ISJ 124: Kliman and Choonara review

The SWPs International Socialism Journal (ISJ) claim that capitalism is stagnant and has been for nearly four decades now. Throughout the period of globalisation they say, capitalism has seen declining production and investment, overcapacity and low, stagnant or falling profit rates. The digital age, internet revolution and Nintendo Wii Fit are all manifestations of capital’s inability to revolutionise the productive resources. The latest ISJ 124 features articles by Andrew Kliman and Joseph Choonara, re-treading this well worn road….writes Bill Jefferies…

Andrew Kliman

Andrew Kliman is an American academic Marxist from a broadly speaking similar theoretical tradition to that of the ISJ. He is an expert on value theory and a key proponent of the Temporal Single System Initiative (TSSI). This theory asserts that in a capitalist economy prices systematically diverge from values but may change through time as a result of revolutions in productivity and so on. Kliman also asserts that the non-capitalist former Stalinist centrally planned economies of the USSR, Central and Eastern Europe and China before 1991, where none of these conditions applied were also capitalist. This may at first glance seem a bald contradiction. But its relevance will become clear shortly.

Kliman’s piece “Pinning the blame on the system” is a review of Chris Harman’s latest book “Zombie Capitalism: Global Crisis and the Relevance of Marx.” In fact it is a thinly veiled polemic against those Marxists specifically including ourselves in Permanent Revolution (PR), who have demonstrated that the period of capitalist globalisation has been anything but stagnant.

The integration of the former Stalinist centrally planned economies in the world market doubled the working class that could be exploited by capital. What’s more capital inherited masses of means of production, entire cities, road systems, ports, docks, hydro schemes and so on at no cost.

As a result the world organic composition of capital fell sharply and profits rose. The ICT revolution, abolition of trade barriers and consolidation of the defeats inflicted on the working class and labour movement in the 1970s/80s, particularly in the US/UK, raised manufacturing productivity, increasing the relative and absolute rates of surplus value and created a whole new technological basis for capitalist production in the mid to late 1990s. This further reduced labour costs, further increased productivity, slashed the circulation time of capital and resulted in a strong recovery of the rate of profit, particularly in the period 2003-2007.

But not according to Andrew Kliman.

Kliman shares the Harman, Choonara and the ISJ’s view that capitalism already existed in the former centrally planned economies of China, Russia and Central Europe. Therefore for him there was no capitalism to restore. So the impact of the non-existent restoration of capitalism was non-existent.

Kliman explains that “‘Harman’s book wants to attack the great delusion’, the belief that ‘capitalism had found a new way of expanding without crisis’” he goes on “Even some Marxists spoke of a ‘new long upturn’”. Kliman is referring to PR’s 2006 article “Capitalism’s Long Upturn”. Of course he does not admit it. But then again neither does Harman’s book that he is referring to, so you can hardly blame him for that.

If our article had claimed anything of the kind then it clearly would have been deluded. But it did not. In fact it concluded that; “Combined, these factors have produced a sustained – though not crisis-free – revival in capitalism, above all profitability.”

Downhill from there

Unfortunately for Kliman after getting his opening gambit wrong it is all downhill from there. Kliman claims that the basic problem with those who disagree with Harman is they “have not broken completely with capitalist ideology” and that therefore they “must always try, as Harman puts it, “to pin the blame on something other than capitalism as such”. Some might think that this was an attempt to shut down the debate, heaven forbid, but fortunately, unlike these sad apologists, “The greatest virtue of Zombie Capitalism is that Harman will have none of this. He pins the blame on “capitalism as such”.”

Good for Harman, “The title Zombie Capitalism reflects Harman’s focus on capitalism itself.” Allegedly Harman by “Taking seriously Marx’s theory of the “fetishism of the commodity”, he characterises the system as a zombie, an undead creature.”

Now “Return of the Living Dead” may have many attributes, not least as it enabled George A Romero, who inspired but did not produce the original film, to perfect the genre over a number of sequels, but its relationship to Marx’s theory of alienation has been until now an undiscovered quality. Kliman says that;

“I read Zombie Capitalism as above all an effort to substantiate the view that capitalist crises are inevitable by explaining and defending this theory. In other words, Harman justifies his view not by pointing to the fact that he predicted the current crisis but by endeavouring to account for the crisis—and more importantly, to account for the major economic events and trends of the past 90 years, booms as well as busts, country-specific phenomena as well as global ones—in terms of the overall theory.”

And it is a good job that Harman does not rely on his predictions for the crisis to support his theory. Harman did not predict the crisis. In fact quite the opposite, he strenuously refused to make any predictions about the direction of the world economy at all. And still doesn’t. In not a single article written before the credit crunch will you find anything but the vaguest assertion that everything will go bad at some point around a corner. That corner may be near or far or somewhere in between. Harman may have been certain that it was at least probable, at some point, that with a certain combination of some more or less unspecified events, probably involving a bubble, something may happen, but as to when, well that remained to be seen.

Harman was no better in October 2008 after the world recession had begun. The Winter 2008 issue of ISJ Harman’s article “The slump of the 1930s and the crisis today”, opens with another unattributed quote “We are on the edge of the abyss. One slip and we will be into depression like that of the early 1930s.” Harman claims that this sums up the mood of the bosses at the time. In fact it is what he thought just a couple of months before. The article is a write up of Harman’s speech to the November 2008 ISJ crisis day school, where immediately following the debacle of Lehman’s, Harman prognosticated that the world capitalist economy faced either the Great Depression or on the best case scenario a world wide Japanese style stagnation lasting a decade. But Harman’s an old timer. He’s not about to write any of that down. So by the time it went to press he concluded “There is a natural desire for people to want to know exactly how serious this crisis is going to be. But this is one thing Marxists cannot predict.”

