Re: Re: RE: The rate of profit and recession
Come on. We don't need this crap! Rakesh Bhandari wrote: [somehow my e-mail program isn't cooperating again. Here's my complete message.] [I thought I started writing a reply to this, but somehow there's no file. I'm sorry if anyone received two versions.] Paul Phillips writes: The question we were discussing, I thought, was what that's the problem with Perelman's rule that we can't attach individual's names to descriptions of assholery. Do you think you are *not* calling me an asshole? Rakesh -- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
Re: RE: Re: The rate of profit and recession
The recent falls (i.e., of the last 1 1/2 years or so) are due to falling demand and rates of capacity utilization. That is, there were realization problems. Jim, the classical Marxist is not denying that there is falling demand and realization problems! As Mattick Sr puts it: Every crisis can be understood only in relation to the prosperity preceding it, just because prosperity derives not from the consuming power of society but from the accumulation requirements, imposed by capitalist competition, of the individual capitals which at any time are growing to produce not for an *existing* but for an *expected* market...It is this very process that makes possible the realization of surplus value by way of accumulation, without respect for the restriction of consumption this presupposes. Surplus value becomes new capital, which in turn produces capital. This process, senseless as it is, is actually the consequence of of mode of production oriented exclusively towards the production of surplus value. At a certain point the realization of surplus value by accumulation is halted, when accumulation ceases to yield the surplus value necessary for the continuation of the process. Then it suddenly becomes apparent that without accumulation a part of the surplus cannot be realized, since demand is insufficient to transform the surplus value lying hidden in the commodities into profit. So the question is why was accumulation halted and why did demand become insufficient for the realization of surplus value, not whether a crisis is experienced in terms of falling demand and rates of capacity utilization and realization problems. Nobody is denying this. The surplus value that had been realized was not large enough in absolute terms to encourage capitalists to produce for a larger expected market. Of course there are always a few capitals that can afford to expand, and on the basis of larger economies of scale they may achieve lower unit costs and restore profitability; but such rationalization by means of accumulation is out of reach of most capitalists who are short on surplus value, so overall investment demand (of which workers' wages are a component) weakens, capacity utilization falls, and realization problems arise. Of course all this purgative work can lead to a restoration of the rate of profit. The fixed capital/output ratio continued to fall all the way until 2000 (following its trend from the early 1980s), indicating that labor productivity growth exceeded the rate of growth of fixed capital per worker. And this is Jim D's crucial piece of evidence against the thesis the shortage of surplus value resulted from upward pressure on the OCC. But first note this is not counter-evidence that accumulation had ceased because the surplus value that had already been realized was so declining as a mass as to discourage production for an expanded future market. This slow down in investment demand then leads to a build up of inventories which are then dumped, further depressing profit rates. The question is whether one challenges whether there was a declining mass of surplus value at all before the slow down in investment demand or only the changing VCC explanation for that decline. At any rate, since the destruction (disinvestment) and devaluation of capital seem to be what in fact leads to a restoration of profitability and therewith accumulation by means of which realization difficulties are are in fact overcome, I would not count out the crisis explanation of unfavorable changes in the composition of capital on the basis of Jim D's proxy evidence alone. But this counter-argument is far from satisfactory, and I hope that Fred engages you in terms of your most important piece of counter-evidence. The classical Marxist theory doesn't seem to work, at least not for this specific example, because the counter-acting tendency was winning. Then again what does explain the slow down in investment demand? Rakesh
Re: Re: RE: Re: The rate of profit and recession
