Of Brollies and Parasols
Michael Roberts' blog provides a wealth of useful data, and a range of charts, illustrating that data. Having formerly worked for Morgan Stanley, before becoming chief economist, in 1994, of a firm specialising in financial management and strategy, he has a greater access to research resources than most of us, and the tools, from many years involvement in that field, to analyse and present that data. He provides a great service in doing so.
However, there is a danger when having access to all of this data, and being so used to interpreting it in the way that financial pundits, and investment bankers, are prone to doing, that you fall foul of the danger of empiricism, and of confusing cause with effect. There is a strong correlation between people carrying umbrellas with days when it is raining, rather than when it is sunny. But, it's important to recognise that it is not the act of carrying an umbrella that leads to it raining, rather it is the fact of rain that leads more people to carry an umbrella. It's also important to recognise the difference between an umbrella used to shield you from the rain, and a parasol, used to shield you from the sun's rays. Just as it's necessary to understand that not all falls in the rate of profit are caused by Marx's Law of the Tendency for the Rate of Profit to Fall, resulting from a rise in the technical composition of capital. Profits can be squeezed for entirely opposite reasons, and reflect different economic conditions, and stages within the economic cycle. Understanding that relationship can't be ascertained simply by collating the data, it requires an underlying theory to frame its interpretation. The problem then becomes, if you have a theory, do you simply collate data that supports it (confirmation bias), or do you interpret the data in a way that again simply confirms the hypothesis you sought to test, even if the actual data, on closer inspection, invalidate that hypothesis.
The Russian Narodniks, for example, believed that it was possible for Russia to go straight from the existence of village communal production to Socialism. Their economists, like N.F. Danielson, collected huge amounts of data, which they sought to present as supporting their argument. They tried to argue that the very obvious accumulation of capital, and extension of capitalist production that was occurring in Russia, was an aberration, that it was somehow an alien imposition, being imposed from without, on Russia, by imperialism. It took Lenin, a vast amount of forensic analysis of the data they presented, to show that, in fact, it proved the opposite of what they sought to prove, and what it appeared to show on the surface, and that, in Russia, as elsewhere, in fact, a process of differentiation of the peasantry, into a bourgeoisie and proletariat, was taking place, leading to the development of capitalism in Russia. Lenin, spent a long time criticising this Narodnik trend of Economic Romanticism, whose basis was, in fact, the adoption of a Sismondist anti-capitalism. A similar trend today, can be seen amongst the various "anti-imperialist" proponents.
I think that Michael Roberts falls into a similar trap. Michael supports the view that crises of overproduction are the result of Marx's Law of The Tendency for the Rate of Profit to Fall. In order to support this argument, he also defends the use of historic prices, as the basis for the calculation of that rate of profit, as also proposed by the proponents of the Temporal Single System Interpretation, which Michael also supports. In a recent post, Michael provides a wealth of data on the current state of the US economy, and its rate of profit, which he seeks to use to justify his thesis in relation to the law of a falling rate of profit, and the onset of crises. The trouble is that a) the underlying theory presented in relation to Marx's Law of the Tendency for the Rate of Profit, is wrong, b) the data presented in relation to the US rate of profit, is not, despite what Michael claims, a presentation based upon any of the concepts of the rate of profit developed by Marx, but is more closely associated with a Ricardian calculation of the rate of profit, as really a rate of surplus value, c) the use of historic prices, as the basis for calculating the rate of profit is inconsistent with Marx's theory, and undermines, Marx's labour theory of value itself, in a similar way to how Ricardo's followers, in trying to defend Ricardo, undermined the Ricardian theory of value, by actually abandoning the fundamental tenets of his theory of value.
I have set out in the past why calculations of the rate of profit are wrong, as well as what is wrong with many presentations of Marx's Law of the Falling Rate of Profit, and with the idea that it is a basis of, crises of overproduction, rather than the means by which such crises are overcome. I have also demonstrated that the use of historic pricing is not consistent with Marx's theory of social reproduction, and his calculation of the rate of profit. In this series of posts, I seek to bring these together in examining Michael's current post in relation to the US rate of profit, and the conclusions he draws from it.
In Part 2, tomorrow, I will examine, Michael's calculation of what he says is the current US rate of profit, calculated “a la Marx”, and show why, on several counts, it is no such thing.
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