Roberts & The Austrians
Michael Roberts, in an article in the Weekly Worker, gives a reasonable account of the position of the Austrian School, its theory of a natural rate of interest, and of the “Crack-Up Boom”, caused by excessive credit, as its explanation of business cycles. He is quite right in rejecting those arguments as the causes of either booms or slumps, but his own theory is equally false.
Roberts begins his article by attacking the Austrian's belief in a natural rate of interest, and the argument that it is this rate of interest that determines investment. But, the irony is that he does exactly the same thing. The logic of his argument that it is profitability that determines investment, and investment that determines economic growth, requires us to believe that there must then be some “natural average rate of profit”, such that profits above this level, lead to increased investment, and profits below it, lead to reduced investment, and so slump! He has simply replaced the Austrians “natural rate of interest”, with his own, equally spurious “natural rate of profit” as the driver. But, what then is this “natural rate of profit”. It appears nowhere in Marx's analysis, any more than does the idea of a “natural rate of interest”. And, for good reason, because there can be no “natural rate of profit”, any more than there can be a “natural rate of interest”. Marx says the value of capital, as capital, as against the value of the the commodities that comprise the elements of that capital, is this latter value, plus the average profit. But, the average rate of profit itself continually varies as a consequence of changes in productivity, and changes in wages, and so surplus value. In other words, the value of capital, as capital, is not determined, as with any other commodity, by the labour-time required for its production, because this value is a function of the average rate of profit. In short, there can be no “natural rate of profit” for the same reason there is no “natural rate of interest”, which is that capital is a social relation, not a thing, and so is not the product of labour. Capital has no value.
So, Roberts, as much as the Austrians, needs to explain to us what “the natural rate of profit” is, and to tell us what rate it is, so that we can determine whether accumulation should rise, when the actual average rate of profit rises above it, and fall when it falls below it! The Law of the Tendency for the Rate of Profit to Fall is no help to him in this regard. It explains why capital moves from spheres where the annual rate of profit is lower than the average, and into those spheres where it is higher. But, that only explains this movement between spheres, not the total investment of capital over all spheres. What is more, even in terms of the movement between spheres, Marx explains that it does not arise from an actual physical disinvestment, but rather as a result of differential rates of accumulation, accumulating faster in above average spheres, and slower in below average spheres, and one reason is the difficulty and costs of such movement, another being that the actual average rate, and divergences from it, are only discernible over very long periods of time.
Roberts' account of the return on capital being divided into “interest earned on lending money, dividends from holding shares or rents from owning property” is wrong and misleading. Roberts knows that, primarily, surplus value is manifest as realised industrial profit, and only resolves into these other categories, subsequently, along with its resolution into profit of enterprise and taxes. It is that primary relation between the mass of surplus value, and the mass of advanced industrial capital that determines the average annual rate of profit. If Roberts wants to make that rate of profit the key to his analysis, then it is from that starting point that he should begin. His comment that this surplus value is “appropriated by the productive sectors of capital” is also, thereby, wrong, because the whole point about commodities selling at prices of production, under capitalism, is that all industrial capital, productive or otherwise, appropriates a portion of the produced surplus value, as profits. That industrial capital includes merchant capital, and money-dealing capital, but not interest-bearing capital, or landed property.
He is correct, however, that interest, like rent, is merely a portion of the realised profit. He is also correct that the rate of interest fluctuates between zero and the average rate of profit. In terms of the average rate of interest, Marx notes,
“To determine the average rate of interest we must 1) calculate the average rate of interest during its variations in the major industrial cycles; and 2) find the rate of interest for investments which require long-term loans of capital.”
(Capital III, Chapter 22)
But, Roberts is wrong when he says,
“In boom times, it would move towards the average rate of profit and in slumps it would fall towards zero.”
Firstly, the terms “boom” and “slump” are ill-defined, here, and Roberts tends to conflate the term “slump” with the period of “crisis”, when, in fact, these are two completely different phases of the capitalist cycle, defined by Marx as Prosperity, Boom, Crisis and Stagnation. In short, these reflect periods in which the economy begins to grow, following a period of stagnation, a period when the growth becomes more frantic, leading to a period of over-reach, in which capital expands faster than the social-working day, leading to crises of overproduction of capital, which then leads to capital introducing labour-saving technologies, which brings about a period of stagnation or slower growth, usually referred to as slump.
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