This indeed was the position of Paul Sweezy, the intellectual founder of the Monthly Reviewschool. Writing in 1995, he argued:

If my analysis of the performance of the U.S. economy during the last sixty years is accepted, to what policy conclusions does it point? . . . Public ownership of the means of production and planning to meet the needs of all the people [won’t be] a serious option . . . any time soon. The question should therefore be reformulated: what could be done within the framework of the private-enterprise system to make it work better?      The second indispensable change needed to make the private-enterprise economy work better is a redistribution of wealth and income towards greater equality. We live in a period in which an unprecedented and growing share of society’s income accrues to corporations and wealthy rentiers, while the share of the underlying population stagnates or declines.      This implies a permanent imbalance between society’s potential for adding to its stock of capital and its flagging consumer power . . . Would the capitalist class as a whole, in extremis, be willing to give up half of what it has to save the other half? I have a feeling that the fate of the private-enterprise system may depend on the answer to this question. [“Reminiscences,” Monthly Review, May 1995.]
 There is indeed continuity with this political stance in the current efforts of Monthly Reviewto project a “21st-century socialism” that, unpacked, is more radical social democracy rather than Marxian socialism. The “falling rate of profit” thesis, in contrast, implies that the only way out of a capitalist crisis is through an increase in the rate of exploitation of workers.      Here too the crisis problem might in theory be overcome within the framework of capitalism, but only by greatly increasing the rate of surplus value. This, however, implies an explosive intensification of the class struggle (which is precisely what we are seeing now in Ireland and beyond).

Misspecifying demand

Aside from this, other issues are evident in the opinion article that are worth revisiting. One is the argument advanced about the notion of falling consumption capacity on the part of the working class, which in time—admittedly in confluence with other variables—leads to a generalised crisis of capitalism. Intuitively, there is some logic to this argument: if workers’ pay or share of income (or both) are falling, personal consumption demand will tend to fall (unless it is offset by something else, such as credit).

This reduces profits, and sets the stage for an economic crisis or recession. However, this thesis is problematic when we consider that a decline in personal consumption demand can be offset by a rise in another component of demand, for example investment demand. Investment demand consists of spending by businesses to build such things as factories, machinery, and so on.

So if investment demand rises, and the increase is large enough to offset the fall in personal consumption demand, a decline in wages, or workers’ share of income, does not lead to a decline in total demand and therefore does not lead to an economic crisis.

Of course “under-consumptionists” would counter that investment demand cannot grow faster than personal consumption demand in the long run: ultimately, consumers have to buy the stuff. This, however, ignores the fact that a significant section of demand within capitalism is internal to capital, i.e. capitalists selling to each other within “closed circuits.” Mining companies, for example, sell iron to companies that use the iron to make steel; steel companies sell the steel to companies that use it to build mining equipment; companies that build mining equipment sell to the mining companies.

The production of consumer goods and the demand for them typically rises less rapidly than the production of and demand for investment goods. Indeed, if we take the empirical evidence from the world’s largest capitalist economy—the United States—this is what has happened. Since the 1980s (and up to 2009) real investment demand or productive demand grew 73-fold; personal consumption only 15-fold (Source: Bureau of Economic Analysis, www.bea.gov). So investment demand grew five times as rapidly as consumption demand. Thus consumption demand is not wholly pivotal to the workings of capitalist crisis.

Furthermore, productive investment has not stagnated irreversibly since the late 1960s but has fluctuated in line with wider profit cycles.

Financialisation, fictitious value, and the dangers of one case

Questions might be raised about the idea that capitalism has reached a new stage, defined not by commodity production but by money simply creating more money (M—M′). If this is so, then we are no longer living in a capitalist mode of production.

Capitalism is commodity production (which is why the first chapter of volume 1 of Capital begins with commodities). If capitalism is not predominantly characterised by M—C—M′ exchange, then it ceases to exist as we know it. If we live in an economy predominated by M—M′ then we live in a fairyland of fictitious value, where everything is ethereal and no value is created.

Of course the only reason M—M′ can exist is if it is grounded on M—C—M′. No economy can exist on M + M′ alone: fictitious value at some point must have recourse to real value in the economy, real value being based on commodity production. In any case, much of the financialisation activity over the last twenty years or so has been rooted in actual productive investment, in utilities such as telecoms, for example, which belies the notion that financialisation must exclusively be indicative of some profit strategy at odds with real production.