As for Harman explaining booms and busts from the last century on in his little book, well he does not do that either.

Kliman's quibbles

Kliman points out some disagreements, albeit minor he thinks, with “the book’s account of recent economic history.” Kliman explains that;

“Harman and I agree that there was a “long boom” through to the early 1970s. We also agree that the boom can be explained on the basis of the theory by noting two of the theory’s implications: the destruction of capital value during crises also sets the stage for the subsequent boom; and the diversion of profit from productive investment to other uses—in this case, persistent military build-up—slows down a falling trend in the rate of profit. But Harman also believes, while I do not, that this period was almost free of slumps and that it lacked a persistent falling rate of profit trend.”

Kliman says that Harman claims “…between 1939 and 1974, the US only experienced one brief recession (in 1948-9) “in which economic output fell”; “there was only one brief spell of falling output in the US (in 1949)”.

This is part of Harman’s myth making around the long boom. Harman exaggerates its crisis free character in order to contrast it with the post 1960s stagnation, in fact as Kliman explains “according to the US Bureau of Economic Analysis, real gross domestic product fell throughout the 1945-7 period and in 18 of the 104 quarters between 1948 and 1973. In 1949, 1953-4, 1957-8 and 1969-70 it declined for at least two quarters in a row.”

There were deep recessions in the post war boom, but unlike the period from 1973-89 crisis did not characterise the period as a whole. Profits, output and employment quickly recovered after them. They were pauses in a general upward trend.

Kliman goes further however; he says that;

“My main remaining empirical differences concern trends in the rate of profit in the US. Harman says that “profit rates did not resume their downward slope” during the long boom,18 and that there has been a partial recovery of rates of profit since the early 1980s. Bureau of Economic Analysis data I have recently analysed lead me to conclude, to the contrary, that there has been a persistent fall in the rate of profit—at least in the US corporate sector—throughout the whole post Second World War period (except that the nominal rate of profit did not fall, but temporarily levelled off during the 1960s and 1970s, because of that period’s accelerating inflation).”

Kliman tries to prove too much. By wanting to demonstrate that profit rates have not recovered with globalisation, he actually shows that they rose in the 1970s compared with their levels in the 1960s boom, particularly after the oil crisis of 1973. It effectively destroys profit rates as a guide to the health of the capitalist economy or otherwise.

Kliman bases these assertions on his estimates of the rate of profit. He explains his calculation like this “To be precise: when fixed assets and depreciation are computed at historical cost, profit (or surplus value) is measured by subtracting employee compensation from value added (net of depreciation), and the rate of profit is measured by dividing profits by the cost of fixed assets.”

Marxists and the rate of profit

Of course this is not a Marxist theory of the rate of profit. Marx explained that the rate of profit was s/c+v, where s = surplus value and c = fixed and circulating constant capital or raw materials and v = wages. Kliman’s excludes wages and circulating constant capital from that calculation.

The mass of profits may indirectly reflect the cost of wages and raw materials as increased expenditure on them will lower it, but leaving them out of the equation means that an accurate measure of profit rates cannot be established. This explains why the 1970s which saw ever rising oil prices raising the organic composition of capital and therefore causing a fall in the rate of profit, particularly after 1973, are according to Kliman’s graph a period of boom. This is particularly important for theories of the business cycle, 10 of the last 11 recessions have been immediately preceded by a boom in raw materials prices.

There is also a debate amongst Marxists economists, as to whether to use historical or current cost of fixed assets when determining the value of assets in the calculation of the rate of profit. Kliman thinks it is correct to use historical cost. Marx on the other hand explained that as the socially necessary labour time required for the cost of capital production changed so would the value of fixed assets. If a capitalist buys an expensive machine it may be working fine, but if a new cheaper machine is invented that is no consolation to him (probably it’s a bloke). He cannot insist that his machine cost him hard money and he wants it back. The capitalist will simply be unable to sell his now expensive and out of date product. Instead the cost of the capitalists historic investment will be devalued immediately to the level of the most efficient competitor i.e. its current replacement cost. Historic investments will be written down to their present cost of reproduction, i.e. the socially necessary labour time they cost now.

Nevertheless in spite of these criticism, Kliman’s measure of profit rates does produce some interesting results. Kliman continues;

“… the rate of profit has had the following trajectory. Between the troughs of 1949 and 1961 it fell from 39.3 percent to 31.5 percent. It then fluctuated without trending upwards or downwards for two decades. In the trough year of 1982 it stood at 31.8 percent. In 1992, another trough year, it was 27.1 percent, and the trough after that was 2001, when the rate of profit was 23.3 percent. Thus half of the total fall occurred during the long boom and the other half occurred during the period in which profitability supposedly rebounded!”

Kliman would claim that he ends his series in 2001 as this was the trough of the last recession. The problem with that is we are attempting to establish the reasons for the recession in 2008 not 2001. If we want to know why there was a recession in 2008 we need to know the direction of profit rates then not seven years before.

There is much debate about how to establish an accurate rate of profit amongst Marxist economists. Dumenil and Levy, Fred Moseley, supported by Costas Lavitpitsas and this journal using various different calcualtions have all demonstrated the recovery of US profit rates with globalisation. But what about Andrew Kliman. What about Kliman’s estimates for the period after 2001? The period which preceded the present crash and which explains it? Did profits rates fall then or were they stagnant?

