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

From: Michael Webber <>
Date: Fri Jul 23 2010 - 03:56:26 EDT

this has so far been an interesting discussion, even for those of us
deep in winter. thanks. however, there are a number of issues that i
think need to be clarified.

1 farjoun and machover have to be taken as basic, i think. so average
rates of profit. but also, so a determinate relationship between
value and price quantities, when measured in aggregate and across the
entire economy. furthermore, the price and value quantities are
simultaneously determined (even if estimation goes from one to the
other), so one does not cause the other. f & m have a very profound
effect on the manner in which we think about such issues.

2 i accept that we need to think about both the financial and the
nonfinancial sectors. but what do we mean by them? and why do we
separate them?

the basic reason is that we think that profit - the addition of value
over and above the values inherent in the used up means of production
and the labour power) originates in production. by production i mean
the usual (secondary industry + construction + electricity/gas/water
supply) but also transport and storage, restaurants, health care,
hotels, advertising, and the like. we should include agriculture,
forestry, fishing and mining, too. these all transform products
(sometimes transforming their location or time) and in so doing can
create value.
on the other hand are pure trading activities. we think that these do
not create value, being merely the exchange of commodities, in which
one person may make a profit, but only if the other makes an
equivalent loss. financial activities are only one component of all

the proviso about including all these things is, of course, that we
need to include only the capitalist enterprises in them. this is
because only capitalist enterprises make something that we could
legitimately call a profit. sometimes this distinction cannot be
maintained from published data - hence the common focus on
manufacturing or secondary industry, which in advanced economies are
dominated by capitalist production. but that's a data limitation, not
a theoretical problem. [incidentally, the assumption that economies
are capitalist was an important weakness in f & m.]

making such a distinction between production and exchange (including
finance) also enables us to do some work on Arrighi-type arguments
about shifts in hegemony in a global system.

3 any serious empirical examination of average rates of profit in
modern economies must accept the fact that they are open. therefore
Dave's original statement,
"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"
is true only of closed economies (ie, of the world as a whole). in
fact, average profitability depends also on the growth rate of net
exports. in an even better formulation, it would also depend on
inter-sectoral (which might include international) unequal exchange.

4 in a non-equilibrium, dynamic model of an open economy, it is
possible to demonstrate that in the short run, average profitability
can move in a variety of directions, depending on the above factors.
in the longer run, the growth rate of net exports has to be roughly
zero (otherwise, the areal unit would end up producing everything in
the world; and there are political objections to this - viz first
Japan, then S Korea and now China), and then, there is a knife-edge
solution in which average profitability is constant; otherwise, it
falls to some level until an adjustment in the underlying parameters
is made (savings, productivity, labour, etc).

5 the key to understanding how underconsumption and technical change
theories of the rate of profit are related is quite simple. it is to
refuse to model technical change as an equilibrium process. we are
used to modelling profit as [sales - costs]/capital, where
sales = price * output
capital = capital used up in production.
this implicitly assumes that all output is sold and that the capital
used in production equals that available. in fact,
sales = price * that portion of output which is sold;
capital = all capital available, whether used to produce that sold
output or not.

6 likewise for struggles-of-labour and technical change arguments:
think about what is the relationship in theory between rate of
employment and wages growth and refuse to assume that wages are fixed
and everyone is employed.

7 in general, i hate approaches in which these are seen as
theoretically separate approaches to the rate of profit. technical
change is about reducing labour's share, for example. that's what
it's for, as a capitalist rule of thumb. likewise underconsumption:
that's what we want, in a world of internationally competitive firms -
make our workers consume less and get the others to consume more.

8 and finally, let me make a geographical point. [permit me... it is
my discipline!] all of the calculations that we have been discussing,
all of the concepts - they all assume that there is a geographically
unified territory over which there is a given standard of living - a
wage - and a given structure of prices (which, even if individual
prices are random variables, they have constant means and variances
over the territory). none of this is true. even in the most smoothly
functioning capitalist economies that occupy even the smallest
territories (OK, that's an exaggeration, i don;t know about
Luxembourg; but think UK), there are price and standard of living
differences that are structural. this implies that the value of a
commodity depends on where in the system it was made. it also means
that the value of a commodity in a national economy ought, perhaps to
be thought of as the average of the values of that commodity made at
different places?

i hope that this advances the discussion. it warmed my fingers on
these winter nights. i look forward to future instalments.


On 23 July 2010 09:45, paul bullock <> wrote:
> Alejandro,
> Any chance you can forward an attachment/ copy of your 2008 article for me
> to read?
> Cheers
> Paul Bullock
> -----Original Message-----
> From: []
> On Behalf Of Dave Zachariah
> Sent: 22 July 2010 21:26
> To: Outline on Political Economy mailing list
> Subject: Re: [OPE] topics for summer discussion: theories of the crisis
> On 2010-07-22 21:31, Alejandro Valle Baeza wrote:
>> If you agree, I would like to discuss your formulation.
> Of course, I would be very interested in pursuing that discussion.
>> 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.
> It would have been interesting to have a look at your paper, but
> unfortunately I can't read Spanish.
>> 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.
> Yes, I'm heavily influenced by their probabilistic approach.
>>> 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.
> The article about profitability is available here,
>    Determinants of the average profit rate and the trajectory of
>    capitalist economies
>    Published in Bulletin of Political Economy (Vol.3, No.1, 2009)
> and extending it is a joint article with Paul C, recently published in
> Science & Society (Vol. 74, No. 3, 2010). The pre-print of that article
> can be found here:
>    Credit Crunch: Origins and Orientation
>> 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.
> You are right about this. It is clearly a central element in Glyn's
> framework, and partly adopted by Harvey. But again they are people who
> are familiar with European labour movements.
> But for Shaikh, arguably one of the best Marxist economists today, the
> organization of labour appears to have no clear role in the trajectory
> of capitalist economies. It is not even a passive element in the
> system's  laws, it is absent. I think it is hard to understand the
> important shifts within capitalism without taking into account the
> balance of class forces. I suppose the peculiarity of the US
> working-class movement is the cause of this theoretical absence.
>> 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.
> Agreed. I think Husson's paper shows how to conduct the type of
> discussions we ought to be having on OPE-L.
> //Dave Z
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Michael Webber
Professorial Fellow
Department of Resource Management and Geography
The University of Melbourne
Mail address: 221 Bouverie Street, Carlton, VIC 3010
Phone: 0402 421 283
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Received on Fri Jul 23 03:58:13 2010

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