Michael Roberts Adrift Without A Rudder

Michael Roberts analysis, in last weeks' Weekly Worker, is all over the place, as he tries to defend his Sismondist/catastrophist argument, proffered perennially, over the last decade, that the next recession is at hand. He's like a ship caught in a storm, which is blown in one direction then another, having lost its rudder.

Last year, he argued on his blog, and in WW that we would face a “Post-Covid Slump”. The reason, we were told, was that the lockouts and lockdowns – which Roberts was all in favour of, as he swallowed all of the catastrophist claims about deaths rising exponentially and so on – would result in a collapse in profits, and, because he argues economic growth depends upon profits, as the driver of capital accumulation, capital accumulation would collapse, leading to slump. From a Marxist perspective, there are several things wrong with this argument.

Firstly, as Marx describes in Capital III, Chapter 27, capital does not rely solely upon profits as the foundation of capital accumulation. It developed credit for that purpose. Secondly, with a high rate of turnover, capital, once mobilised, on the basis of such credit, quickly generates both the use values required for physical accumulation, as well as the surplus value/profits required as their monetary/value equivalent. The limitation, here, is whether capital is so incentivised, in the given conditions, to engage in such accumulation. For example, Marx, in Capital III, Chapter 30, discusses how, following a crisis of overproduction, when workers have been laid off, capital has been depreciated, and so the rate of profit is high, capital accumulation is low. The reason is that there is no basis in demand for a large rise in output. Firms introduce new labour-saving machines, to produce existing levels of output more cheaply, rather than seeking to expand output significantly.

Roberts' argument that it is profits that are the determinant is the argument of Ricardo, not Marx, as Marx sets out in Capital III, Chapter 39.

“The demand increases constantly, and, in anticipation of this new capital is continually invested in new land, although this varies with the circumstances for different agricultural products. It is the formation of new capitals which in itself brings this about. But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors.”

In other words, contrary to Ricardo and Roberts argument, that additional accumulation depends upon rising profits, Marx says that it is an assumption of rising demand that leads to accumulation, which, in turn, creates the basis for that rising demand. The driver is competition, which forces each capital to seek to grab market share.

“Although considerable rise or fall in market-prices affects the volume of production, regardless of it there is in agriculture (just as in all other capitalistically operated lines of production) nevertheless a continuous relative over-production, in itself identical with accumulation, even at those average prices whose level has neither a retarding nor exceptionally stimulating effect on production.” (ibid)

Roberts fetishises the rate of profit, because he has nailed his colours to the mast of The Law of the Tendency for the Rate of Profit to Fall as the basis of crises of overproduction, even though Marx himself never made any such claim, and rather describes crises of overproduction of capital as arising due to an over accumulation of capital relative to the social working day, as set out in Capital III, Chapter 15, and as also set out in Theories of Surplus Value, Part II, as resulting from changes in the value composition of capital, as against changes in the technical composition. The latter, which results from technological revolutions introduced to deal with such crises, is the basis of changes in the organic composition, and thereby, the basis of the Law of the Tendency for the Rate of Profit to Fall, not as the cause of crises, but the consequence of them, in so far as it exists at all. For example, in Theories of Surplus Value, Chapter 23, Marx writes, that this fall is,

“(A decline, incidentally, which is far smaller than it is said to be.)”

And, in setting out why even this small fall, apparent only over very long periods, is offset by falls in the value of fixed capital, and rises in the rate of surplus value, he notes,

“The cheapening of raw materials, and of auxiliary materials; etc., checks but does not cancel the growth in the value of this part of capital. It checks it to the degree that it brings about a fall in profit.”

In other words, the law depended on the growth in the technical composition of capital, which increased the volume of processed material by more than the fall in its unit value, but even then, Marx says, this increase is offset by the fall in the value of fixed capital, the fall in the value of labour-power, and rise in rate of surplus value. In economies today, where 80% of new value and surplus value production comes from service industry, not from manufacturing and processing of raw material, that mechanism no longer applies, and the law is, thereby, an historical relic. It explains the allocation of capital across industries, and economies, as it searches for the highest rate of profit, and so the basis of prices of production, and nothing more, if anything more were required.

His argument, last year, was that the cratering of profits, due to the lockdowns, would then necessarily lead to a Post-Pandemic Slump. That argument was blown out of the water, in short order, as economies began to expand at a frantic rate, as soon as consumers were once again allowed to spend. Marx's argument, as against Ricardo above, came into its own, as this sharp rise in demand led to the inevitable competition to grab a share of this rapidly growing market. Businesses had essentially mothballed fixed capital – where they had, actually, been forced to shut down during the lockouts – and so only needed credit for working-capital, to restart. With capital turning over at rapid rates - in some spheres several times a day – and with workers paid in arrears, capital was quickly able to accumulate to meet the rising demand. The constraint it faced, were not those that Roberts had identified, resulting from falling profits, but those of supply bottlenecks, and rising input prices, as all of the liquidity put into circulation by central banks fed into sharply rising inflation. Again, as I have set out in my blog posts, Roberts' theory of inflation, also has nothing in common with Marx's analysis of the phenomenon.