Ultimately, financialisation and financial crisis have always accompanied capitalism (tulip mania in 1637, for example). Financialisation at some level indeed is necessary for lubricating the system of productive capitalism. To claim that it represents a new stage is to simply conflate what has been a process of intensification brought about not by stagnant productive investment (which is subject to cyclical waves) but by the deregulation of capital flows in the search for greater profitability.

Of course it is well known that financialisation profits have risen sharply compared with non-financials in the United States; but there has been an even more significant increase in profits from overseas production. Profits from productive sectors overseas have quadrupled since the 1950s, while financial profits have only doubled. (Source: Bureau of Economic Analysis, www.bea.gov).

In any case, we should be cautious about extrapolating evidence from the single case of the United States to make wider generalisations about the trajectory of international capitalism. Capitalism at the global level operates unevenly; and while American capitalism might be faced with a secular decline in profitability, this is hardly true of some of the other large economies in the world: India, Brazil, Russia, or China.

Conclusion

The thesis advanced in the opinion article, while containing much validity, is not without problems. Firstly, the conceptual demarcations between the Monthly Review school and the “falling rate of profit” thesis are not as superficial as implied. This is true at both the conceptual and the political level.

Secondly, the wider argument about the trajectory of contemporary capitalism and the genesis of the present crisis is based on three problematic features. The first is arguably based on a misspecification of effective demand by inflating the importance of personal consumption to capitalist growth.

The second problem is arguably based on misconceptualising fictitious value within capitalism; the third is based on an exaggeration of the significance of financialisation as a new stage within the development of capitalism.

[NC]

Understanding the crisis

Understanding the crisis

A response to the review by NC of The Failure of Capitalist Production by Andrew Kliman in the January issue of Socialist Voice.

Understanding the crisis is the key to addressing the political challenges we are facing today. A clear understanding of the forces behind the crisis and the contradictions that exploded in 2007 will help communists and class-conscious trade unionists to evolve the correct strategies and tactics for building class solidarity and consciousness, for pushing forward our class interests and the interests of humanity and the planet as a whole.

There are many great thinkers and activists who bring up to date and develop classic Marxist concepts to explain current events: the journal Monthly Review, the author of the book reviewed in January, Andrew Kliman, Michael Hudson, Samir Amin and researchers at RMF (Research on Money and Finance), to name but a few.

They may differ on some points in emphasis or on others in more fundamental understanding. But the aim should not be to choose one view over another and stick blindly to that view: it should be a concrete analysis of a concrete situation. And this is being achieved by using our collective knowledge and experience, combined with the most developed and coherent analysis of the system, placing it firmly in the historical trajectory of this country.

In short, it is to take the best critiques of the capitalist system today and add our experience to them.

Academics and professional economists (no offence intended) have a tendency to exaggerate differences in order to differentiate themselves from other thinkers. While they may lead the way in developing theories and providing the research that others can use, they cannot be relied on exclusively in explaining events, especially the present crisis. It is not about saying Kliman is right and Monthly Review is wrong but rather, in the best tradition of Marxism, taking the best features of the most advanced scientific thought to explain the world around us, and using this to help us change the world.

 

1. Financialisation of the accumulation process

The review seems to counterpose Kliman’s view of the declining rate of profit and the destruction of capital (or failure to destroy sufficient capital) to financialisation theory (in particular Monthly Review writers) in explaining the crisis and to suggest that it is either one or the other.

The reviewer writes: “The thesis presented in the book stands out in a number of ways from many contemporary radical interpretations (notably the financialised-underconsumptionist thesis advanced by the influential Monthly Review, which melds together a particular Marxian/post-Keynesian viewpoint and that of the Marxist political geographer David Harvey).”

I do not agree that either financialisation or insufficient destruction of capital is the root cause of the crisis. The system itself is the root cause, and both financialisation and insufficient destruction of capital in previous recessions are essential features of monopoly capitalism. Accepting both is not necessarily a contradiction when one understands them as features of monopoly capitalism in its current state.

Kliman’s calculations of the declining rate of profit for the system as a whole, I suggest, do not necessarily contradict the evidence that after-tax profits and wealth have been concentrating and monopolising, leading to an abundance of capital in fewer hands that required investment in financial innovations and that blew up speculative bubbles to avoid global stagnation.

