Theory and Reality
So, Roberts' argument has no foundation in Marx's theory and analysis. Roberts' own recent application of his theory shows it to be wrong. On the basis of it, he has predicted a new slump every year, now, for getting on for a decade, and, each year it failed to materialise, he simply deferred its arrival to the next year. The artificially induced slump caused by lockouts and lockdown came as a lifesaver for him. No wonder, as with other catastrophists, he was eager to claim that the virus itself was simply a consequence of capitalism, as though viruses and plagues have not decimated human populations on a much larger scale throughout history prior to capitalism. The only surprise is that he did not claim more overtly that the virus itself was a consequence of the Law of the Tendency for the Rate of Profit to Fall.
In 2020, he adopted the worst case scenario for possible deaths from COVID, in support of calls for harsh lockouts and lockdowns. On the back of it, and on the basis of his theory that it is the rate of profit that determines capital accumulation, and capital accumulation that determines growth, he predicted that there would be a “Post Pandemic Slump”. But, it failed to materialise. Instead, despite profits having disappeared, and ongoing restrictions in opening up economies, demand has surged, firms rushed to use commercial credit, to restore their working-capital, and to accumulate additional capital to meet this rapidly rising demand.
Large amounts of liquidity, pumped into circulation by central banks, was immediately taken up by these consumers, and went to inflate commodity prices that, around the world, have increased at a much faster rate than central banks or Roberts had anticipated. Across the globe, it has led to sharp rises in the demand for labour, and associated sharp rises in wages. The latest job numbers in the US, showed it creating 1 million new jobs in the last month, and the economy is creating jobs at a faster rate than workers are coming forward to fill them. The rate at which workers quit their jobs to take up better paid jobs has also increased. In the UK, the last month's data showed wages rising by 8.8%. That understates the rises in some sectors, where wages have risen by as much as 18%.
And, a look at experience itself shows that Roberts' argument is clearly false. He argues that the driving force of economic growth is capital investment, and the driver of capital investment is rising profits. The writings of Marx, set out above, show why that is not consistent with Marx's analysis. Even common sense shows that it is wrong. Why would any firm engage in capital investment, just because the rate of profit was high, unless it believed that demand for the product of that investment was going to be sufficient to be able to realise the profit? Moreover, the point at which the rate of profit is highest is during the period of stagnation, when labour has been, and continues to be, shaken out by the introduction of labour saving technologies, and when the value of fixed and circulating constant capital has been greatly reduced by the same technological revolution that both raises productivity, and brings about a huge moral depreciation of the fixed capital stock!
Its that fact, that the supply of new loanable capital from this high rate of profit coincides with a low rate of capital accumulation that causes interest rates to drop to their lowest point during this period. By contrast, the point where the rate of profit begins to be squeezed is when the economy is expanding fastest, when the demand for labour rises, causing wage share to rise, and consumption to increase on the back of it, which leads firms to have to accumulate to ensure they claim this share of the expanding market. Indeed, even in the period of crisis, when the squeeze on profits reaches the point where profits turn into losses, firms still try to expand their production so as to reduce their costs, and grab market share at the expense of their competitors. It is why, as Marx says, these periods of crisis are marked by consumption rising to its highest levels, and interest rates rise to their highest levels too. These periods are also ones in which there is no notable change in the organic composition of capital, as they are periods of extensive rather than intensive accumulation. There is, however, a change in the value composition, causing a squeeze on profits.
The 1960's were a period when wages and the social wage rose, increasing wage share at the expense of profit share. (See: Glyn and Sutcliffe, Burgess & Webb, Thirlwall, Heidensohn, and Zygmant, and W.D. Nordhaus)
But, this was certainly not a period in which capital accumulation was reduced as Roberts' theory suggests should have happened. Nor was it a period of slower economic growth, resulting from any such reduction in capital accumulation. As stated earlier, in the period from 1950 to 1980, US GDP grew by 361%, whereas between 1980 to 2000 it grew by just 118%. That is an average of 12% as against 5.9% per year, or on a compounded basis 5.23% as against 3.97%. Between 1950 and 1960, US GDP rose by 41% (constant 2005 Dollars), but between 1960 and 1970, it rose by 51%. Even in the period of crisis between 1970 and 1980, it rose by 37%. Measured in nominal Dollars its even more stark. Between 1950 and 1960, GDP rose by 79%, between 1960 to 1970 by 97%, and between 1970 and 1980 by 168%. Yet, the period from the 1960's to the early 1980's was a period of squeezed profit share, and a fall in the rate of profit, whereas the period from the early 1980's was a period of falling wage share and rising rate of profit. That should mean rising accumulation and growth, but between 1980 and 1990, US GDP rose by 37% (2005 Dollars), and 108% in nominal Dollars, virtually no different than during the period of crisis of the 1970's. In the period 1990 to 2000, the figures were 40% and 71%, i.e. considerably below the rate during the 1960's, when wage share was rising and profits were being squeezed. In other words, the exact opposite of what should be the case according to Roberts' theory.
Roberts is a supporter of the use of historic prices, and of the so called Temporal Single System Interpretation, of Marx's theory, as propounded by Andrew Kliman and others. I have shown, elsewhere, that the use of historic pricing, rather than current reproduction cost, as the basis for determining the rate of profit, undermines the labour theory of value itself. Marx describes why, in criticising the use of historic pricing by Ramsay, in Theories of Surplus Value, Chapter 22. It confuses a release of capital with additional profit, and a tie up of capital with reduced profit, or losses, thereby also confusing capital gains and losses with profits and losses. The result is that it leads to the conclusion that additional profits can arise other than from the production of surplus value by labour. As Marx put it,
“In other words, therefore, the rate of profit depends on the excess of the value of the product over the sum of circulating and fixed capital; hence on the proportion which, firstly, the circulating capital, and, secondly, the fixed capital bear to the value of the whole produce. If we know where this surplus comes from, then the whole matter is very simple. But if we only know that the profit depends on the ratio of the surplus to these outlays, then we can acquire the most inaccurate notions about the origin of this surplus, for example we can, like Ramsay, imagine that it originates in part in fixed (constant) capital.”
In his obituary to Michel Husson, who died recently, Martin Thomas, notes,
“I remember only one face-to-face conversation, when he was in London for a conference. He seemed tired and out of sorts that day. He was put on a panel together with the ever-disputatious Andrew Kliman, who was arguing that profit rates had been declining since the 1980s despite official statistics showing the opposite. Husson had contested Kliman’s argument more than once, in writing, in detailed statistical discussions, but on the day said just that he didn’t have the energy to go through it all again.”
My own experience of debating with both Kliman and Roberts, online, leads me to sympathise entirely with the sentiment expressed by Husson, here.
And, of course, for Roberts' argument to stand up, we would indeed have to accept that rather than the rate of profit rising during the 1980's, as Marx's theory predicts it should, and as pretty much every other Marxist economist, like Husson, believed it did, we would have to accept that, instead, it was falling, so as to stand up Roberts claim that it was this continued falling rate of profit, during that time, that led to a lower level of capital accumulation, and lower rate of growth, and lower rates of interest. Such is the consequence of pinning your colours to the mast of a theory, such as the Law of the Tendency for the Rate of Profit to Fall being the cause of crises, and attempting to make reality validate its predictions, rather than testing the validity of the theory, by examining its ability to explain reality.
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