I was suggesting that Marx may also have been wrong on the effect of 'globalization' (internationalization of capitalism) on what I believe you have advocated in other papers, the 'overaccumulation of capital' which I suggested with respect, particularly to China but also to other areas of the 3rd world -- and which has led directly to excess capital, international competition, and a realization crisis for domestic (i.e. North American) capital, particularly in the light of rising USD which exacerbates the realization problem for domestic US production. Paul, why did the investment demand of US capital drop off all a sudden? The dollar had been high and rising along with a strong bout of accumulation; in fact it may have fallen relatively before the recession began. So one day the strong dollar is lowering capital costs and inducing accumulation and the realization of surplus value by way of strong accumulation; then the strong dollar is pricing American goods out of the market. What changed? Rakesh suggests I go read Shaik to disabuse myself of such ideas. Well, I have read Shaik, even talked to him about it when he visited our department. His name is Shaikh. We also have a Shaik ex-student on our faculty and we frequently have this discussion -- he gave a couple of lectures in my class last week where this very issue came up. Which issue is that? Whether the high dollar led to realization difficulties that has brought the US profit rate down? Or whether excess capacity is the cause or consequence of crisis? So I would appreciate a little less patronizing by Rakesh really the gall of this is impressive. Just the other day I an ignoramus whose papers you would flunk. Now after this unprovoked attack for which you never apologized you are complaining about my patronizing of you. Have some pride, man. Rakesh
RE: Re: RE: Re: The rate of profit and recession
Paul Phillips writes: What you suggest here is that the profit rate fell despite a *falling organic composition of capital*. I don't disagree though I would again ask is that because of an improper measuring of productivity growth as I suggested in my earlier post? You suggest this seems to contradict classical Marx and I would agree. Doug in an earlier post also suggests that Marx was wrong on some details. I am disagreeing with classical Marxism rather than with Marx himself. Whereas Karl didn't have a complete theory of crises (cf., e.g., Simon Clarke's 1993 _Marx's Theory of Crisis_), so-called classical Marxism posits a specific theory based on one of Marx's incomplete theory-fragments as presented in a poorly-edited posthumously-published manuscript (volume III of CAPITAL). Actually, if we were to define classical Marxism in terms of what Marxists during Marx's time believed, instead of the allegedly classical rising OCC theory, we'd probably define classical Marxism in terms of underconsumption or disproportionality. (That doesn't make any of these theories right, though. People should stop using the word classical to imply correctness.) As for the issue of measuring productivity, I agree that it's always problematic, especially when services are involved. In practice, capitalism defines productivity in terms of producing exchange-value or surplus-value, but what most people are interested in use-value is productivity. I was suggesting that Marx may also have been wrong on the effect of 'globalization' (internationalization of capitalism) on what I believe you have advocated in other papers, the 'overaccumulation of capital' which I suggested with respect, particularly to China but also to other areas of the 3rd world -- and which has led directly to excess capital, international competition, and a realization crisis for domestic (i.e. North American) capital, particularly in the light of rising USD which exacerbates the realization problem for domestic US production. I don't understand how Marx was wrong in your view. But I'd actually prefer a discussion of how _I_ am wrong, since discussions of what Marx (really) thought typically bog down. Rakesh suggests I go read Shaik to disabuse myself of such ideas. Well, I have read Shaik, even talked to him about it when he visited our department. We also have a Shaik ex-student on our faculty and we frequently have this discussion -- he gave a couple of lectures in my class last week where this very issue came up. Shaikh's foreign trade analysis makes sense to me, but his crisis theory doesn't, except in a limited way. In very simple terms, he argues that capitals drive themselves into a situation of lower profit rates because they seek higher profit margins. That makes some sense (under a relatively strong labor regime) -- but it's only a short-term, cyclical, theory. There's no reason why there should ever be a long-term downward trend in the rate of profit, since crises purge imbalances such as excessively high organic compositions and because the capitalists get the workers to pay for crises. And Jim, as you remember, gave an early version of your paper on the origins of the great depression at a seminar in our department -- was it 15 years ago Jim? [yup!] So I would appreciate a little less patronizing by Rakesh and perhaps a more discretionary interpretation of scripture. I don't understand this. I don't want to interpret