The failure to destroy capital en masse since the Second World War has driven capital to these financial avenues as other, more productive avenues are shut off by over-production and the cheapening of production.

My understanding, for what it is worth, is that the financialisation of the accumulation process (finance as the main avenue for investment of excess capital and source of profit and growth within the system today) is a product of the very crisis Kliman explains so well. It is a result, not a cause, of the generally stagnating economy. It has been a systemic response to divert after-tax profits (and after what capital can be reinvested in the monopolies that finance controls) to financial or (in the case of property bubbles) finance-led investment avenues.

Financialisation was not a misled policy choice but rather a solution to the problem of excess capital in the system, which, without a massive destruction of capital, had no home to go to.

Take GE Capital, Pfizer International Bank or the Volkswagen Bank as examples. These are the banking arms of global manufacturing monopolies. They were not set up as a policy choice by those companies to divert their capital to finance and away from manufacturing: they were set up because even after tax (what little they pay), bonuses and reinvestment, global monopolies still had masses of capital to invest, and financial products offered an avenue.

But financialisation, or the failure to destroy enough capital, do not by themselves explain the crisis; because what drove them as processes?

To try to find this out it might be worth while looking at more of the dominant features and how they connect to financialisation and the declining rate of profit in order to better understand the crisis and the establishment’s response.

 

2. The monopolisation of power

Wealth, income and control are all features of power, and power is being monopolised and concentrated in fewer and fewer hands globally. Power over productive relations that mould the shape of society, human relations and indeed the environment are increasingly centralised in the hands of the big monopolies and their biggest shareholders.

Even during this recession, global wealth increased, from $195 trillion in 2010 to $231 trillion in 2011, with the top 1 per cent—those with more than $712,000—accounting for 44 per cent of that $231 trillion and the top 10 per cent owning 84 per cent, while the bottom 50 per cent have barely 1 per cent.

Recent research found that of 43,060 transnational corporations analysed, a little over 730 entities control 80 per cent of these corporations, and a mere 147 control more than 40 per cent. Of these 147 controlling entities, 75 per cent are financial institutions.

This is how monopolised and uncompetitive production is. The automobile industry is dominated by about six companies, semiconductors by about twelve, music production about four; there are about ten big pharmaceutical companies, three soft drinks companies, and only two major commercial aviation companies.

And, as described above, these are then controlled by a few—often the same—large shareholders. This would suggest that a willing destruction of capital (or devaluation of assets) will be unlikely, given the power possessed by this handful of people who would take the biggest hit.

 

3. The internationalisation of production

Hand in hand with the process of monopolisation, and driven by the same accumulation process, production has become internationalised.

The dominant form of production and exchange is not local: it is truly global. A pair of Nike shoes contains about fifty parts, which are made in dozens of different factories in half a dozen countries. The total cost of a pair of Nike runners is about $1.50; they sell for over $100.

This means that workers are pitted against each other globally in a race to the bottom, with only one winner: profit. The amount of money big monopolies can accumulate through the internationalisation of production is huge. This is what has led to an over-accumulation of capital in the system.

The increasing size of monopolies means they can control the production and distribution networks within their field, and pit one against another. Labour becomes de-skilled as workers merely complete one task rather than completing an entire commodity. And more and more is produced through this cheapening and fragmentation of the production process.

However, the drive to pursue profits and ensure a return for shareholders does not pass on price reductions to consumers, as seen in the Nike example; and as workers in the “West” are cheapened by this process, consumption and demand are weakened, resulting in a continuous state of over-production.

Supply is not driven by demand but by the creation of surplus value through the application of labour in the production process. Capital emphasises the need to get the most out of labour, increase and cheapen production. Demand often suffers as a result and rarely meets supply. The extension of debt, or credit, has been a useful tool in artificially trying to match demand to supply. However, it is like putting a plaster over a gunshot wound and cannot seriously create an equilibrium between contradictory forces.

 

4. The proletarianisation of peoples

One of the great myths is that “globalisation” is destroying the working class and making everyone some kind of middle class. The artificial growth of a middle class has been shown to have been merely superficial and based upon mounting debt and rising asset values. The reality is that, as the internationalisation of production has developed, and in particular the monopolisation of land, this has brought with it the proletarianisation of peoples. More and more peasants and subsistence farmers are driven off their land and forced into cities to work in factories. This also has damaging and negative consequences for the environment, in both rural and urban settings, and has led to the development of horrific slum dwellings around cities.

