Marxist Theories of the Current Crisis: Andrew Kliman and the curious case of the missing Capitalist Boom
Next up in my survey of academic Marxist theories of the current crisis is Kliman’s “Neoliberalism, Financialization, and the Underlying Crisis of Capitalist Production” (PDF).
Kliman’s argument is by far the most interesting explanation for the present crisis I have read so far. Far from seeking to merely explain the present crash, Kliman is essentially asking another and for more provacative question:
“What the fuck happened to the capitalist boom period after the last crisis?”
Kliman’s paper is a critical response to the theory of the current crisis argued by Dumenil And Levy, among others, in which he argues the current crisis cannot be understood as a crisis of neoliberalism, financialization, or increased exploitation. He believes Dumenil’s and Levy’s analysis implies the crisis can be resolved simply by “doing away with ‘neoliberalism’ and ‘financialized capitalism.'”. To Kliman, the Dumenil’s and Levy’s “crisis of neoliberalism” explanation points to policies that are at best reformist. I think he hits the nail on the head with these criticisms, at least of Dumenil and Levy, who propose a “new New Deal’ to address the crisis.
In opposition to Dumenil’s and Levy’s theory of a crisis of neoliberalism, Kliman argues “…the crisis is instead a systemic crisis resulting from the underlying tendency for the rate of profit to fall…” He argues limited reforms proposed by Dumenil and Levy for a “new New Deal” will at best only worsen the next crisis. Kliman argues the roots of the present crisis can be traced to the persistent fall in the rate of profit fell after the mid-1950s and the failure of the mode of production to recover from this fall after the period of crisis between 1970s and 1980s. His data leads him to believe there was no boom after the crisis of the 70s; a problem, he believes, resulted from the insufficient devaluation of capital during the crisis of the 70s. Capital was not destroyed on a scale sufficient “to restore profitability and a healthy rate of investment…”
According to Kliman, the symptoms of the insufficient devaluation of capital are: 1. sluggish investment; 2. slow economic growth; and 3. an explosion of debt. The latter explosion of debt has led to repeated bubbles. The crisis and economic slump are the consequences of the bursting of a gigantic bubble in the housing and stock markets. Thus, for Kliman, the current crisis ultimately results from the “continuing fall in, or non-recovery of, the rate of profit…”
Kliman thinks part of his difference with Dumenil and Levy can be traced to differences over the definition and calculation of profit rate since the 1980s. Dumenil and Levy present empirical evidence the rate of profit has increased since 1980; but they employ methods and a definition that Kliman thinks are wrong. This difference in empirical findings and definition of the rate of profit figure greatly in Kliman’s discussion of the present crisis — but are mostly a sidebar to my examination.
Kliman shows Marx tied the falling rate of profit to the rising organic composition of capital — a technical term coined by Marx. Briefly, the organic composition of capital describes the relation between the underlying technical relation between labor (the employed workers in the economy) and capital (the physical means of production) in the capitalist mode of production. Stated simply, Marx argued that over the life of capitalism the amount of labor used in production would fall. This fall in the amount of labor would lead to a lower rate of profit that would leave the field of profitable operation open to fewer and larger capitalist firms. This, in turn, would force the less profitable losers out of production altogether and into speculation and ultimately ruin.
So what does the data show? Kliman states his data show a pronounced slide in the rate of profit since the 1950s; Dumenil says his data show a pronounced rise in the rate of profit since the 1980s.
Do the empirical finding of other academic Marxists agree with Kliman or Dumenil?
However, Michael Roberts, who published his own data finding in 2011, (PDF) states most of the empirical research points to both an overall fall in the rate of profit since the 1950s as Kliman argues AND a rise in the rate of profit since the 1980s similar to Dumenil. But, unlike Dumenil, most research shows the rise ended in 1997 and is consistent with an overall decline in the profit rate for the post-war period. Whatever the rise since 1980, the causes of the present crisis occur, as Kliman argues, within the context of a falling rate of profit.
Roberts says there are a wide number of Marxist academics using different methods of analysis and different definitions of profit who come to this conclusion:
Most of those who have provided measures of the rate of profit a la Marx, have found that the ROP [rate of profit] peaked in 1997 after the rise from the trough of 1982 and was not surpassed even in the boom of 2002-07.
Roberts lists an number of Marxist academics who more or less come to the same conclusion he does: Simon Mohun; Li Minqi, Fenq Xiao and Andong Zu; David M Kotz; George Economakis, Alexis Anastasiadis and Maria Markaki; And Erdogan Bakir and Al Campbell. Roberts concludes:
All these studies not only confirm the secular decline in the US ROP since 1946 but also agree that there was a cyclical movement in the ROP, with turning points of a peak in 1965-6, a trough at 1982 and then a peak in 1997, not surpassed since.
