Capital.150 part one: measuring the past to gauge the future

About 230 people attended the Capital.150 symposium that I, along with Kings College lecturers Alex Callinicos and Lucia Pradella, dreamed up some time earlier this year.  The aim was to discuss the modern relevance of Marx’s Capital, published for the first time in September 1867.

Of course, this was not an original idea and there have been several such conferences around the world on this theme already. But Capital.150 did manage to attract some leading Marxist scholars to present papers and the initial feedback from those attending seems to be that the speakers’contributions were good, but that there was not enough time for discussion from the floor.  I agree, especially as those attending knew what they were talking about when it comes to Marx and Capital. The lesson for any future such events (if ever!) is: less speakers, less sessions and more time in each.

The symposium kicked off on the first day with papers on Marx’s theory of crises and its application to modern capitalism.  Guglielmo Carchedi delivered a long paper for the symposium but was ill (Carchedi The old and the new).  So I was forced to present it as best I could.

Carchedi argued that we could measure the exhaustion of post-1945 capitalism in the increasing number of financial crises and slumps as the 20^th century ended.  He did so by identifying indicators that could reveal why and when slumps took place.

Carchedi based his analysis on Marx’s law of the tendency of the rate of profit to fall as the underlying driver of regular and recurrent slumps in capitalist production. He used data from the US economy to show that if you stripped out the effect of any rise in the rate of exploitation in the US corporate sector (CE-ARP), there was a clear secular decline in the rate of profit from 1945 to now, running inversely with the rise in organic composition of capital.  Even if you relaxed the condition of an unchanged rate of exploitation (VE-ARP), the average rate of profit in the US economy still fluctuated around a secular fall.

Carchedi also showed that the three major countertendencies to Marx’s tendential law of falling profitability: namely a rising rate of surplus value; a falling cost of means of production and technology cheapening constant capital; and in the neo-liberal era, a shift from productive to financial investment to boost profitability, did not succeed in reversing Marx’s law. The tendency overcame the countertendencies in post-war US.

Now this result is nothing new, as many scholars have found a similar result.  But what was new in Carchedi’s paper was that he identified some extra tendential forces driving down profitability AND key indicators for when crises actually occur.

The secondary tendential factors, as Carchedi called them, were: steadily falling employment relative to overall investment: and steadily falling new value as a share of total value.  It is these factors that demonstrate the progressive exhaustion of capitalism in its present phase – according to Carchedi.

Going further, Carchedi identified three indicators for when crises occur: when the change in profitability (CE-ARP), employment and new value are all negative at the same time.  Whenever that happened (12 times), it coincided with a crisis or slump in production in the US.  This is a very useful indicator – for example, it is not happening in 2017 in the US, where employment is rising and so is new value (just).  So, on the Carchedi gauge, a slump is not imminent.

The other great innovation in Carchedi’s new paper is to show that financial crises were the product of a crisis of profitability in the productive sectors, not vice versa as the ‘financialisation’ theorists claim.  He shows that financial crises occur when financial profits fall, but more important, they must also coincide with a fall in productive sector profits.

As Carchedi points out, “the first 30 years of post WW2Us capitalist development were free from financial crises”.  Only when profitability in the productive sector fell in the 1970s, was there a migration of capital to the financial unproductive sphere that during the neo-liberal period delivered more financial crises.  “The deterioration of the productive sector in the pre-crisis years is thus the common cause of both financial and non-financial crises… it follows that the productive sector determines the financial sector, contrary to the financialisation thesis.”

Carchedi goes on to show that it was not the lack of wage demand that caused crises or the failure to boost government spending as the Keynesians argue – of the 12 post-war crises, eleven were preceded by rising wages and rising government spending!

Thus Carchedi concludes that Marx’s law of profitability remains the best explanation of crises under capitalism and its secular fall, particularly in the productive sector, reveals that capitalism is exhausting its productive potential.  It will require a major destruction of capital values, as in WW2, to change this.  What happens after that is an open question.  As he puts it in the title of his paper, taken from a Gramsci quote, The old is dying but the new cannot be born – and to rephrase: what will the new be?

Now I have dwelt on Carchedi’s paper in some depth because I think it has much to tell us with lots of evidence to back up Marx’s contribution to an understanding of crises in modern capitalism – and also because it hardly got a mention from the discussant in this session, Professor Ben Fine from SOAS.  Although Ben said he did ‘agree with’ Marx’s law of the tendency of the rate of profit to fall, he ignored the relevance of Carchedi’s paper because he reckoned the modern ‘structure of capital’ had changed so much through ‘financialisation’.  Ben did not have any time to explain what he meant, but presumably the changing financial structure of capitalism has made Marx’s law of profitability irrelevant to crises.

The other participant in this session was Paul Mattick Jnr who also had nothing to say on Carchedi’s paper, but for a different reason (Mattick Abstraction and Crisis).  For Paul, even trying to estimate the rate of profit a la Marx is impossible and unnecessary.  It is impossible because Marxian categories are in value terms and modern bourgeois national accounts do not allow us to delineate measures of value to test Marx’s law.  And it is unnecessary because the mere facts of regular financial crises and slumps in capitalist production show that Marx was right.  In Capital, Marx provides us with abstractions that enables us to explain the concrete reality of crises.  We can still describe these crises, but we cannot and don’t need to try to ‘test’ Marx’s laws in some pseudo natural science way with distorted bourgeois data.

Now Paul has presented this view on Marxist scientific analysis before, when he was discussant at Left Forum in New York on a critique of my book, The Long Depression, and he is soon to publish a new book on the subject.  As I replied then, “Using general events or trends to ‘illustrate’ the validity of a law can help.  But that is not enough.  To justify Marx’s law of profitability, I reckon we need to go further scientifically.  That means measuring profitability and connecting it causally with business investment and growth and slumps. Then we can even make predictions or forecasts of future crises.  And only then can other theories be dismissed by using a body of empirical evidence that backs Marx’s law.”  This may be difficult but not impossible.  Moreover, it is necessary.  Otherwise, alternative theories to Marx’s theory will continue to claim validity and hold sway.  And that is bad news because these alternative theories deliver policies that look to ‘manage’ or ‘correct’ capitalism rather than replace it. So they will not work in the interests of the majority (the working class) and will instead perpetuate the iniquities and horrors of capitalism.

Moreover, I think that was Marx’s view to test things empirically, at least according to the evidence shown by Rolf Hecker in another paper in this session (Hecker 1857-8 Crisis).  Rolf is a top scholar on Marx’s original writings and notebooks.  And in looking at Marx’s analysis of the 1857-8 general economic crisis, he found that Marx compiled detailed data (a la excel) on credit, interest rates and production (Hecker Crisis PP) in the search for empirical indicators of the direction and depth of the 1857 crisis.

Rolf reproduced Marx’s work in modern graphic form.

Apparently, Marx did not think it a waste of time to do empirical testing of his theories.  And now we have a great advantage over Marx.  We can stand on his shoulders and use the last 150 years of crises and data to test Marx’s laws against reality.  Carchedi’s paper adds further explanatory power to that task.

And so did other papers at Capital.150.  But more on that in part two of my review of the symposium.