scripture. (You can take the boy out of the Unitarian church, but you can't take the Unitarianism out of the boy. I'm a skeptic, not a quoter of scripture.) I hope that _I_ haven't been patronizing. Still, Jim, I think that the question of what was the real increase in productivity (and thus the organic composition) and the impact on realization of the rising exchange rate and increased competition, has yet to be answered. I don't think it's right to equate increases in labor productivity with increases in the organic composition. There's a lot of variance in that relationship. In my paper that I presented in Sacramento, I didn't even measure the organic composition, since I was more interested in the _combination_ of the effects of rising capital intensity and rising labor productivity on the rate of profit. I interpret the fixed K/Y ratio as measuring this combination of tendency and counter-tendency. Also, I'm not exactly clear what questions you are asking. I hope that you'll indulge me by repeating your questions in a way that I can understand. I do think that the rise of the USD in the late 1990s is an important fact that needs to be brought into the analysis, though. The rising dollar went along with -- or was due to -- a massive capital flow into the US which helped finance the investment consumption booms of the late 1990s until 2000: investment could continue to rise despite the cyclical downturn in the profit rate and real GDP could continue to rise despite a worsening US trade deficit
Re: Re: Re: : The rate of profit and recession
Rakesh Bhandari wrote: The Fed is powerless to change this; fiscal policy can relieve realization problems but the resumption of private investments depends on the restoration of profitability through the devaluation of constant capital and a rising rate of surplus value. So, translating into demotic English - one of the most aggressive easing streaks in Fed history will have no effect, and there will be no recovery anytime soon? Are you expecting a long stagnation or a deep depression? Doug To the extent that the working class prevents the crisis from being resolved on its back, the longer the crisis will endure but the stronger the working class will be, organizationally speaking, to commence even more fundamental inroads into the system. Nothing is predetermined; prediction is strictly impossible. We are all Henwoodians now. I certainly don't think a painless working down of inventories will be enough to stimulate a strong new bout of investment; there has to be more destruction and devaluation of capital to encourage strong new levels of investment among the surviving capitals. There however will doubtless be a US recovery (some of that trillion dollars will come out of the money markets, assets will rise and investment on that basis) but I doubt that recovery will be strong enough to compensate for weakness in the system as a whole. If the crisis is not protracted in the US, we'll get bitten in the butt before long as a result of financial crises in Japan and Asia. rb
RE: Re: Re: : The rate of profit and recession
Doug writes:So, translating into demotic English - one of the most aggressive easing streaks in Fed history will have no effect, and there will be no recovery anytime soon? the cuts have already had an effect in the U.S.: they propped up the asset values of housing and the stock market, which has so far prevented the recession from being worse. To my mind, we may have a recovery (in the U.S.), but it won't be fast enough to keep unemployment rates from continuing to rise for a year or two. Further, in line with Godley/Izureta analysis, excessive private-sector debt (and U.S. external debt) and the synchronization of a lot of countries' recessions make it quite likely that this recovery will part of a Dubya-shaped process, i.e., a temporary boom that follows a recession and is followed by another (as with the temporary 1981 boom). Private sector debt becomes more important if unemployment continues to increase. -- Jim Devine
Re: Re: Re: : The rate of profit and recession
On Tue, 29 Jan 2002, Doug Henwood wrote: Rakesh Bhandari wrote: The Fed is powerless to change this; fiscal policy can relieve realization problems but the resumption of private investments depends on the restoration of profitability through the devaluation of constant capital and a rising rate of surplus value. So, translating into demotic English - one of the most aggressive easing streaks in Fed history will have no effect, and there will be no recovery anytime soon? Are you expecting a long stagnation or a deep depression? I think that it is very unlikely that the Fed's expansionary monetary policy will be successful in reviving investment spending anytime soon, because of continuing problems of low profits, high debts, and low capacity utilization rates. The US economy is not going to be pulled out of recession in 2002 by increased investment spending. It is possible that consumer