In those posts I have examined Roberts previous WW article, in which he seemed to have accepted the reality that, contrary to his prediction of a Post Pandemic Slump, the world was experiencing very rapid economic expansion. Now, he has reverted to type, and argues that its going to be rising wages and interest rates that squeeze profits, and so bring about his long predicted next recession. Of course, a squeeze on profits due to rising wages, and interest rates has nothing to do with the Law of the Tendency for the Rate of Profit to Fall, but he seems to be willing to use any cause of falling profits as the basis of that argument, despite Marx being quite explicit in rejecting those other causes as contributory factors. Roberts inclusion of interest rates as a factor in determining the rate of profit is contrary to Marx's analysis, in which he clearly deducts interest only after the calculation of the rate of profit. It affects the rate of profit of enterprise, not rate of profit.

Roberts' arguments, here, are equally all at sea. He begins by recognising that the surge in economic activity is really what has caused labour shortages, which in turn, has caused wages to be driven up. But, he then agues that rising money wages as a result of inflation are a money illusion, leaving workers worse off, as prices rise faster. The last statement is undoubtedly true, but does not follow from the first observation. If wages rise due to a relative shortage of labour-power, this has nothing to do with inflation per se, any more than if the price of ice cream on a hot day rises, because supply is failing to meet demand. If wages rise because of inflation, but real wages fall, because prices rise faster, then it simply puts things back to where they were, but now at higher nominal prices for commodities, including labour-power. The inadequate supply of labour-power relative to demand would remain, causing wages to rise further. In other words, its not inflation causing wages to rise, here, but the imbalance of supply and demand for labour-power, which would exist whether there was inflation or not. Roberts' argument, here, is essentially Keynesian, failing to separate out those different causes of rising wages, prices etc.

Later, he argues that rising wages act to squeeze profits. That could only be true if real wages, i.e. adjusting for inflation, rise. He then wants to argue that this squeeze on profits would be the cause of a crisis. Indeed, at a certain point it would, though again, this has nothing to do with the Law of the Tendency for the Rate of Profit to Fall. But, its clear that a fall in the rate of profit resulting from such a squeeze does not necessarily mean a fall in the mass of profit itself. Rather the increase in economic activity, resulting from increased demand for wage goods, as both more workers are employed, and wages rise, means that a greater volume of capital is employed, and even with a lower rate of profit, this increased mass of capital, generates an increased mass of profit. As Marx described above, it is competition that drives capitals to continue to invest, even where the rate of profit is falling, as they try to grab market share, and to increase the mass of profit they appropriate.

So, in the last year, not only has the rate of profit fallen, but, in some cases, profits have disappeared entirely. Contrary to Roberts' theory, however, once the economy was opened again, businesses, seeing rampant demand, rushed to accumulate additional capital to grab a piece of the action. In the 1950's and 1960's, wages and living standards also rose. By the 1960's, wage share was rising at the expense of profits. But, far from resulting in a diminution of investment, capital continued to expand, driven by competition to grab market share. Indeed, as profits were squeezed, but firms continued to be pressed to expand to grab that market share, the more they had to rely on borrowing to do so, which also then pushed up interest rates, further squeezing profit of enterprise. But, it was not that which led to crisis. It was rather a continued accumulation of capital, despite the squeezed profits, and falling rate of profit, until capital was overproduced relative to the social working-day, and instead of large masses of profits based upon tiny profit margins on huge volumes, it turned into large losses.

At some point we will reach that stage again, but not yet. Wages are not rising to an extent to threaten the mass of profits. And, to take another point, many workers have survived despite low wages, by relying on credit from credit cards, or pay day lenders. The usurious interest they pay on that debt, goes to the money lenders, not to industrial capital. Higher wages, that remove the need for such high cost debt, means that workers can spend what they would have paid in interest on actual consumption, the money then going to industrial capital not interest-bearing capital. Higher interest rates, crashing the asset price bubbles, will slash the cost of shelter and of pension provision for workers, reducing the value of labour-power, raising the rate of surplus value, even as living standards are raised by the same process. A collapse in property prices would slash rents, for example, which would also slash the £30 billion a year Housing Benefit budget, which is a direct drain on the surplus value produced by industrial capital.

But, Roberts argument in relation to rising interest costs for the big corporates makes no sense. They borrow via the issuance of commercial bonds – as well as by issuing shares, and having lines of credit with banks – and those bonds have fixed coupons. In other words a fixed rate of interest. If inflation rises, then that fixed rate of interest means that the debt burden faced by the company falls. Suppose, it faces £1 million a year in interest payments on its bonds. If inflation is 10%, so that the prices it gets for all the things it produces, and the profits it makes rise by 10% in money terms, the £1 million of interest falls to only £0.9 million, in real terms, and as each year passes, it falls further and further. Moreover, if it borrowed £50 million, via ten year bonds, when it comes to redeem them, the £50 million now has fallen in real terms to only £18.5 million.

Roberts refers to the increased number of corporations that have revenues that barely cover these interest costs, over the last year, but is that any surprise given the effects of lock downs? The fact is that from current absolute low levels of rates of interest, even significant proportional rises in rates will not dent the growing mass of profits being generated as economies grow rapidly, but those rising rates will severely impact the astronomical asset price bubbles that have been created.