“The Destruction of Capital” and the Current Economic Crisis

Andrew Kliman January 15, 2009

Kliman’s own graph demonstrates that after 2003 there was a dramatic recovery in the rate of profit to levels not seen since the peak of the post war boom. Kliman says that he agrees with Harman that the rate of profit has not recovered. Yet according to his own calculations this is demonstrably not the case. Even after the sharp fall in profit rates at the end of 2008, profits remained well above their lows of the 1980s and have recovered much faster through 2009 than any of the most optimistic bourgeois commentators – never mind the Marxists – anticipated.

Joseph Choonara and Goldman Sachs

This sets the scene for the second article in this issue of ISJ. Joseph Choonara, attempts to refute calculations from the investment bank Goldman Sachs article “The Savings Glut, the Return on Capital and the Rise in Risk Aversion”, Global Economics Paper No: 185.

These calculations demonstrate a similar pattern to Kliman’s, showing that rates of return have recovered world wide with globalisation and particularly strongly in the USA, Europe and above all China. Goldman Sachs say that “far from declining…the global return on capital…has trended up over the past decade or so. Even in 2008, by which stage the financial crisis had begun to hit profits materially, the global [return on capital] remained above its long-term average.”

So why have profits rates recovered? Goldman Sachs explain, “The integration of the BRICs into the global economy resulted in a sharp increase in the world’s effective labour supply and, with it, an increase in global growth. Given that capital stocks are relatively fixed in the short run, this had the effect of boosting the global return on physical capital.”

They go on;

“Labour-intensive, high-saving emerging markets and their effect on global profitability and interest rates

Imagine you’d been told, in the early-to-mid-1990s, that the world was about to see two big structural shifts: first, a period of rapid productivity growth in the emerging world, newly unshackled from central planning but still with low levels of invested capital, relative to its workforce; and, second, the opening up of capital markets between these fast-growing new markets and the capital-rich economies of the developed world.

Because faster productivity growth and scarcer capital (relative to labour) both raise investment demand, one would normally expect the general level of yields and (ex-ante) asset returns to rise.” (p11)

In other words Goldman echo the arguments of this journal amongst others, that the destruction of capitalism in the former Stalinist centrally planned economies lowered the global organic composition of capitalism raising profit rates worldwide, the diametric opposite of the stagnation thesis proposed by Harman, Kliman and Brenner. And a quick look at the graphs makes it quite clear why Goldman’s calculations are fatal to the stagnation theorists. The US return on capital rose from 1984 5% to 2007 16% before falling to a recession low of 9%. Still twice its 1980s level and well above the trough of previous recessions. China’s increase in profitability is even more dramatic. The return on capital rising from 1996 2%, a year after capitalist restoration, to 2007 22%. A figure which has barely fallen with the crash. The European ROC has gone from 1984 7% to 2007 11% and the global figure from 1982 6% to 2007 14% before falling to 11% with the recession.

What is more these startling increases are matched by the yield on investment in every case except that of the USA. So it is no surprise that Choonara seeks to refute the Goldman Sachs physics and maths PHDs, even if it is by questioning their… maths. Choonara says;

“The authors of the GS paper in fact provide two measures of the return on capital. The first, which they call the “yield on capital”, is calculated using a method similar to that of the Marxist theorist Robert Brenner, who argues that capitalism has faced a long-term crisis of profitability.4”

Robert Brenner claims that the rate of profit in the USA and all major imperialist nations has stagnated since the mid 1970s onwards. His calculation of profit rates excludes financial profits, foreign profits and executive remuneration. Together these sources of profit, which have grown very fast with globalisation, now account for half of US profits. It is no wonder therefore that Robert Brenner’s calculation grossly underestimates profit rates. But Goldman’s yield measure does the same thing. They explain;

“We have taken a number of steps to ensure comparability of the ROC measures across countries. For example, we focus on Non-Financial Corporations where the measurement of profits and capital stocks is most accurate; we have adjusted for differences in the treatment of imputed labour income of the self-employed across countries; and, we adjust for differences across countries in depreciation assumptions." (p8)

Unsurprisingly therefore, the USA the major imperialist power in the world, chronically dependent on foreign and financial profits for the health of its economy, shows a particularly low Robert Brenner rate of profit or GS yield, as both these measures exclude the majority of the profit from their calculation. Choonara continues;

“However, the GS paper’s authors would not agree with Brenner’s conclusion. They argue that the genuine return on capital has to be formed by adding a second quantity, the “capital gain”, to the yield on capital. So, we have: Return on capital = yield on capital + capital gain.”

Is Choonara right?

But is Choonara right should we accept his distinction between the validity of the GS yield measure and rejection of the GS return on capital measure? Choonara says that;

“The capital gain is measured by the “fractional changes in real capital prices” over a given period, relative to the changes in prices of goods consumed by households.5 They seek to justify this through the argument that we must “consider a representative household…facing a choice of consuming” a quantity of capital “or investing it”, and that we must look at the total return the household receives through “forgoing consumption”.

But capital stock is not capital derived by households abstaining from consumption.6 In the real world capitalists tend to expand investment by using profits obtained from previous production, and ultimately from the exploitation of workers, or by borrowing money gathered together by banks. In neither case is the cost of capital goods relative to household consumption goods especially relevant.”

