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Marx’s theory of crisis in the 21 st century. Michael Roberts HM Athens May 2019. Law of the tendency of the rate of profit to fall.
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Marx’s theory of crisis in the 21st century Michael Roberts HM Athens May 2019
Law of the tendency of the rate of profit to fall • “in every respect the most important law of modern political economy and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint. It is a law, which despite its simplicity, has never before been grasped and even less consciously articulated.” • Marx Grundrisse
World in Crisis – a global analysis of Marx’s law of profitability
Greeks bearing gifts • Maniatas and Passas: “the claims of certain Marxists that the present crisis is not a crisis of profitability seem to be unfounded.” • Economakis and Markaki: “The Greek crisis resurfaced due to the low profitability of capital, a result of a rising OCC.” (Mavroudeas) • Mavroudeas and Paitaridis: “the 2007-8 economic crisis is a crisis a-la Marx (i.e. stemming from the tendency of the profit rate to fall – TRPF) and not a primarily financial crisis and this represents the ‘internal’ cause of the Greek crisis.” • Tsoulfidis and Paitaridis: “The falling net rate of profit is responsible for this new phase change, the Great Recession.”
Secular or cyclical? • Is the law of the tendency of the rate of profit to fall just a long-term secular tendency? • Is the law of the tendency of the rate of profit to fall solely an explanation of crises and booms and slumps? • IT IS BOTH
Why did we not see it coming? • “Your Majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.” British Academy, “The Global Financial Crisis—Why Didn’t Anybody Notice”?,” British Academy Review (July 2009
Nobel prize winners! • Eugene Fama: “We don’t know what causes recessions. I’m not a macroeconomist so I don’t feel bad about that! We’ve never known. Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity. If I could have predicted the crisis, I would have. I don’t see it. I’d love to know more what causes business cycles.”
Preposterous – back to front • “Nothing can restore business profits that does not first restore the volume of investment” - Keynes • “It is investment that calls the tune.” - Minsky • Workers spend what they earn, while capitalists earn what they spend.” – Kalecki • No! Workers spend what they earn (wages) capitalists spend what they exploit (profits)
Profits lead investment • “Data from 251 quarters of the US economy show that recessions are preceded by declines in profits. Profits stop growing and start falling four or five quarters before a recession. They strongly recover immediately after the recession. Since investment is to a large extent determined by profitability and investment is a major component of demand, the fall in profits leading to a fall in investment, in turn leading to a fall in demand, seems to be a basic mechanism in the causation of recessions.” • Jose Tapia: Does Investment Call the Tune? in WIC
Conclusions • Marx’s law of the tendency of the rate of profit to fall is empirically valid. Marx’s law is the underlying explanation of crises and cycles. • The rate of profit, the mass of profit and new value are causalfor changes in investment, and thus employment and growth. • Every slump has different characteristics and triggers but only Marx’s theory can explain the recurrence of crises. • ‘Financialisation’ and/or rising inequality and/or debt are not alternative causes of crises but are themselves explained by the LTRPF. The Great Recession was a Marx, not a Minsky moment. • Another recession is coming.