spending will continue to be strong, in spite of a decline in disposable income, and that households will make up the difference by going even deeper into debt than they already are. US households seemed to be determined, come hell or recession, to continue their recent spending spree, even though their disposable income has declined (and promises to decline even more), and even though their continued spending requires rapidly increasing debt. In this case, there might be a slow recovery in 2002, but only as the result of households increasing their already heavy and unprecedented debt burdens. This does not seem to be a very strong basis for a sustainable recovery. And the fundamental problem of insufficient profitability remains, and will continue to depress investment and thus the economy in general. Fred
Re: RE: Re: The rate of profit and recession
Jim, What you suggest here is that the profit rate fell despite a *falling organic composition of capital*. I don't disagree though I would again ask is that because of an improper measuring of productivity growth as I suggested in my earlier post? You suggest this seems to contradict classical Marx and I would agree. Doug in an earlier post also suggests that Marx was wrong on some details. I was suggesting that Marx may also have been wrong on the effect of 'globalization' (internationalization of capitalism) on what I believe you have advocated in other papers, the 'overaccumulation of capital' which I suggested with respect, particularly to China but also to other areas of the 3rd world -- and which has led directly to excess capital, international competition, and a realization crisis for domestic (i.e. North American) capital, particularly in the light of rising USD which exacerbates the realization problem for domestic US production. Rakesh suggests I go read Shaik to disabuse myself of such ideas. Well, I have read Shaik, even talked to him about it when he visited our department. We also have a Shaik ex-student on our faculty and we frequently have this discussion -- he gave a couple of lectures in my class last week where this very issue came up. And Jim, as you remember, gave an early version of your paper on the origins of the great depression at a seminar in our department -- was it 15 years ago Jim? So I would appreciate a little less patronizing by Rakesh and perhaps a more discretionary interpretation of scripture. Still, Jim, I think that the question of what was the real increase in productivity (and thus the organic composition) and the impact on realization of the rising exchange rate and increased competition, has yet to be answered. Paul Paul Phillips, Economics, University of Manitoba From: Devine, James [EMAIL PROTECTED] To: '[EMAIL PROTECTED]' [EMAIL PROTECTED] Subject:[PEN-L:22028] RE: Re: The rate of profit and recession Date sent: Mon, 28 Jan 2002 14:29:49 -0800 Send reply to: [EMAIL PROTECTED] Paul Phillips writes:In the late 90's we kept hearing from CEOs, primarily in the US, that the reason inflation was contained was as a result of increasing competition from offshore companies, in part because of 'globalization' of production and increased overinvestment (increasing excess productive capacity) in countries like China, in part because of the rising value of the USD. Thus the rising wages could only be justified by increased productivity... Thus, the inability to realize the increased costs (realization as per Charles) would lead to falling profits would it not. What then is the root cause of the falling profits? I can only talk about the US and the nonfinancial corporate business sector at that. Here I am attending to only the proximate explanation. (My discussion with Fred concerns more fundamental causes.) The recent falls (i.e., of the last 1 1/2 years or so) are due to falling demand and rates of capacity utilization. That is, there were realization problems. Before that, looking at the non-trended BEA data, the decline of the ROP was due to the declining SOP (share of profits). At the end of the business cycle upturn, wages started rising relative to productivity, as did raw material prices (of raw materials produced outside the US NFCB sector). There may have also been some bottlenecks and horizontal disproportionalities (such as those due to over-investment in fiber optic cable) that limited productivity growth in the cyclical peak, too. The cost pressures pushed toward inflation, but the high US dollar and international competition kept businesses from raising prices much (at least in the sector under consideration). The fixed capital/output ratio continued to fall all the way until 2000 (following its trend from the early 1980s), indicating that labor productivity growth exceeded the rate of growth of fixed capital per worker. The classical Marxist theory doesn't seem to work, at least not for this specific example, because the counter-acting tendency was winning. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