In their explanatory text Goldman state that;

“The first term in the RHS of equation (1) represents the net yield on capital, while the second term represents the real capital gain (loss) from holding a representative piece of capital from the start to the end of period t. is expressed in percentage terms.” (p8)

Choonara’s essential complaint is that households by which he means working class households do not own capital and therefore do not make returns on it. GS by treating all households as capitalists have therefore ignored the existence of capital as social relationship of exploitation between capitalists and workers. This is absolutely true. But Choonaras mistake is simply the opposite. GS treat all households as capitalists. Choonara treats all households as workers. A large proportion of assets held by “households” consist of capital held by capitalists, in fact a disproportionately large amount of the total. As we do not have access to the GS database we cannot know what that proportion is. But we can know that capital gains will affect the rate of profit, just not by how much.

Conclusion

Andrew Kliman and Joseph Choonara have mounted a standard defence of the stagnation school. The trouble is Andrew Kliman’s own figures demonstrate his assertion of falling profit rates is wrong in the key period between 2003-2007. And Choonara’s defence is no better. A key component of his theory is that European, Chinese and world profit rates have stagnated through globalisation. Even if Choonara’s critique of the limitations on the GS paper and preference for their yield measure is correct, then profit rates measured in yield have still risen through globalisation. He is wrong even if he is right.

Fri 16, October 2009 @ 09:39

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discussion of this article

Graham B said…

On the debate on the use of historical (Kliman and supported by Harman) or current reproduction cost of fixed capital, Fred Moseley has gone through the textual evidence in Marx:

"Thus I conclude on the basis of this review of Marx’s texts that Marx was consistent throughout his writings on this topic of the valuation of constant capital. Marx assumed throughout that constant capital is valued at current reproduction costs, in the sense that the value of existing constant capital may change, if there is a change in the value of the means of production anytime between the purchase of these means of production and the sale of the commodities produced."

http://www.mtholyoke.edu/~fmoseley/Working_Papers_PDF/CONCP.pdf

Fri 16, October 2009 @ 11:24

Graham B said…

And its not only Goldman Sachs who think that there has been a dramatic increase in the size of the labour force with globalisation - the demise of Stalinist central planning and the integration of the BRICs etc. Here's another one, that also places the current crisis in this context:

"We argue that this large shock to the developed world’s labor supply, triggered by geo-political events and technological innovations is the major underlying cause of the global macro economic imbalances that led to the great recession."

"China’s export led growth boom has enabled the movement of a large segment of the rural population to coastal cities and special economic zones at the rate of almost 20 million each year. As can be seen Figure 3, the urban population in China increased by nearly 300 million from 1990 to 2007" (Figure 3: FRB St Louis)

"Why Are We In Recession?", Sept 09:
http://www.kellogg.northwestern.edu/finance/faculty/seminars/jagannathan090309%20(3).pdf

Fri 16, October 2009 @ 12:57

Jason said…

Over the past three years, a series of articles in Permanent Revolution have made the case that capitalism is not currently in its final death throes, that catastrophe is not imminent and that the workers' movement is in a lamentable state, with poor organisation, lack of rank and file networks, poor rates of unionisation, ideological confusion and disarray.

Whilst our message has been distinctive- a reformulation of traditional Trotskyist politics, coupled with new priorities, fresh ways of thinking and organising and a sober assessment of where we are I think it has been often misunderstood.

Some commentators and activists emphasise how capitalism is fundamentally crisis ridden, leading to ruination of the planet and billions of lives and heading for a crash- as if this is a rejoinder to what we say.

Some think we are too downbeat.

I think these are misunderstandings.

Firstly, capitalism is crisis ridden. It does destroy lives and is leading to environmental catastrophe that will dash many millions more lives unless something is done urgently. It is fundamentally insecure, wracked with contradictions, shoring up its own demise by creating billions of dispossessed: potentially its own gravediggers. However, because a building is structurally unsound does not mean it is about to collapse and all we need to do is cheer on. Neither does it mean that the crisis will lead to a new building- a world of co-operation, freedom and equality centred in human need. We may be simply buried in the rubble.

What it requires is a sober assessment, a study of stress points and a rational application of force to those points. In the worker' movement that means rebuilding rank and file networks, drawing in new activists, showing in microcosm how if we can run our own struggles and own workplaces we can rule the world. It means building the new society embryonically in the struggle to overthrow this society. The democratic councils of action- mass meeetings where workers meet to plan, discuss and implement action will become the ruling workers' councils of the society we are trying to create.

See "If we can run a factory, we can run a country" http://www.permanentrevolution.net/entry/2848.

It needs a new generation of activists to be won to Marxism as a living guide to action in the class struggle.

Secondly, none of this is downbeat. We can and should actively apply the lessons of successful struggle and generalise them. This require conscious patient painstaking work, however, not mere euphoria. Enthusiasm is essential. But it is not enough!

In this context, this article by Bill - part of a long series- is right. The collapse of the planned economies and the defeats of working class movements in many of the industrialised countries, the hegemony of the US and rising profits is part of the whole picture necessary to formulate perspectives and the action tasks flowing from them.

Capitalism is not about to collapse. We have a long, hard and bitter fight ahead. But it can be done. It needs bold action by determined activists with their eyes wide open, being absolutely honest to the working class about the struggles ahead and the tasks necessary but also filled with the rational faith that human beings can be masters of our own destiny once we discover our collective power.

To be achieved however we have to have a completely different left- one open to debate, one encouraging of democracy and working class involvement, not one based on behind the scenes machinations, lies, deceit and blind faith.