In addition to this, as the monopolisation of production and retail outlets has progressed, the number of small businesses has also declined globally, being replaced with megastores and transnational companies.

The number of small businesses closing during this crisis is evident. Equally, during a time of crisis, with little real avenue for investment, many companies pursue aggressive take-over strategies to reduce their competition and increase their market share. Often small businesses are absorbed by their larger competitors, again reducing the number of self-employed and increasing the wage class: workers.

 

5. The growing reserve army of labour

As the system expands into almost every corner of the earth, by open warfare at times, and the working class is expanded, so too is the number of global unemployed—the number of potential workers the system has at its disposal. Marx called this group of potential workers the reserve army of labour, and this has truly expanded as monopoly capitalism has grown.

The proletarianisation of peoples and the defeat of the socialist economies have greatly expanded the number of potential workers, to 2.4 billion today, approximately 65 per cent of the potential global work force.

Supply and demand in influencing the cost of labour (our wages) has an obvious and speedy impact, but the cheaper cost of maintaining a worker in southern parts of the globe is the main driving force behind this process. As production has become so internationalised, the speed at which it can seek out and move to the cheapest parts of the globe has increased. The ever-growing reserve army of cheap labour is part of a race to the bottom and of the assault on trade unions and working conditions in the West.

The retreat of social democracy is less an ideological or policy retreat than a result of the fact that its material base—strong domestic industry in the central economies—has vanished as a result of the monopolisation and internationalisation processes and with it the leverage that workers in those countries could bring to bear on political economy.

 

6. The pauperisation of the working class in monopoly centres

This process of imposed division and competition between workers is leading to the pauperisation of the working class in the centres of monopoly capital and the gross exploitation and abuse of workers in the South.

As major economic activities have moved away from the West, social democracy has withered. These economies have been forced to become more “open” to deal with the new speed and direction of capital in undermining the terms and conditions of employment.

While real wages have largely stagnated, debt has driven consumption. Inflating asset values, such as houses and shares, have provided a false growth in consumption by working people in the West. This has been shattered by the burst of this latest speculative bubble.

The extremely weak foundations that consumption was reliant upon have been exposed, and increasing “austerity,” to shore up finance capital, is only exacerbating the overproduction of real goods.

 

7. The role of debt

Credit, and its negative—debt—have always played a role in the capitalist production process. However, it is fair to say today that the role it plays now is far greater and more global in its effect on production and the usual cyclical functioning of the system.

As capital concentrated, those accumulating it could more easily direct and control production to suit their needs through investment and ownership in companies. Equally, the amassing capital required ever more investment avenues. Monopoly production killed off many “real” investment opportunities, and the processes outlined above closed off avenues in reinvestment.

For every extension of a loan, or every bet on a future price or event, debt within the system is created. Debt-based “products” became a significant source of investment and return, including the purchase of and speculation in government bonds or collateralised mortgage products.

Banks created hundreds of debt-based androids that acted as investment avenues but also as security for further loans. This side of the accumulating process (M—M, in the terms used by Marx in Capital) created capital out of itself, and with it volumes of personal, corporate and government debt in the system as debt became an asset and a source of further investment and growth.

The scale of systemic reliance upon this system of M—M growth can be seen in the unusual length of the investors’ “strike” and the negligible effect of hundreds of billions in quantitative easing. During a recession, investors are afraid, and a hoarding of capital is not unusual. However, it would normally pick up after a number of “corrective measures” and an appropriate avenue is found for it.

Today this fear is still clear to see; and reading the pages of Bloomberg or listening to many of the speeches at Davos one can see that it is not going anywhere in the near future. The scale of debt in the system means that investors don’t know how to hedge their bets, as the likelihood of default is ever present and very real. With “sure things” having totally collapsed, investors don’t know where the next Lehman Brother or Irish economy is.

Equally, any quantitative easing that has taken place has not created new jobs or oiled the wheels of production: instead it has been used by those same corporate hoarders to pay off some of their own debts.

