Re: [OPE] topics for summer discussion: theories of the crisis

From: Alejandro Valle Baeza <>
Date: Thu Jul 22 2010 - 15:31:22 EDT

Dave Zachariah escribió:
> On 2010-07-20 04:03, Alejandro Valle Baeza wrote:
>> Dave your idea is excellent to me. Thank you.
>> Any thoughts on Husson's paper?
> There is a lot to say but let's focus on the theoretical and empirical
> issues for the moment.
> On the whole I'm sympathetic to Husson's analysis, it is in line with
> what I've been thinking since 2008: The dominant factor behind the
> current crisis was not a 'crisis of profitability' as in the 1870s or
> 1970s but rather a 'credit crisis' as in the 1930s. In this case it was
> caused by the growing world economic credit and debt imbalances induced
> by the specific neoliberal configuration of global capitalism since the
> 1980s.
I agree on this at all. I published in Spanish "US crisis and profits"
("la crisis estadounidense y la ganancia" Razón y Revolución, num. 18,
segundo semestre de 2008, pp. 79-93) devoted to answer (very
tentatively) why US is in crises after a period of profitability
recovering? I pointed out the basic role of the debt rise in the crisis.
> Some further points:
> * Measuring profitability
> There are many limits to the available data but I think it is essential
> to separate profitability in the non-financial firms from the financial
> firms. In particular it is the rate of return on investment in the real
> economy that is most relevant to the expansion of production.
> However, I have a problem with terminology of *the* rate of profit.
> There is no such thing. What exists is a *distribution* of rates of
> profit over the capital invested in an economy. It is only legitimate to
> speak of, say, *the* average rate of profit.
I think you are right on this. For the last paragraph I recall Farjoun
and Machover book: Laws of Chaos and some Cockshott and Cotrell articles.
> I find it interesting that while there is a difference between measuring
> the capital stock at current costs versus historical costs, Husson
> reports no fundamental difference in the overall trends. However,
> according to him it is when Kliman converts the measures of
> profitability into labour value terms that he obtains a different
> pattern in which the rate of profit is persistently falling the US. This
> seems to me to be of little significance: firms measure and are
> concerned with profitability in monetary terms. If some alternative
> 'value' measure systematically diverges from this, then the usefulness
> of the latter measure is surely questionable.
> That said, I know that it is possible to employ a labour value estimator
> of the average rate of profit that works well as a predictor and that
> gives deeper insights to the trajectory of profitability.
> * The law of the tendential fall of the rate of profit
> I agree with Husson that the orthodox formulation of this 'law' is
> inadequate. Especially Marx's variables are not helpful here even if his
> insight was correct. Indeed, the real question must be: Under what
> conditions will the average rate of profit rise, fall or remain
> constant? Do such conditions recur or are they transient? In this way
> one can avoid so much of the epicycle-arguments about 'counter-tendencies'.
> Husson enters this terrain when he points out the effects of
> productivity growth.


"If one wishes to study the conditions of evolution of the rate of
profit, it is necessary then to abandon the classic
binary breakdown (rate of surplus value/organic composition of capital)
for a ternary breakdown bringing in
wages, the productivity of labour, and the efficiency of capital, that
is the income/capital ratio [5] We obtain then
the following result: the rate of profit increases if the increase of
the real wage is lower than that of the “global
productivity of factors” defined as the weighted average of the
productivity of labour and the efficiency of capital.
In simple terms, the gains of the productivity of labour could
compensate both for the increase of real wages and
that of physical capital per head. The error of the canonical
presentation of the law consists in forgetting this
possibility by confusing the organic composition of capital (in value)
with its technical composition." (Husson, 5)

I find this very confusing. He introduces many variables without order.
He mix the usual national account aproach rate of profit= f(product
wage, eficiency o capital and labor productivity) with neoclassical
stuff: global productivity of factors”. I do not see why to include this
absurd concept (recall Humbug production function of Shaikh critic)

> As an alternative to this formulation, I believe
> the approach taken by Paul C, Allin and myself is more fruitful: It can
> be shown that average profitability is determined by the balance of
> three factors:
> 1. Growth rate of labour
> 2. Growth rate of productivity
> 3. Level of investment ratio
> The two first act to raise profitability, while the last factor lowers
> it. Clearly the significance of the first factor has vanished in the
> industrialized economies. It turns out that in general the most
> significant factor is the investment ratio. Note that this is
> *independent* of the level of the wage share, thus eliminating one
> factor from the analysis of profitability.

> Please let me know the reference for this or better send to me your paper if it is possible.

> * 'Under-consumption' mechanism
> Husson is right that one cannot dismiss this mechanism as some sort of
> 'Keynesian deviation'. If wage shares were falling world-wide and
> investment shares were stagnant, the effective demand would have to come
> from somewhere: consumption by the propertied classes, indebtness,
> exports or government expenditure. What seems to have happened is that
> the capitalist economies polarized into two groups:
> 1. Deficit- and debt fueled
> 2. Export fueled
> and this fueled the ever-growing macroeconomic imbalances that
> eventually led to the credit crunch.
I agree on this too.
> One a related note, what has struck me about many US-based Marxists,
> such as Anwar Shaikh and David Kotz, is how the balance of class forces
> is missing from the analysis. Dumenil and Levy are somewhat better on
> this, but even here working-class trade-unions and parties have no
> clearly theorized position in their framework.
There were Marxist analysis on balance of class forces when rate of
profit diminished. Recall profit squeeze theorist during the seventies
but not after that.
> What do you make of Husson's paper yourself?
I enjoyed most of the paper, specially empirical discussion. I think
this sort of analysis should be current discussion in Marxist circles
and Husson paper is quite valuable for this.
The increase in profit share was discussed even by BIS: BIS Working
Papers No 231 "The global upward trend in the profit share" by Luci
Ellis and Kathryn Smith.
So, even bourgeois economics can find important issues about
profitability but its explanation should be different to Marxist
interpretations (I hope so). I do not agree with Husson analysis of the
law of falling rate of profit and I believe it is an necessary stage to
understand recovery of the rate of profit.
If you agree, I would like to discuss your formulation.

Alejandro Valle Baeza

> //Dave Z
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Alejandro Valle Baeza
Posgrado, Fac. Economía, UNAM
Av. Universidad 3000, México 04510, DF.
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Received on Thu Jul 22 15:36:24 2010

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