I'm not claiming Permanent Revolution is the way forward- we are too tiny, too lacking in influence and probably still have too many features of the traditional left despite beginning to critique them. But we are putting out a call to discussion, to activists, to rebuild the working class movement, to acknowledge the problems and begin to address them.

Sat 17, October 2009 @ 09:32

mne said…

Andrew Kliman has a new, 100-page long paper on his website about US profitability:

The Persistent Fall in Profitability Underlying the Current Crisis: New Temporalist Evidence
http://akliman.squarespace.com/persistent-fall

Sun 18, October 2009 @ 13:09

bill j said…

There's an interesting critique of Harman in French here by Michel Husson.

http://www.alencontre.org/Economie/CriseHusson06_09.html

Wed 21, October 2009 @ 16:12

mne said…

Husson's "profit rate" is calculated on current replacement stock of the capital stock, so it's not a real profit rate at all. If I got a computer (that's all my capital stock) that costed me 100 dollars, I produce an output that's 130 (let's say 10$ for wages and 20$ is SV/profit), than my profit rate is calculated on 100(+10)$, even if now (when I sell the output) it (the computer) costs only 50 dollars. [actually, in this case I probably won't make any profit at all, because unit prices will fall and I won't be able to transfer the original price of the computer to the output.] But even if I can make a profit, my rate of return will be calculated on the actual sum of money I paid out for the inputs, NOT what it would cost to replace them now. The cheapening of constant capital does not help me on my past investments. Yes, if I'm a new investor, then it can counteract the LTRPF, but if I have "sunk" investments, it does not help me, on the contrary.

As Kliman puts it: "because replacement-cost valuation retroactively revalues capital assets, instead of valuing them at the prices at which they were acquired, it inflates the denominator of the rate of profit in periods of rising inflation, artificially lowering the rate of profit, and it deflates the denominator in periods of disinflation, which raises the rate of profit artificially." (p. 43.)

I've read Husson's book Un Pur Capitalisme and, tellingly, he never discusses how he gets his profit rate figures. What Husson uses is what Kliman calls a "physical rate of profit" (because it keeps unit prices stable through time), but the whole point about capitalism is that it (the pace of accumulation) operates in value terms, not in physical terms.

In his new paper, Andrew Kliman devotes a whole section to this question (with maths and all - for all of you "maths and physics PhDs" out there, to repeat your not-very-tasteful comment). I really cannot see how it could be otherwise...the rate of return is clearly a measure based on the actual amount of capital advanced, not on "what-it-would-cost-to-replace-all-of-my-capital-stock-today" hypothetical values...

Thu 22, October 2009 @ 01:36

Graham B said…

Kliman says; "... because replacement-cost valuation retroactively revalues capital assets, instead of valuing them at the prices at which they were acquired, it inflates the denominator of the rate of profit in periods of rising inflation, artificially lowering the rate of profit, and it deflates the denominator in periods of disinflation, which raises the rate of profit artificially."

But it could be put vice-versa, with historical cost valuation artificially increasing the rate of profit in periods of high inflation, and lowering it in periods of disinflation. And this is what his graph based on historical costs shows - a dramatic rise in the rate of profit through the 1970s with it higher at the end of this decade than at any point in the 1960s. Isn't this a problem? It distorts the viewed long-term trend in the rate of profit on the chart on page 24; compare it to the chart on page 41 that only starts in 1982.

Of course, the elephant in the room is the very sharp rise in the rate of profit in 2002-2006 - whether you use historical or current cost valuation!

Thu 22, October 2009 @ 10:41

bill j said…

@Mne. But by the same token Kliman's rate of profit isn't a rate of profit either. He takes profits/historic cost of fixed capital.

That's not what Marx did. The rate of profit is s/c+v, with c consisting of the amount of fixed capital used up in production, effectively depreciation, plus raw materials and wages.

Using the historic cost ignores the fact that a capitalist has to sell their output at its socially necessary cost of production - he can't just name any price he likes based on what he laid out. Or rather he can, but then he won't sell his output so he'll go bust.

For that capitalist who wasted his money on out of date machinery, then his rate of profit will be based on what he laid out, and that rate of profit will be lower than the average, as he will have to sell his output at its new lower price, not the price he intended when he made his investment. So he's faced with a choice, ask his bank if they'll take a one off write down of his investment. Or struggle on for years with low profits. Or go bust.

Sad for him. But for the class as a whole the rate of profit will go up. As the price of outputs and therefore inputs has fallen and therefore the cost constant capital has fallen with it and the rate of profit therefore risen.

Basing the value of fixed capital on its historic cost ignores the fact that prices change in the here and now. Rising productivity by cheapening the value of the means of production therefore raises the rate of profit, even if it lowers it for the capitalist with the out of date stock.

Thu 22, October 2009 @ 12:28

mne said…

Actually, when Marx calculates profit rates he does NOT do so on the amount of C consumed in the given production period, but exactly on the total capital STOCK (+wages) of the given capital.