 

8. Speculation and bubbles

While the processes described above have concentrated ever more capital in fewer controlling hands, growth in monopoly centres, such as the United States, Britain, and Europe, would have been negligible over the last couple of decades had it not been for speculation-led financial growth in a series of bubbles.

In the German economy, the driving engine of the economy in the European Union, growth never reached more than 4 per cent but was more often 1 or 2 per cent (and this is including finance-led growth). In Ireland, if one knocks off the 25 per cent or so of GNP attributable to the property bubble each year of the so-called Celtic Tiger, our economic growth was more of a mirage than a miracle. Even recently published reports show that the economy is still stagnant; the only small bit of growth is in foreign monopolies.

Mergers and acquisitions, commodity bubbles and futures speculation, energy and “dot-com” bubbles, sovereign debt and currency speculation, property and mortgage bubbles (and throw in some legal, and illegal, money-laundering)—these have provided the system with its major source of growth, investment, and the creation of new capital through profits.

Speculation is different from investment; it is different from the run-of-the-mill extension of credit to a business or company. In a capitalist sense, investment follows an analysis of the company or product and a belief in its ultimate success. That is to say, the investor has “bought in” to the product. Speculation is less thorough. Little analysis is done, or no thorough analysis can be done, as it may be a blind bet on a future event.

The nature of speculation leads to bubbles, as a spike or inflation of asset prices resulting from the investment of capital attracts more capital, leading to further inflation and consequently to a bubble. While this does provide an avenue for a “quick fix” for capital to invest in and get a return, providing growth in the system, it is quickly flooded with all that other capital seeking an investment opportunity. What may have begun as a spike in valuation grows into a bubble and ends with no soft landing but with an explosive burst.

 

A system in deep and lasting crisis

The phenomena described above are all dominant features of capitalism today, and they cannot be undone. This is the situation from which any capitalist recovery must come, or from which any transformation to socialism will be born.

These features, and the extent to which they have developed, are what make the present crisis distinctly different from previous recessions, in a number of
ways.

1. The crisis is universal. It is not confined to one area of the accumulation process. It is not merely a banking or finance crisis. It is not merely a crisis of under-consumption. It is not merely a crisis of over-production of houses or over-investment in energy.

2. The crisis is global. It is not just in one area or one hemisphere. The United States, the European Union, Japan and the global South are all affected.

3. It appears to be continuous or permanent. Rather than being a two-year or three-year “downturn” with a gradual recovery, this is now the fifth year of the crisis, and there are few signs of a recovery.

This is what makes the crisis truly systemic and structural. This is what makes this crisis different from previous ones. The result of this crisis, and any so-called solutions to this crisis, will deepen the contradictions and accentuate these features even more.

Wealth is already being concentrated even further. Production is monopolised even further, with mergers and acquisitions being used as an investment avenue for the abundance of capital in the system. Production is moving to ever-cheaper parts of the globe, reducing the cost of production to maximise profits out of a contracting customer base. The global number of unemployed is increasing, and the impoverishment of working people in the West will further reduce consumption for goods but also lead to the further indebtedness of both individuals and countries.

Without a massive destruction of capital, the stagnation and contradictions that were only superficially covered up by finance-led growth will lie exposed for some time, wreaking hardship and misery on the vast majority while benefiting only a few.

The structure of monopoly capitalism, and the proliferation of nuclear weapons, with monopoly rivalry and the control of monopolies through shares that are dominated by a few hedge funds and finance companies, may well prevent the global destruction of asset value on the scale that Kliman suggests, leaving us with the understanding that this is not a normal cyclical crisis or recession but one whose features are so accentuated, structural and systemic, and with contradictions so great, that it may well constitute a phase of capitalism in aggressive decay.

The failure of capitalist production – Book Review

Andrew Kliman, The Failure of Capitalist Production: Underlying Causes of the Great Recession, London: Pluto Press, 2011 (ISBN 978-0-745-33240-6; €78; paperback: ISBN 978-0-745-33239-0; £18).

The causes of the global financial crisis and the Great Recession have been the subject of much debate. This book, written by a leading American Marxist economist, Andrew Kliman, is the first to conclude, on the basis of detailed analyses of official US data, that Marx’s crisis theory can explain these events.

