Paul, thanks for your comments. My responses below.
On Fri, 12 Dec 2003, Paul wrote:
> Fred,
> Very glad you could make it - you were missed! I want to think more about
> your post but have one small and one larger reflection.
>
> >1. I think we can all agree on the "big focus of profit rates", as Paul
> >put it - that the rate of profit is the most important variable in
> >analyzing capitalism. And I agree with Paul that this emphasis on profit
> >and the rate of profit is what distinguishes classical-Marxian theories
> >from neo-classical theories.
>
> In addition to Doug's main point ('show me the benefit of all this'), Doug
> does make me wonder whether my description of the Classical/Marxian
> approach should have been more specific (although the change might prove
> more narrow-minded). As you know well, historically, the Classical
> tradition focused on profits/profit rate but broke this down into the
> changes that emerge from the labor\capital shares AND the changes that
> emerge from what I was calling the 'capital side' (with lots of differences
> and inconsistencies among Classical authors). Of course, since Sraffa
> there has been an intelligent and articulate revival of interest in
> Classical presentations of the first issue (wage/profit frontiers, etc)
> WITHOUT the capital side. The discussion with Doug illustrates a point:
> without the 'capital side' just how useful is such a presentation? Doug
> gave good examples of how similar arguments could be made sticking to a
> Keyensian\Kaleckian tradition that is more accessible to most. (Of course
> Doug is also skeptical of the value of this approach even with the capital
> side, but that is a different discussion.)
I agree that the "capital side" (i.e. the composition of capital) is an
important determinant of the rate of profit. (I prefer to discuss this in
terms of Marx's concept of the composition of capital, rather than the
mainstream concept of the "productivity of capital" which I think is
misleading.) The increase in the composition of capital in the early
postwar period was an important cause of the decline of the rate of profit
in that period, and the decrease in the composition of capital in recent
decades has been the main cause of the partial recovery of the rate of
profit. So clearly, theory and analysis of the rate of profit should
include the composition of capital.
I also agree that this is an important distinguishing feature of Marx's
theory, in contrast to Ricardo's theory and Sraffa's theory and all other
economic theories, which if they consider the rate of profit at all,
generally consider only the share of profit and ignore the composition of
capital.
> >...............
> >6. I have suggested another explanation of these important trends, one
> >based on Marx's distinction between productive labor and unproductive
> >labor - that an important cause of the declines in the share and the rate
> >of profit was a very significant increase in the ratio of unproductive
> >labor to productive labor. I am not sure that this is the correct
> >explanation of these trends, but I think it may be, and I think that it
> >worthwhile to at least consider what Marx's theory implies about the
> >causes of these trends and the likely prospects for the future.
> >
> >And one important advantage that this theory has over the profit squeeze
> >explanation is that it provides a consistent explanation of why the share
> >and rate of profit have only partially recovered in recent decades, in
> >spite of the loss of workers' power and stagnant real wages - because the
> >ratio of unproductive to productive labor has continued to increase.
> >
> >This theory also provides an important prediction about the future - that
> >if the ratio of unproductive to productive labor continues to increase (as
> >I expect), then the recovery of the share and rate of profit will continue
> >to be slow and partial, thus leading to more wage cuts, speed-up,
> >etc. According to this theory, the US economy is definitely NOT at the
> >beginning of another "long-wave" period of growth and prosperity, similar
> >to the early postwar period (with steady real wage increases). The only
> >partial recovery of the share and rate of profit makes such a return to
> >more prosperous conditions very unlikely.
>
> You have made me think about what is the nature of a long wave
> upturn. Here are some quick thoughts and concerns.
>
> 1. a. Of course these are waves, not cycles (as in Kondratieff,
> investment-accelerator, etc). It is not even as if a simple mechanism such
> as the falling of the price of capital in a downturn will, in
> itself, produce an upturn.