"We must, therefore, remember in comparing the values produced by each 100 of the different capitals, that they will differ in accordance with the different composition of c as to its fixed and circulating parts, and that, in turn, the fixed portions of each of the different capitals depreciate slowly or rapidly as the case may be, thus transferring unequal quantities of their value to the product in equal periods of time. But this is immaterial to the rate of profit. No matter whether the 80c give up a value of 80, or 50, or 5, to the annual product, and the annual product consequently = 80c + 20v + 20s = 120, or 50c + 20v + 20s = 90, or 5v + 20v + 20s = 45; in all these cases the redundance of the product's value over its cost-price = 20, and in calculating the rate of profit these 20 are related to the capital of 100 [!!!] in all of them.
(...)
Capitals RSV SV RoP Used up C Value Cost-Price
I. 80c + 20v 100% 20 20% 50 90 70
II. 70c + 30v 100% 30 30% 50 111 81
III. 60c + 40v 100% 40 40% 51 131 91
IV. 85c + 15v 100% 15 15% 40 70 55
V. 95c + 5v 100% 5 5% 10 20 15
390c + 110v — 110 — — — Total
78c + 22v — 22 22% — — — Average"
(Vol. 3, Chapter 9)

Then he goes on to calculate profits received, based on TOTAL capital [so, for cap. 5, the profit received is (95C+5V)*0.22 and NOT (10C+5V)*0.22], so in this case the profit rate for all capitals is 110/(390C+110V), and NOT 110/(201C+110V], which it would be if we were to follow your definition.

Now that's one thing. On historical cost. Just think about it. YES, price changes will affect the price of the output, the value (from C) a capitalist will be able to transfer to the output. But whatever profit the capitalist makes, his rate of return will be calculated on the actual amount of money he advanced at the beginning.
Anyway, how the profit rate will change due to the cheapening (and hence devaluation) of constant capital cannot be predicted theoretically, but can only be found out empirically.

However, it's strange how you predict with full self-confidence a rise in profitability due to productivity growth (in capital equipments), though Marx's conjecture was, that this cannot (in most cases) counteract the tendency toward a falling rate of profit.
Of course, what really matters is the empirical record, not primarily what Marx said, but it seems to me that your story contradicts both.

But really, I think you're confusing things when you say:
"Using the historic cost ignores the fact that a capitalist has to sell their output at its socially necessary cost of production - he can't just name any price he likes based on what he laid out. Or rather he can, but then he won't sell his output so he'll go bust. "

That's exactly the point. Changes in the value of his constant capital hits his output price (lowers it), but canNOT retroactively revalue his capital stock. That money is already gone, but he has to make a profit on that sum.
The historic cost is used for the denominator, not for the price of the output. The price of the output is ultimately a given variable to us (in the form of the profit figures).

If his capital stock is devalued, than yes, he will have to sell his output for a lower price - but whatever profit he makes (if he makes a profit at all), his profit rate will be: [actual amount of profit received]/[actual amount of money he spent on his capital stock (+wages)]. What Kliman does is just take the ACTUAL amount of profit firms received (which comes about as a result of devaluation, entry of new capitals etc.), and divides it by the historical cost of the capital stock - that is, the money, that capitalists sunk into their investments. he abstracts from wages, yes, but 1) outlays on wages are small compared to the capital stock 2) this would only lower the profit rate even further, as these outlays enter the denominator.

"As the price of outputs and therefore inputs has fallen and therefore the cost constant capital has fallen with it and the rate of profit therefore risen."

as such, this is not necessarily true and is an extremely distorted version of the effects of the cheapening of C. even if we abstract from what I've described above, and only take new investments, a rise in the RoP is not necessarily what happens. If the price of C falls, so will output prices. A rise in the profit will only come about if it boosts the rate of surplus value so much that it compensate the diminishing part of living labour per unit of total capital. This might or might not happen, both possibilities exist.
Of course, usually, for the innovating (individual) firm, there is a rise in the profit rate, but as the innovation spreads, this will not necessarily the case with the aggregate profit rate. Otherwise, productivity growth would always increase the profit rate, and again, you've ended up by a physical/use-value measure of value. But this is clearly not the case, as the profit rate fell most steeply in the decades when productivity growth was the strongest. (1950s and 60s)

"Basing the value of fixed capital on its historic cost ignores the fact that prices change in the here and now."

That's exactly it. The profits actually received are results of these "prices here and now". no one adjusts these. Kliman takes the profits received on the basis of prices "here and now" (BEA profit figures already contain moral depreciation)....but what do you relate these profits to? To the capital actually advanced by all investors (including newer ones who had to pay less for it, yes) OR to the hypothetical price of what it WOULD cost to replace all of the capital stock for the new prices? I mean, this seems pretty straightforward to it.

As Kliman puts it: "First of all, the current cost “rate of profit” is not what businesses and investors seek to maximize. They base their investment decisions on measures of profitability such as the internal rate of return and net present value. Whereas the current cost “rate of profit” values current investment expenditures and future receipts simultaneously, using a single set of prices, these measures use current prices to value current investment expenditures, but use expected future prices to compute future receipts. Secondly, the current cost “rate of profit” fails to accurately measure businesses’ and investors’ actual rates of return, their profits as a percentage of the original amount invested. The discrepancy can be very large.
(...)

the current cost “rate of profit” fails to accurately measure businesses’ and investors’ expected future rates of return. Imagine that a firm invests in new equipment that costs $100,000 at today’s prices, and that the resulting increase in its output, if valued simultaneously––i.e., also on the basis of today’s prices––is $10,000 per annum. The current cost “rate of profit” on this investment is 10%. Yet if the price of its product is expected to decline by 2% per annum, as in the example above, only the most naïve firm would overlook this information and expect a 10%, rather than a 7.8%, rate of return on its investment."

-

[I don't live in the UK and have no stake in British left politics, but I can't help feeling that the reason behind your attacks on Harman, and by guilt of association, on A. Kliman is political, not analytical. Anyway, the criticism you put forward seems very unconvincing to me.]