The core thesis of Kliman’s book is that the rate of profit has a continual tendency to fall. However, this tendency is reversed by what Marx, and other scholars, refer to as the “destruction of capital.” This is essentially the losses generated by declining values of financial and physical capital assets or, in extreme instances, the obliteration of physical assets themselves. This dynamic re-establishes profitability, setting the conditions for a new growth.

Kliman argues that during the global slumps of the mid-1970s and early 80s far less capital value was destroyed than during the Depression and the following world war. The extent of capital value destroyed during the Depression was much more than laissez-faire economists had expected, while the persistence of extreme depression in the 1930s led to the radicalisation of the working people, the strike wave throughout the Detroit car industry being an exemplar.

The lessons of this were not lost on policy-makers, who have obviously sought to avoid a repeat of such crisis. This leads them now to intervene with monetary and fiscal policies in order to avoid full-scale destruction of capital value. This is why subsequent downturns in the economy have avoided the severity of the Great Depression.

Historically, however, much less capital value was being destroyed during the crisis of the 1970s and early 80s in comparison with the Great Depression. As a result, the declining rate of profit was not entirely reversed. And because it was not reversed, profitability was too low to sustain a new boom. Not unpredictably, the lack of profit led to a progressive decline in the rate of capital accumulation.      The decline in the rate of profit, together with reductions in corporate income tax rates that served to prop up corporations’ after-tax rate of profit, led to greatly reduced tax revenue and mounting government budget deficits and debt. Governments attempted to manage the relative stagnation of the economy by pursuing policies that encourage an excessive expansion of debt. These policies artificially boosted profitability and economic growth, but in an unsustainable manner that has led to burst bubbles and debt crises.

Kliman outlines how an immense wave of business and personal bankruptcies, bank failures and write-downs of losses might solve the debt overhang. New owners could take over businesses without assuming their debts and purchase them at fire-sale prices. This would raise the potential rate of profit, and it would therefore set the stage for a new boom. If this does not happen, however, the economy will continue to be relatively stagnant and prone to crisis.

The thesis presented in the book stands out in a number of ways from many contemporary radical interpretations (notably the financialised-underconsumptionist thesis advanced by the influential Monthly Review, which melds together a particular Marxian/post-Keynesian viewpoint and that of the Marxist political geographer David Harvey). A dominant interpretation at present is that, in the light of the stagflationary crisis of the 1970s and early 80s, economic policy became “neo-liberal,” leading to the increased exploitation of workers. Consequently, American workers are not being paid more, in real terms, than they were paid in the 1950s and 60s, leading to a declining share of income.

The increase in exploitation led to a rebound in the rate of profit. Normally this would have caused the rate of accumulation to rise as well, but this time it did not. The contemporary account blames the “financialisation” of the economy for the failure of the rate of accumulation and holds that financialisation, another component of neo-liberalism, has induced companies to invest a larger share of their profits in financial instruments and a smaller share in the productive capital assets that make the “real” economy grow.

As a result, economic growth has been weaker during the last several decades than it was in the first few decades that followed the Second World War; and this factor, along with additional borrowing, which enabled working people to maintain their standard of living despite the drop in their share of income, has led to long-term debt problems. These debt problems, and other phenomena that also stem from financialisation, are said to be the underlying causes of the latest economic crisis and slump.      In contrast to this account, Kliman provides far more compelling empirical evidence that American corporations’ rate of profit did not recover in a sustained manner after the early 1980s. Their before-tax rate of profit has been trendless since the early 1980s, and a broader measure of the rate of profit appears to suggest a continued decline.

A crucial finding undermining the financialisation thesis is that Kliman demonstrates how American corporations have not, as is often claimed, invested a smaller share of their profit in production. Between 1981 and 2001 American capital devoted a larger share of its profit to productive investment than it did between 1947 and 1980 (and the post-2001 drop in this share is a statistical fluke).

What accounts for the decline in the rate of accumulation is instead the decline in the rate of profit. Further, American workers are not being paid less in real terms than they were paid decades ago: rather, real pay has risen. And their share of the country’s income has not fallen: it is higher now than it was in 1960, and it has been stable since 1970.

Kliman’s conclusion to this important book is simple: short of socialist transformation, the only way to escape the “new normal” of a stagnant, crisis-prone economy is to restore profitability through full-scale destruction of the value of existing capital assets, something not seen since the Depression of the 1930s. [NC]