Conclusion (4)
The argument that the Law explains the financial crisis of 2008, and the economic crisis that followed it is wrong because of the premises upon which the argument is based. Those that make this argument do not make it on the basis of an understanding of the Law as set out above, as a law about falling profit margins, but in the context of it being a law of a falling general annual rate of profit. The argument is that this rate of profit had been falling, or at least had not reached its previous high levels, and this meant that capital did not have the available surplus value to accumulate rapidly as it has done in previous periods, and also that this low rate of profit was a disincentive for capital to invest anyway.
This is clearly a different argument to that which Marx and Engels set out in Capital III, Chapter 6 and 15, and in Theories of Surplus Value, about how falling profit margins can facilitate a crisis of over-production. It is to understand the Law not as a theory of falling profit margins, but of an actual fall in the general annual rate of profit. Now, as stated above, the latter could be the cause of a prolonged period of stagnation, such as those associated with the period between 1825-43, 1865-90, 1920-45, and 1974-1999, but the question is does this reflect the situation prior to 2008? The answer is no. What is common in all of these periods of stagnation, is that in the period before them the conditions for a fall in the general annual rate of profit is established, but that in the latter half of the period of stagnation, similarly, the general annual rate of profit starts to rise, and the conditions are set in place for the next boom cycle.
As I've written elsewhere, its pretty much impossible to obtain a calculation of the general annual rate of profit, because to do so not only requires data in relation to the constant capital value advanced in production, but which does not form part of the overall social exchange, i.e. does not appear in national accounts as revenue, but it would also require data on the average rate of turnover of the total social capital, which again is not available from national accounts. The real value of national output as Marx sets out in Capital II, is the total of C+V+S, but the national accounts only provide information on V+S, i.e. on the value of new production, represented in revenues (wages, profits, interest, rent and taxes). Measurement of the rate of profit on the basis of this data, is then not a calculation of rate of profit but of rate of surplus value. Similarly, it is not a calculation of the annual rate of surplus value, but only of the rate of surplus value. That can be modified by adding in the value of the fixed capital, but the very process of rising social productivity means that the fixed capital stock falls as a proportion of the circulating constant capital, whilst rising as a proportion of the advanced capital. Moreover, the same process that causes the rate of profit to fall, causes the rate of turnover of capital to rise, so any such measures must necessarily understate the rise in the general annual rate of profit.
As I've set out elsewhere - The Rates Of Profit, Inflation and Interest – if you take such measures of the “Rate of Profit” in order to obtain something approaching a more realistic measure of the general annual rate of profit, it is necessary to include an adjustment for the changes in the rate of turnover of capital during the relevant period. Marx and Engels in Capital note that the biggest effect on the rate of turnover is the rise in productivity. In other words, the very same process that causes the rise in the organic composition of capital, and fall in the rate of profit. That is so because, the rise in productivity means that the quantity of production required for any working period is produced that much more quickly, shortening the working period, but also this same rise in social productivity speeds up the circulation period of capital, by improving transport, as well as the means of circulating commodity-capital, and money-capital.
Using, an average 2% p.a. rise in productivity, as a proxy for the annual rise in the rate of turnover, therefore, its possible to calculate the extent to which the rate of turnover should have changed over different periods, and the consequent effect on the general annual rate of profit. For example, if we take the period from 1950, the compound effect of this 2% p.a. rise is that the rate of turnover today should be 3 times what it was then, and so any calculation of the rate of profit today, should be multiplied by 3 to obtain a comparable general annual rate of profit to that of 1950.
Using Doug Henwood's US data for the rate of profit then, I calculate that, on this basis, the general annual rate of profit, today, would be around 25%, compared to a figure of around 8% in 1950. In fact, apart from a temporary but sharp reduction around 2000, probably due to the overproduction in technology that resulted in the Tech Bubble and crash, the rate of profit on this basis rose from around 1980, but most notably from the late 1980's (around 8%) to 2010 (25%).
The fall in the rate of profit (profit margin) arising from rapidly expanding accumulation driven by a high general annual rate of profit, could explain a sharp crisis of overproduction such as that which affected technology in 2000, it will undoubtedly explain future crises of overproduction emanating from China, but it does not explain the financial crisis of 2008. On the contrary, if anything the financial crisis of 2008 can be explained by the high general annual rates of profit that had existed for 20 years, and which had made available huge volumes of potential money-capital, driving down global interest rates, which alongside huge injections of liquidity, to prevent deflation of global commodity prices, as a consequence of the same process of massive rises in social productivity, had caused the blowing up, from the 1980's, of massive speculative bubbles, which have repeatedly burst, only to be quickly reflated by even bigger injections of liquidity, to prevent the inevitable insolvency of the banks and financial institutions.
The fact that the general annual rate of profit is likely to begin to fall, and may already be falling from this point, may well be the cause of the next crisis. It will be so not because of the reasons those who have argued for it as an explanation of 2008 suggested. It will be so, because it will cause the supply of potential money-capital to decline, relative to its demand, causing interest rates to rise, thereby sparking a much bigger financial crisis than 2008.
No comments:
Post a Comment