Thu 22, October 2009 @ 17:02

mne said…

correction: ..."I mean, this all seems pretty straightforward to ME." (instead of it)

Thu 22, October 2009 @ 17:08

bill j said…

You are confusing different things. Marx does calculate the rate of profit based on the amount of constant capital consumed in production.

"The capital of 80c + 20v then produces a surplus-value of 20s, and this yields a rate of profit of 20% on the total capital. The magnitude of the actual value of its product depends on the magnitude of the fixed part of the constant capital, and on the portion which passes from it through wear and tear into the product."

But he then goes onto point out that this does not determine the particular rate of profit for that sector once surplus value has been redistributed amongst capitals of different compositions to create an average rate of profit;

"Owing to the different organic compositions of capitals invested in different lines of production, and, hence, owing to the circumstance that — depending on the different percentage which the variable part makes up in a total capital of a given magnitude — capitals of equal magnitude put into motion very different quantities of labour, they also appropriate very different quantities of surplus-labour or produce very different quantities of surplus-value. Accordingly, the rates of profit prevailing in the various branches of production are originally very different. These different rates of profit are equalized by competition to a single general rate of profit, which is the average of all these different rates of profit. The profit accruing in accordance with this general rate of profit to any capital of a given magnitude, whatever its organic composition, is called the average profit."

http://www.marxists.org/archive/marx/works/1894-c3/ch09.htm

Now you and Kliman and Harman would say - but uh huh! - then out of date inefficient capital used in this particular sector will have surplus value redistributed to it to ensure that it receives the average rate of profit based on the historic value of the fixed capital within it. Not at all.
Marx is talking about capitals in different sectors of production, with different compositions of capital - steel and textiles for example - but which sell their output at the socially necessary labour time it costs to produce within that sector. Inefficient or out of date firms will not be able to sell their output at the inefficient and out of date price but only at the new efficient and lower price.

So the historical value of his capital is irrelevant now. The out of date capitalist can no longer produce at the new lower cost, so his capital must be devalued to that new lower cost. There are two ways that can happen, the capitalist can take the hit himself, and write off that as a loss or he can go bust and a new capitalist will buy their devalued fixed capital and a new lower price.

Marx is pretty unambiguous about the effect of cheapening constant capital in raising profit rates;

"The characteristic feature of this kind of saving of constant capital arising from the progressive development of industry is that the rise in the rate of profit in one line of industry depends on the development of the productive power of labour in another. "

http://www.marxists.org/archive/marx/works/1894-c3/ch05.htm

You claim against this that;

"But this is clearly not the case, as the profit rate fell most steeply in the decades when productivity growth was the strongest. (1950s and 60s)"

Not even Harman would claim that. The fall in profit rates began from around 1966 onwards and reached its bottom in 1981. The reason Kliman prefers the historic fixed cost measure is because it reduces profit rates now.
The trouble is even using this erroneous measure his own graph shows an explosive rise in the rate of profit between 2003-2007. This needs explaining. Not explaining away.

Thu 22, October 2009 @ 22:28

Andrew Kliman said…

Please see my "Reply to Bill Jefferies and the Permanent Revolution organization" at http://marxisthumanistinitiative.org/2009/10/23/reply-to-bill-jefferies-and-the-permanent-revolution-organization/.

I like what you've written here, mne.

Sat 24, October 2009 @ 04:23

bill j said…

Thanks Andrew. We're looking at doing a more extensive critique of your paper for our next journal hope that's ok?

Bill

Sat 24, October 2009 @ 11:54

bill j said…

Just on whether productivity increases do raise the rate of profit by devaluing constant capital. Marx was pretty clear it did see for example;

"However, on the other hand the development of the productive power of labour in any one line of production, e.g., the production of iron, coal, machinery, in architecture, etc., which may again be partly connected with progress in the field of intellectual production, notably natural science and its practical application, appears to be the premise for a reduction of the value, and consequently of the cost, of means of production in other lines of industry, e.g., the textile industry, or agriculture. This is self-evident, since a commodity which is the product of a certain branch of industry enters another as a means of production. Its greater or lesser price depends on the productivity of labour in the line of production from which it issues as a product, and is at the same time a factor that not only cheapens the commodities into whose production it goes as a means of production, but also reduces the value of the constant capital whose element it here becomes, and thereby one that increases the rate of profit."
http://www.marxists.org/archive/marx/works/1894-c3/ch05.htm

Of course the individual capitalist who's capital is devalued suffers a loss, but for the capitalist class as a whole profits increase.

Sat 24, October 2009 @ 12:14

mne said…

now that Andrew Kliman himself has taken it over, I think it's unnecessary for me to continue here.

but again, you portray it as though productivity growth (in department I) would always rais the profi rate. of course, the whole point about the LTRPF is that, paradoxically, this is not so. now there are times, when it is so. but more ofte, as accumulation proceeds the TCC grows so much, that the cheapening of C cannot countervail it. The example you quote from Marx is of course when he takes the case that there is one single industry AT A CERTAIN POINT of time for which C cheapens and everything else remains the same. of course, in this case the RoP for this industry will rise. but this is a static snapshot of the system. the question is, what happens as productivity grows (as it has been growing all the time since WWII!) but accumulation goes on to, and hence the TCC (and, slower, the VCC) grows too. and Marx speculates, in this case, the RoP will tend to fall, in spite of the countervailing tendencies. not always, but this is the main tendency, that's constantly checked, but then reemerge. of course, this is not a secular trend, as crises (can) reestablish up the RoP to very high levels.

now you go so far as to suggest that as productivity grows the RoP always grows too. but you know this is very very far from Marx's theory. what's more, as I said, productivity has been rising constantly. should the RoP be rising constantly too??

