In a recent post in the WW, Michael Roberts, promoting his perennial catastrophist narrative that the next recession is at hand, writes,
“Indeed, because of low profitability on productive capital in most major economies, in the first two decades of the 21st century profits from productive capital have increasingly been diverted into investment in real estate and financial assets, where ‘capital gains’ (profits from rises in stock and property prices) have delivered much higher profits.”
But, it was not low profitability on productive-capital that led to this speculation in assets. It was the fact that the capital gains – I will leave aside his description of capital gains as “profits”, whereas, for a Marxist, profits are derived only from surplus value – were in excess of even high rates of profit, and were guaranteed by central banks, in a way that profits never can be. Moreover, as Marx describes, the antagonistic relation between the owners of productive-capital (the associated producers) and the owners of fictitious capital (share and bondholders), is brought out in precisely this. If companies had invested more in productive-capital, as a result of the high rates, and levels, of profit, created by the technological revolution of the 1980's, the consequence would have been, higher levels of demand for money-capital, relative to supply, and so higher rates of interest, which would have acted to restrain the rise in asset prices, and to crash them where they had been inflated. It was precisely for that reason that the owners of that fictitious capital, i.e. the dominant shareholders, used their controlling position, to divert profits into share buybacks, and so on to further inflate asset prices, and away from productive investment!
Roberts confuses the interests of fictitious capital, and its owners, with the interests of productive-capital. The latter, does, indeed, seek to maximise accumulation, and the profit of enterprise, whilst the former's main concern is to maximise the interest they can extract from the owners of industrial capital, and, more recently to maximise its potential for capital gains, and minimise its risk of capital losses.
Roberts also says,
“A long boom is only possible if there has been a significant destruction of capital values - either physically or through devaluation, or both.”
In fact, Marx makes clear, in Theories of Surplus Value, that a physical destruction of capital is not helpful in raising the rate of profit, and creating conditions for economic expansion. It is only the devaluation of values that performs that function. The preservation of the use values, themselves, is a requirement for raising the rate of profit, or else, a portion of social labour-time, and, thereby, a tie up of capital is required to replace them, as part of the process of social reproduction.
“A large part of the nominal capital of the society, i.e., of the exchange-value of the existing capital, is once for all destroyed, although this very destruction, since it does not affect the use-value, may very much expedite the new reproduction.”
(Theories of Surplus Value, Part 2 p 496)
The notion that the rate of profit is enhanced, or accumulation facilitated, by the physical destruction of use values is a Keynesian notion, not one advocated by Marx. It was Keynes, not Marx, who advocated digging holes so that others could be paid to fill them in!
Its true, that the 2020's are not going to be a repeat of the 1920's, but for reasons the very opposite of those Roberts proposes in his article. Roberts correctly describes the period preceding the 1920's, as one in which a technological revolution gets underway. He says,
“By cleansing the accumulation process of obsolete technology and failing and unprofitable capital, innovation from new firms could prosper. Schumpeter saw this process as breaking up stagnating monopolies and replacing them with smaller, innovating firms. In contrast, Marx saw creative destruction as creating a higher rate of profitability after the small and weak were eaten up by the large and strong.”
Again, this is not accurate. Marx does see, small and weak firms being eaten up by larger firms, but he also sees, new small firms, particularly in new spheres of production, entering the fray, during such a process, as part of the lifeblood of capitalism being refreshed. These new firms, in new spheres, are generally characterised by a lower organic composition of capital, and so with a higher annual rate of profit. (Capital III, Chapter 14) The lower organic composition may result from employing a lot of labour relative to capital, or else may be the result of employing a relatively small number of highly skilled workers, whose labour is complex.
But, the reason Roberts analogy is wrong, is that the period of long wave boom does not result directly from the technological revolution, and clearing out of deadwood. What accompanies the latter is a period of stagnation and slower growth, precisely, because the introduction of the new technologies – intensive accumulation – is one in which labour is replaced by it. It is a period in which the gross product rises at a slower pace than the net product, as Marx describes in Theories of Surplus Value, and which is the physical manifestation of the fact that the rate of surplus value rises.
The period of long boom, by contrast, follows such a period. It comes when, intensive accumulation, and rapidly rising productivity ceases, and, so, when, in order to grab market share, driven by competition, firms have to accumulate capital extensively, rather than intensively, including the employment of additional labour. It is that, which, then, creates the conditions for the demand for wage goods to rise more rapidly, and so sets in the process by which gross output grows faster than net output. The 1920's (actually from around 1914), at least in Europe, were characterised, precisely as a period of crisis, leading into the stagnation that carried on into the 1930's. The 1920's and 30's, was a period of higher rates of profit, as wages fell, and constant capital was devalued. That created the conditions, in which, during the 1940's, 50's and 60's, economic expansion could proceed, leading again into the period of crisis of the 1970's, and early 1980's.
It is the 1980's that are the equivalent of the 1920's, and the current period is the equivalent of the 1950's and 1960's, when those conditions did result in a period of expansion and boom. The start of that was seen between 1999 and 2008. It has been deliberately hibernated since then, via measures of austerity to reduce economic growth, and measures of QE to divert money and money-capital away from the real economy, and into speculation in assets.
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