>
> b. The up and the down of these waves are not symmetrical. While
> there are forces common and inherent in the accumulation process to
> downturns (tendencies to a rising OCC, etc), the upturns require
> exceptional events that are not inherently produced by the downturn
> process. Mostly these require some combination of major technological
> change AND socio-political conditions that allow capital to overcome
> resistance to the labor processes and social organization needed to
> introduce the technological change. Each upturn is sui generus in its
> causes (although some may want to argue for inherent links to the
> innovation and political change process, these are links with more lengthy
> chains).
>
> c. There are no inherent 'rules' about the strength or duration of
> a wave. Definitions are hard to make; mostly we have relied on historical
> observations to generalize about size and length.
>
> d. History gives little guidance as to the possible economic
> processes in today's world that would produce an upturn and how would one
> look. The last upturn involved WWII. The one before (1890's?) had our
> great-great-grandfathers at work.
I agree that each long-wave is unique, which makes predictions
difficult. But I would add another important "recovery mechanism" which
reduces the composition of capital and hence raises the rate of profit -
bankruptcies of capitalist firms, whose productive assets are sold off to
surviving firms at bargain prices, thereby resulting in the "devaluation
of capital". Marx emphasiazed this as the most important mechansim to
restore the rate of profit, since he regarded the increase in the
composition of capital as the main cause of the decline of the rate of
profit. But of course, in the short run, more bankruptices mean a deeper
recession and perhaps a depression.
So far, bankruptcies have not happened on a significant enough scale to
fully restore the rate of profit. But Marx's theory suggests that that is
what is required.
> 2. It is fairly obvious that a large part of the upswing in profit
> rates has been from a shift in shares from labor to capital. Not (by
> itself) the stuff to inspire thoughts of a long upswing. But my eye was
> caught by this smaller (but steady) increase in capital productivity in
> Dumenil's RRPE paper. We would need to know more of the source of this
> uptick, but doesn't it seem like something that needs to be investigated
> more and watched closely?
The increase in the profit share has bee quite modest since the 1970s, in
spite of the wage-cuts, speed-up, etc. I don't think the "profit
squeeze" theory provides an explanation of this surprising phenomenon. On
the other hand, as I have argued, Marx's theory does provide an
explanation - the continuing relative increase of unproductive labor.
How do Dumenil and Levy explain the uptick in the "productivity of
capital"?
> 3. IF, IF there were a long-ish by very modest upturn in profit rates
> partly fueled by some serious capital productivity\technical change would
> it not still be consistent with your points on productive\unproductive
> labor? (The improvements in capital productivity were cut in half by the
> drain in unproductive labor.) Of course this was my reason for going
> through points #1 a-d; maybe this 'long wave' upturn won't look at all like
> the previous ones.
Yes, as I have emphasized, these two points are entirely compatible. They
are the two main causes of the decline of the conventionally defined rate
of profit - an increase in the composition of capital and an increase in
the ratio of unproductive labor to productive labor.
> And if we do face such a period, it would not put capitalism "out
> of the woods" politically. I could well imagine that it could be a
> flourishing period for the left - IF approached properly. The rising
> profits may well be put to selfish and self-consolidating purposes (judging
> from the hubris shown so far) that finally engender a reaction to an
> "over-reach" (it will come on top of the massively growing inequality and
> the pain required to introduce the new techniques/organization).
>
> 4) But don't you think we need to be a bit cautious about predicting a
> poor economy (as distinct from a poor time for most of those in the
> economy), in view of the *possible* 'productivity of capital' data? Maybe
> just a watching brief?
I agree that the economy may improve somewhat in the short-run, while
workers contintue to suffer.
I would also add another important element in the current situation, which
I and Jim D. have emphasized in the past - the unprecedented levels of
debt of all kinds (business debt, household debt, foreign debt) - which
makes another period of sustained growth very unlikely. Indeed, this
factor makes it more likely that this house-of-cards of debt will come
crashing down in the not-too-distant future.
Comradely,
Fred