Frankly, I think the empirical assessments cited by Roberts are all full of shit. Here is a chart posted by Roberts showing his results using both Kliman’s and Dumenil’s methods:
The first thing that stands out is the remarkable consistency of both datasets — despite the differences in the methods used. Second, it is clear the trough in the rate of profit reached during the 1980s has not yet been attained in the current crisis. Third, both datasets continue to show a long secular decline in the rate of profit since 1946. Nothing approaching a fall in the rate of profit to the levels seen in the 1970-1980 period has occurred in this crisis. Clearly there is nothing in the above charts to suggest US capitalism is even experiencing a crisis at this point — much less one of the ferocity we have witnessed in the past few years. And this causes me to doubt an assertion Kliman makes in his paper,
This paper will focus on the U.S., because it is the epicenter of the latest global crisis and because data for other countries are not as complete and often not as reliable. It cannot be automatically assumed that the analysis of the U.S. case applies to other countries. But since the U.S. is the epicenter of the crisis–since, in other words, it erupted elsewhere because it first erupted in the U.S. and then spread–I suggest that the relative lack of discussion of other economies does not reduce the adequacy of the paper’s analysis of the long-term economic difficulties underlying the crisis.
Frankly, my dear readers, Dr. Kliman is completely full of shit on this. Unless he is willing to adopt Dumenil’s and Levy’s argument that this is simply a crisis brought on by rampant speculation of an out-of-control stratum of financial oligarchs and their managerial tools, he’s going to have to come up with an alternative explanation pronto to explain why a crisis he says is rooted in a falling rate of profit nevertheless occurs when clearly the rate of profit is not falling, but meandering aimlessly like a senile coot in slippers and a hospital gown — bedpan clutched tightly under one arm.
An argument about the rate of profit or the 1980-2001 recovery?
Kliman’s argument begins, therefore, not with an actual assertion there has been a fall in the rate of profits leading to this crisis, but with the assertion there wasn’t a real recovery from the crisis of the 1970-1980 period:
…U.S. corporations’ rates of profit declined after the mid-1950s and continued to fall or failed to rebound after the recessions of the mid-1970s and early 1980s; that no new boom followed these recessions because, in contrast to what occurred in the Great Depression and World War II, the amount of capital-value that was destroyed was insufficient to restore profitability and a healthy rate of investment; that the persistent fall in profitability led to sluggish investment, slow economic growth, and a long-term explosion of debt; that the buildup of debt has led to repeated bubbles and the bursting of these bubbles; and that the latest crisis and economic slump are the consequences of the bursting of a gigantic bubble in the housing and stock markets. The continuing fall in, or non-recovery of, the rate of profit is thus a crucial, though indirect, cause of the crisis and slump.
Briefly stated, Kliman says the rate of profit fell from the 1950s until 1980 or so, but stopped after reaching a trough around 1982. He blames the lack of a boom period of expansion in the 1980s until now on the fact capital values were not destroyed in the crisis of the 1970-1980 on a scale necessary to restore profitability. The destruction of capital values in a crisis is not only how the excesses of the previous period are wiped out, but also paves the way for a new period of expansion. So, instead of a robust expansion coming off the crisis of the 1970-1980 period, all we got was a period of rather piss-poor, sluggish economic growth.
I really want to give Kliman the benefit of the doubt on his argument, but, to be honest, he has to be full of shit because he has no way of knowing the extent of capital values destruction that took place in the 1970-1980 crisis. I know he doesn’t know this because I know he advocates the silly monetary expression of labor time (MELT) theory of money — and has abandoned Marx’s argument on money. This so-called theory of money explains as much about the relation between a worthless currency and the actual socially necessary labor time expended in society as the concept “distance” explains the relation in geometry between a single point and the circumference of the Earth.
Honestly Andrew, I have to ask you how any rate of profit can be an accurate representation of the underlying state of US capitalism when the dollar itself is a state issued fiction? One of the signal events in this crisis was Washington bailing out the banking sector simply by entering dollar sums at a computer terminal. (I believe all major US banks were reporting profits even as this operation took place.) Washington purchased financial assets from these banks at their face value, despite almost universal agreement they were worthless, and no non-governmental buyers could be found for them. Beside these real life events, your debate with Dumenil over how to calculate the rate of profit seems a tad meaningless — but what do I know? There is no doubt calculation of the actual rate of profit can tell us a lot about the economy, but not one based on worthless dollars.
Despite this obvious hole in his argument, Kliman nevertheless soldiers on with his argument. Speaking of the impact the catastrophic collapse of capital values in the Great Depression had on fascist state economic policy, Kliman states:
it seems that the amount of capital-value that needed to be destroyed in order to restore healthy rates of capital accumulation and economic growth was substantially more than liquidationists had expected. Policymakers in more recent times, understandably afraid of a repeat of the Great Depression and the radicalization of working people that accompanied it, have therefore not allowed free-market forces to proceed unchecked. During the economic slumps of the mid-1970s and early 1980s, and ever since, they have attempted to retard and prevent the destruction of capital. This has “contained” the problem, while also prolonging it–and exacerbating it, since they have repeatedly prolonged the problem by papering over bad debts with ever-mounting amounts of new debt and debt guarantees.
