An interesting take on the reasons for the continued weakness of investment and growth in the aftermath of the Great Recession. For Marxist Michael Roberts, it is mostly about the failure of the rate of profit to recover to pre-recession levels. The link to his post is below.
Recently, Larry Elliott, the economics correspondent of the British liberal newspaper, The Guardian raised again the puzzle of the gap between rising corporate profits and stagnant corporate investment in the major capitalist economies. Elliott put it “The multinational companies that bankroll the WEF’s annual meeting in Davos are awash with cash. Profits are strong. The return on […]
This quote is taken from a footnote to Marx’s Capital Volume II (p. 391 in the Penguin edition). The volume was put together after Marx’s death by his friend and collaborator Engels, drawing on extensive notes. The quote provides inspiration for the analysis of one particular contradiction in the dynamics of capitalism :
“Contradiction in the capitalist mode of production. The workers are important for the market as buyers of commodities. But as sellers of their commodity – labour-power – capitalist society has the tendency to restrict them to their minimum price. Further contradiction: the periods in which capitalist production exerts all its forces regularly show themselves to be periods of over-production; because the limit to the application of the productive powers is not simply the production of value, but also its realization. However, the sale of commodities, the realization of commodity capital, and thus of surplus-value as well, is restricted not by the consumer needs of society in general, but by the consumer needs of a society in which the great majority are always poor and must always remain poor.” (my emphasis)
It is important not to take this quote out of context. In addition, despite significant inequality and poverty, Marx was clearly wrong about the majority always remaining poor under capitalism. However, the contradiction described here between the production of surplus value and its realization upon sale, has given rise to plenty of debate among left economists. Continue reading →
Profitability in a capitalist economy provides both the motive for investment, and the source of it via companies’ retained earnings.
Keynesian policies to expand demand can work to increase growth, but in Marxist terms they are limited by their effects on the rate of profit.
Austerity could perversely raise the growth rate over the medium run by restoring private sector profitability, even if it dampens growth initially.
If this idea is right, one can see that capitalism is often not a ‘nice’ system. It may be unrivaled in its capacity for wealth creation, but this is typically done so unevenly and often unfairly. Intervention can mitigate some of this, but within limits.
A series of interesting short videos featuring Anwar Shaikh of the New School, an economist I greatly admire, where he discusses his influences and aspects of his life’s work.
His magnum opus, Capitalism, was published last year, and I have written on parts of it several times on this blog.
For those who don’t want to go through them all, I can recommend as a taster video number nine (of eleven), ‘Keynes and Classical Economics’, where he discusses the links he makes between the ideas of Keynes on aggregate demand, and competition and profitability in the work of Marx and the Classical economists. To reach this, press play, then skip forward between videos using the player controls.
This video tells the story of how a relatively equitable capitalist growth model in the 1950s and 60s gave way to rising inequality and weaker investment. For Professor William Lazonick, the economy of the US (and other advanced nations) currently generates “profits without prosperity”.
After World War II, average wages across the economy tended to increase in line with productivity, so that ordinary workers shared in rising economic efficiency over time. However, since the 1970s, the link has been broken as productivity continued to rise, while wages stagnated. This trend has been largely sustained to the present day.
The video discusses these changes in the US economy, and focuses on the phenomenon of stock buybacks, which shift firm resources away from productivity-raising investment in new technology and a more highly-skilled workforce towards short-term financial gains for CEOs and investors. Lazonick discusses possible solutions to these problems.
According to Tom O’Leary the underlying aim of austerity has been to restore business profits, by putting downward pressure on wages, and reducing taxes on business and the rich. But while wages have stagnated, profits have not recovered significantly. As profits lead investment, growth in the latter has been weak, and the basis for an improved growth performance and living standards has so far failed to materialize.
Those on the right would respond to this by engaging in deregulation and further austerity, which might include reducing workers’ rights and environmental protections, and deepening cuts in public spending and taxes. Such policies would be short-sighted and damaging. Those on the left would favour a large increase in public investment in order to ‘crowd in’ private investment. This could be far more beneficial, as growth in public investment has been weak for years, while the burden of regulation remains relatively low internationally. But at the moment the UK has an unassailable right wing government too distracted by Brexit to engage in such a progressive agenda. Continue reading →
Recently, the economics editor of the Guardian newspaper in the UK, Larry Elliott, presented us with a comparison of the Great Depression of the 1930s and now. In effect, Elliott argued that the world economy was now in a similar depression as then. The 1930s depression started with a stock market crash in 1929, followed […]