Re: [OPE-L] Robert Brenner, "That hissing? It's the sound of bubblenomics deflating"

From: ajit sinha (sinha_a99@YAHOO.COM)
Date: Mon Oct 01 2007 - 07:27:15 EDT

--- Paul Cockshott <wpc@DCS.GLA.AC.UK> wrote:

> Remember Ajit I said that I have not read Brenner,
> so I was acting
> as devils advocate here, trying to make a coherent
> reconstruction from the
> summary that Gerry posted.
> In part what is at issue is a matter of how one
> defines profit. I agree
> that in the Ricardian view interest is paid out of
> profit, and is a share of
> profit. Marx would also agree that interest payments
> by capitalists are
> paid out of surplus value but he does not treat the
> latter as identical
> to profit, distinguishing between profit of
> enterprise and interest.
> Whilst at a high level of abstraction, concerning
> only the relationship
> between the major classes, it is legitimate to treat
> interest as a share
> of profit, at a lower level of abstraction the
> difference becomes significant
> as Steindl and Sweezy argued in the the 50s. High
> interest rates will reduce
> the ratio between dividends and capital stock, since
> less is available to distribute
> as dividends, thus the apparent profitability
> experienced by equity capital falls.
> ( in practice this would be expressed as a fall in
> the price of equities ).
> But we know that there has been a long term rise in
> the price of equities,
> and, over the last 20 years interest rates have been
> relatively low. But
> from Brenners perspective this might be seen as an
> aberation from the
> long term history of capitalism brough about by
> anxieties on the part of
> the Fed to avoid recession. Suppose that instead of
> the dollar being
> fiat money, it was still tied to gold. Would the Fed
> have been able to
> sustain these low interest rates? Would equity
> prices have continued to rise
> for so long?
This is quite interesting. All this time the left and
post-Keynesians have been blaming Milton Freedman and
the central banks for following tight money policy.
Now, all of a sudden the central banks are to be
blamed for being too Keynesian and not following
Freedman. In my opinion, Keynes and also Sraffa were
of the opinon that rate of profits is a conventional
margin on given rate of interest. From this point of
view a lot of class struggle and political economics
of the ruling class could be descerned in the interest
rate policy. It has been one of the explanations of a
shift in income distribution from the working class to
the propertied class because of the Freedmanite
monetary policy. So I don't know how to place
Brenner's thesis in this context.
> However the factor that Steindl focused on was the
> tendancy for the gearing
> ratio of industrial capital to rise, and thus for
> the amount of retained profits
> to fall. He argued that this can result in lower
> rates of accumulation.
> This cause is independent of the rate of interest
> since a higher gearing
> ratio means, at any given rate of interest, the rate
> of profit of enterprise
> will be lower.
But what those people who are getting high rate of
interest are doing with it? The problem with this
story is that it does not have a theory of interest.
What determines the rate of interest?
> You say " What if you are investing your own
> savings only? the rate of profits takes interest
> into
> account."
> If you were that would be true, but one has to ask
> whether the dynamics
> of accumulation make that a typical case?
> I would say that accumulation out of a capitalists
> own savings whilst
> it may be the aboriginal condition, is not
> characteristic of a mature
> capitalist economy. Given that there is always a
> dispersion of profit
> rates relative to the rate of interest, the
> population of capitalists
> polarises into those whose current business, whilst
> profitable
> gives less than the rate of interests, and those
> whose rate of profit
> is greater than the rate of interest. The former
> group will tend to lend
> money at interest to the latter. So over time the
> former group transform
> into a class of rentiers, gaining their profits from
> interest rather than
> direct commericial profit.
But wouln't it be crazy for the capitalists to
continue to invest if their rate of profits is lower
than the going rate of interest? Remember, the story
is about the long-term trend, so these capitalists
will have to be simply crazy.
> What happens then when the rate of interest rises -
> a section of the
> firms who had previously borrowed to accumulate will
> find that their
> current rate of profit not longer suffices to meet
> the interest payments.
> In order to continue operations they have to rely
> upon lines of credit
> extended by the banks, which in turn further raises
> their gearing ratio,
> making it harder in the future for them to carry out
> internal accumulation.
As I said above, it does not sound like a plausible
long-term story.
> I can conceed your point on the misleading nature of
> the ratio c/v, but my
> argument could be more clearly expressed by saying
> that the ratio of capital
> stock, evaluated in person years, to the current
> productive working population.
> If this rises, the rate of profit falls. I would
> anticipate that the
> Chinese economy, which has such a high rate of
> accumulation, and now,
> a relatively stable population, will be experiencing
> such a rise in capital
> stock relative to population. This will tend over
> time to reduce the rate
> of profit in China. I would doubt that net
> accumulation in the USA is currently
> fast enough to significantly act to reduce profit
> rates.
I'm not convinced. Let's leave the question of C/V
aside. Unless you have a theory of barier to growth,
as long as techniques remain the same, why should the
rate of profits fall. And why should technology become
less efficient, unless you have some kind of
diminishing returns. So the fall in the rate of
profits must be explained by rise in wages.
> ------------------------
> > c) An increase in unproductive employment can
> > consume surplus value and lead
> >    to a lower rate of profit. This may well have
> > been occuring recently.
> ____________________
> How is surplus consumed cannot reduce the rate of
> profits; but, of course, it can reduce the rate of
> accumulation as Smith argued.
> --------------------------------
> It depends on where the unproductive workers are
> employed.
> If they are just personal servants, yes it has no
> effect
> on profit, since they are paid out of distributed
> profits.
> If on the other hand they are advertising and
> sales staff for example, their wages appear in the
> accounts
> like any other employee even though, in aggregate,
> from
> the standpoint of the whole economy, they are
> unproductive.
> They will thus tend to lower the rate of profit by
> increasing the wage bill prior to profit being
> calculated.
This is an interesting point, which I hope you could
develop further. This could be your new source of
diminishing returns. But you will have to explain why
this source of cost must increase proportionately more
as output rises. One may expect that with rise in
output, the share on ad. etc. may fall. But there is a
theoretical potential here in trying to work it
through monopolistic or oligopolistic competitive
> You ask, speaking of the surplus:
> ---------------
> If it is consumed one way or the other, how could it
> reduce aggregate demand?
> ----------------
> I think one has to view Brenner as being in the
> Sweezy tradition
> and speaking of the reduction in aggregate demand
> that would
> occur were it not for remedial action by the state.
> Sweezy arguing
> that it was military expenditure, Brenner arguing
> that it was
> the extension of consumer credit.
> Whilst military expenditure can go on and on,
> consumer credit
> does have limits to its extension. As the level of
> personal debt
> rises, the incidence of default rises and the
> process must
> come to a halt.
> Paul Cockshott
But you would agree that Sweezy did not have a well
nit theory. Long-run trends must be worked out on the
analysis of real economy not on bubbles and
speculations.Cheers, ajit sinha

> -----Original Message-----
> From: OPE-L on behalf of ajit sinha
> Sent: Sun 9/30/2007 2:18 PM
> Subject: Re: [OPE-L] Robert Brenner, "That hissing?
> It's the sound of bubblenomics deflating"
> At last something to bite on!
> --- Paul Cockshott <wpc@DCS.GLA.AC.UK> wrote:
> > Ajit, I think that there are more unbound
> variables
> > in the system than you allow.
> >
> > Consider first the issue of rate of profit. You
> are
> > quite right to point out that
> > one would expect this to be negatively correlated
> > with wages, so that lower
> > wages would tend to imply higher profit rates. But
> > there are several possible
> > confounding variables.
> >
> > You identify rent among these and say that this
> > would only be relevant in the case of
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