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 […]
Oxford Professor Simon Wren-Lewis blogs here that UK households are set to lose out from the effects of the vote for Brexit over the next few years due to slowing growth in overall income. This is according to recent Bank of England forecasts for the UK economy.
While overall growth in GDP is forecast to be relatively strong compared to other rich nations, average growth in household income may be zero or even negative during this period.
This is due to the sharp fall in the value of the pound, which makes imports more expensive, and is already contributing to a rise in inflation.
Higher inflation means that a typical consumption basket is more expensive than otherwise, and this reduces real household incomes, other things being equal.
“Capital is a particular form of social wealth driven by the profit motive. With this incentive comes a corresponding drive for expansion, for the conversion of capital into more capital, of profit into more profit. Each individual capital operates under this imperative, colliding with others trying to do the same, sometimes succeeding, sometimes just surviving, and sometimes failing altogether. This is real competition, antagonistic by nature and turbulent in operation. It is as different form so-called perfect competition as war is from ballet.
…Real competition is the central regulating mechanism under capitalism. Competition within an industry forces individual producers to set prices with an eye on the market, just as it forces them continually to try to cut costs so that they can cut prices and expand market share. Cost-cutting can take place through wage reduction, increases in the length or intensity of the working day, and through technical change. The latter becomes the central means over the long run [my emphasis].
…The notion of competition as a form of warfare has important implications. Tactics, strategy, and resulting prospects for growth are central concerns of the competitive firm…In the battle of real competition, the mobility of capital is the movement from one terrain to another, the development and adoption of technology is the arms race, and the struggle for profit growth and market share is the battle itself.”
“Many of the central propositions of economic analysis can be derived without any reference to hyperrationality, optimization, perfect competition, perfect information, representative agents, or so-called rational expectations. These include the laws of demand and supply, the determination of wage and profit rates, technological change, relative prices, interest rates, bond and equity prices, exchange rates, terms and balance of trade, growth, unemployment, inflation, and long booms culminating in recurrent general crises…
…I propose that we reject the claim that perfect competition was ever appropriate and refuse the notion that observed outcomes should be attributed to historically arisen imperfections. The economic dynamics of capitalism arise from competition itself. There was never any Garden of Eden, and our current condition does not stem from its loss.”
These passages come from the opening paragraphs of the conclusion to Shaikh’s magisterial work. Drawing on the classical political economists such as Smith and Ricardo, as well as Marx, Keynes and many others, he sets out to construct a comprehensive approach to the economics of capitalism which goes beyond theories of perfection and imperfection. This is very appealing to me. Continue reading →
The rate of profit, a concept more or less central to all schools of economics, from mainstream neoclassical to Marxist, still gives rise to vigorous academic debates. Its source, measurement and effects remain controversial.
For Marx and Marxists, the exploitation of propertyless labour by the property-owning capitalists gives rise to surplus value, which is transformed into profit, as well as interest, dividends and rent. Surplus value arises from labour being coerced to work longer than is necessary to secure its own means of subsistence. Thus the workplace struggle between capital and labour over the length and intensity of the working day, as a social process, is vital to this kind of analysis of capitalism. Ultimately there is no profit without surplus labour. This is the production of surplus value, which gives rise to the potential for profit-making. Continue reading →
Michael Roberts, author of the recently published The Long Depression, is a Marxist economist working in the City of London, and he blogs here. Much of his economic analysis draws on Marx’s ‘tendency of the rate of profit to fall’ (TRPF) and its importance in his explanation of booms and slumps under capitalism.
The rate of profit so described is the average or economy-wide rate, so there is necessarily some debate when it comes to measuring and drawing implications from it, which I will not go into here.
This particular Marxist viewpoint holds that profit is vital to growth under capitalism since it provides the main source of funds for investment in productivity-enhancing capital. Without a sufficient rate of profit, investment will be weak, and hence growth in output, employment and productivity will be weak. Continue reading →