This is a response to a recent article by Michael Roberts in the Weekly Worker.
Summary
Roberts implicitly replaces the Austrians' “Natural Rate of Interest” with his own “Natural Rate of Profit”, above which accumulation increases, and below which it falls.
There is no “Natural Rate of Interest”, because there is no “Natural Rate of Profit”. That is because capital is not the product of labour, and so has no value, or price of production.
Roberts' theory is Ricardian rather than Marxian. As Marx explains as against Ricardo (Capital III, Chapter 39) its not profitability that drives accumulation, but competition for market share. Capital must accumulate or die whether the rate of profit is rising or falling, because efficiency is a function of scale of production.
The Law of the Tendency for the Rate of Profit to Fall, which Roberts relies upon, is an explanation of why capital accumulates faster in some, higher profit spheres, rather than lower profit spheres, it is not an explanation of higher or lower capital accumulation in total.
The cause of falling profits within each cycle is a squeeze on profits resulting from changes in the value composition of capital – rising material costs, rising wages – whereas the Law of the Tendency for the Rate of Profit to Fall, is based upon changes in the technical, and, thereby, organic composition of capital, which measures changes in the average rate of profit, between complete cycles.
If Roberts theory were correct there should be continually falling capital accumulation over time, corresponding to a continually falling rate of profit over time. That does not happen.
To accumulate capital, its not necessary to make average profit, but only to make a sufficient margin over the rate of interest, or return from other assets. The rate of profit is always significantly higher than the rate of interest. (Theories of Surplus Value, Chapter 13).
Roberts' description of the interest rate cycle is crude and wrong.
He says the rate of interest is highest when the rate of profit is highest, and lowest during slumps, which he conflates with crises. Marx says its highest during crises, lowest during the period of stagnation, but also during the period of a high rate of profit, and prosperity (Capital III, Chapter 22)
The Rate of Interest is low during the period of prosperity, when the rate of profit is high, and the economy is expanding, because it results in higher realised profits providing an increased supply of loanable money-capital, and because it encourages businesses to increase the provision of commercial credit reducing the demand for currency and bank credit.
The Rate of interest rises, when the economy starts to boom, and profits start to get squeezed, because competition forces capital to accumulate faster, which requires more borrowing. It reaches its peak when that squeeze on profits results in crises of overproduction, as firms now demand cash and stop providing commercial credit, and must borrow to cover their payments and stay afloat.
Roberts' theory implies a self-regulating model of capitalism like that of the Austrians. If accumulation slows when the rate of profit falls below some mystical “natural rate of profit”, then the labour supply will rise faster than employment, unemployment will rise forcing wages back down, and profits will rise above the “natural rate of profit” causing accumulation to rise again!
He can't tell us what this rate is, because it doesn't exist.
Even in the 19th century, when the economy was dominated by the processing of materials, Marx noted that the tendency for the rate of profit to fall was much smaller than it was said to be, and only visible over very long time periods. (Theories of Surplus Value, Chapter 23). It is not a cause of crises, but the means by which they are resolved, as the crises induce labour-saving technologies that reduce wages and raise the rate of profit.
Today, the driver of the Law of the Tendency for the Rate of Profit to Fall, technological change that increases the proportion of raw material cost in final output cannot operate, because 80% of economies comes from service industry, not the processing of materials. It explains the formation of prices of production, and movement of capital between spheres, on that basis, but does not imply any long-term fall in the rate of profit, let alone crises resulting from it.
With yields on assets near, or in many cases, below zero, Roberts' theory suggests that money-capital should be flowing out of fictitious-capital in search of the much higher yield available as profit from industrial capital. It hasn't been, and that is because central bank induced asset price hyper-inflation, underpinned and guaranteed large capital gains for those speculating in such assets rather than engaging in productive activity.
Even so, for the last decade he has forecast the onset of a new slump that never came, until one was deliberately induced by government diktat in response to COVID paranoia. Even last year, he predicted a “post-COVID slump”, as a result of profits being crushed. Profits were crushed, but, when restrictions were lifted, far from a slump, there has been a rampant boom, driving rapid capital accumulation, sharply rising commodity price inflation, and rising interest rates, as borrowing increased.
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