So we are expected to believe the most predatory, murderous clique of individuals ever to walk the planet are now fearful of a little world war? As if they did not already have the experience of the Great War already prior to World War II? As to fear of working class radicalization? Come on, Andrew. Nowadays working folks only get upset when they can’t get a signal on their cell phones. If you are going to offer a reason why the state is now intervening in the economy to prevent depressions, you can do better than that. Moreover, what is this nonsense about market forces? Capitalism had already given rise to monopoly by the Great Depression. And after the state took control of management of the economy the market no longer exists. So by the 1970s we can pretty much rule out the state’s fear of market forces, radicalization of working folk and war.
Clearly Kliman is really going to have to come up with a better argument than this for why the state moved to retard or prolong the destruction of capital value. But not only that: even if we accept Kliman’s spurious reasons for fascist state intervention in the economy, he expects us to concede the fascist state can somehow prevent capital value destruction by means of economic policy measures. Is the law of value now something that can be repealed during election years? If so, how soon before the law of gravity follows?
If there are two factories and only one is needed how does the state prevent the second from being destroyed? Moreover, we know from empirical evidence industrial employment has been falling since 1979. Is industry somehow the exception to the rule regarding capital destruction? And if it is, why and how is it an exception? Kliman argues the fascist state has contained the problem, by prolonging it and exacerbating it, “since they have repeatedly prolonged the problem by papering over bad debts with ever-mounting amounts of new debt and debt guarantees.”
How is it possible to avert a crisis of overaccumulation of capital — of capital in the form of too many commodities for sale and too many factories churning them out — by issuing new debt and guarantees? At best this can only transfer the expression of crisis from one form to another. Kliman appears to be making an argument based on “values” of capitals that only seem to work if we treat these capitals as simply a collection of unserviceable debts. I can see how bad debt can be papered over with more debt, but how can real capital be papered over with debt guarantees? A crisis of overproduction of capital is expressed materially as a growing mass of unemployed wage workers, too much industrial capacity, and too many commodities that have to be sold. As a result, some portion of the machinery must stand idle; a portion of the employed labor power is rendered superfluous; and prices of commodities fall. So how can devaluation of these be papered over by debt and guarantees?
Kliman needs to answer this — and he is going to need something more than his MELT theory of money to do it.
Let’s see if I can state this more clearly: in a crisis of overproduction there is a lot of shit that can’t be sold because it is excess. Before the Great Depression, this overproduction would be resolved by a sudden and drastic fall in the prices of these commodities. This is essentially what Kliman means by “devaluation of capital” — insofar as we are speaking of commodities, their prices collapse. The price, for instance, of a Lexus should collapse, and someone would be able to step in a buy it for next to nothing and use it as a taxi.
Now, you can keep the price of Lexuses from falling by handing out credit but now you have a growing divergence between values and prices. The value of the Lexus is determined by the socially necessary labor time required to produce it and has nothing to do with the prices paid for it at the dealer’s place of business. If the socially necessary labor time for the production of Lexuses falls the value of Lexuses must shrink — no matter what the fascist state attempts to do with its economic policy measures. Cheap and plentiful auto loans, at best, only allows the price of Lexuses to remain above their values — but Kliman told me that is not possible. (As I recall, he labeled my argument “underconsumptionist”.)
Yet, Kliman is making the same argument here. In this argument Kliman is essentially asserting debt can be used to prevent prices from reflecting their values — for example, the fascist state can simply credit anyone’s account allowing them to purchase a Lexus and prevent Lexuses prices from falling. This financial Ponzi scheme has no impact on the value of Lexuses; but, it does have the effect of further separating values and prices.
Still, I have no problem with Kliman’s argument in this regard, I only differ with him when he states:
As a result, the global economy has never fully recovered from the slump of the 1970s.
Devaluation of capital versus price deflation of commodities
I think Kliman is clearly conflating two different things — values and prices. If we a going to define “the economy” by the sum of prices of commodities, this leads to one conclusion. However, if we define “economy” by the sum of socially necessary labor time — by the values of commodities in circulation — we may arrive at a different conclusion. This is just another example of the problem we encounter when we import bourgeois categories into Marxist analysis uncritically: is “the economy” the sum of values of commodities; or is it the sum of prices of those commodities? Kliman wants to treat “the economy” as the sum of prices of commodities — however discounted by “inflation” — not their values. Thus he concludes:
The worldwide growth rate of per capita GDP fell abruptly and sharply in the mid-1970s and it has not recovered substantially since that time…
In fact, US capital, at least, went through a protracted depression that easily exceeded the Great Depression in both duration and severity — lasting some ten years from 1971 to 1980. It rebounded off that depression to achieve a robust expansion that lasted until 2001. It has been going through a contraction on a scale similar to the 1971-1980 period since 2001:
Using Kliman’s MELT theory of money, which takes worthless dollars at their face value, the present depression and the depression from 1971-1980 doesn’t exist. But, using Marx’s theory of money, which requires a commodity reference be used to establish a standard of price, both depressions appear in graphic relief.
I want to examine this further in my next post.