Marx in contrast wrote: "The rate of profit falls, although the rate of surplus-value remains the same or rises, because the proportion of variable capital to constant capital decreases with the development of the productive power of labour. The rate of profit thus falls, not because labour becomes less productive, but because it becomes MORE productive."
http://www.marxists.org/archive/marx/works/1863/theories-surplus-value/ch16.htm

----

one more point: neither Harman, nor Kliman, nor me* suggested that capitalism is stagnant. no, it's dynamic as hell. but it's allso crisis-prone. and also, nobody denies the digital age, nintendos, and the Internet. but as you know very well, dynamism in use-value terms is not the same as dynamism in exchange-value/money terms. The world economy went into a severe recession (possibly a depression) in spite of the fact that there were superb technology all around. But I mean, this is the whole point of Marx's theory. Capitalist crises are not "use value crises". They explode because of contrdictions in money terms.

"It must never be forgotten, that in capitalist production what matters is not the immediate use-value but the exchange-value and, in particular, the expansion of surplus-value. This is the driving motive of capitalist production, and it is a pretty conception that—in order to reason away the contradictions of capitalist production—abstracts from its very basis and depicts it as a production aiming at the direct satisfaction of the consumption of the producers." !!!
http://www.marxists.org/archive/marx/works/1863/theories-surplus-value/ch17.htm

*I'm not associated with the SWP, or with MHI in any way [I don't even live in England or the US], so I approach this debate solely from an analytical point of view. I just don't find your critique convincing. I think you are right against stagnationists/catastrophists (like Monthly Review) on insisting that capitalism is not a cripple, and it's not gonna collapse until it's overthrown. But you shouldn't go in the opposite extreme and take on a hard-line 'anti-crisis' line either. But I want this to be a comradely debate, between people on the same side.

Sat 24, October 2009 @ 13:19

mne said…

a last point: You stress the recovery of profitability after 2001.
I don't deny this, but I think we should be cautious here.
First of all we are talking of 4 years here (2003, 2004, 2005, 2006) when the US corp. profit rate did rise. this is not a very long period, and I find it a bit hasty to base a "new long cycle" theory on 4 years.
what's more, in these years we saw the biggest asset bubble in history emerging in the US real estate market, fuelling debt-financed consumption and differential profits from speculating with overvalued assets.

It's not particularly far-fetched to suspect that the spike in the RoP has everything to do with this unsustainable bubble and the spending based on it. Recall that investment in the US int the 2002-2006 business cycle was rather weak, picking up only in 2005 and 2006.
Growth was mainly fuelled by consumption (without significant wage growth, ie. debt), federal gov. deficit-spending (see this article by DM Kotz: http://bit.ly/2KAQEO, where he breaks down GDP growth to its components) and residential investment.
There was clearly no investment boom such as during the dot-com bubble. This gives further reason to suspect that the recovery of the profit rate did not arise so much by a new, sustainable investment boom, but originated mainly from the asset bubble.

and of course, the main reason to suspect this was so is the ensuing crash. If the recovery in the RoP 2003-2006 was the harbinger of a new long upturn, than why did the turbulence in financial markets drag down the whole economy into the most severe recession since the Great Depression?

Sat 24, October 2009 @ 14:09

bill j said…

Actually Harman does suggest that capitalism is stagnant, see here;

"The first significant thing about the world economy is the way in which global economic growth, averaging out booms and recessions, has not only declined from the ‘golden age of capitalism’ in the 1950s and 1960s, but also from the levels known in the late 1970s and 1980s"

http://www.isj.org.uk/index.php4?id=292&issue=113

That's not surprising, he basically just follows Robert Brenner, nowhere has he even attempted to develop his own version of the rate of profit, even though all of the empirical resources are publicly available and as a full timer and theoretician he should have no shortage of time to do so.

The heart of Brenner's theory is the idea that capitalism is in perpetual decline, stagnant, and so on, and likewise Harman and therefore Choonara's (who simply writes as Harman instructs), so it seems reasonable to assume that if Kliman and co also describe a continued downward path for profit rates, aka Brenner, Harman and Choonara, they too believe or at least should believe, that capitalism is stagnant. After all the rate of profit is the motive for capitalist accumulation, if the rate of profit is stagnant so should capitalist accumulation be. If they don't think that then they need to explain why.

Of course as you point out there is a tendency for the rate of profit to fall under capitalism as a result of the growth of productivity. But this is a dialectical (I hesitate to use that word given how its abused by most "Marxists") process, depending on the rate of productivity growth, i.e. whether productivity increases faster than the increase in value of accumulation of means of production and mass of raw materials etc., then productivity can offset the tendency of the rate of profit to fall, to the point where it ceases to fall and indeed under certain situations rises.

Agreeing with Marx's theory of the tendency of the rate of profit to fall - as I do - does not mean that any given moment, or indeed for whole historical periods, that profit rates are falling. That is a question of empirical analysis not theory. Empirical analysis - including paradoxically Kliman's empirical analysis - demonstrates that profit rates have been rising, particularly during the last boom of 2003-2007.

Another point on your quotes from Marx previously, the different masses of constant capital he quotes are not historical masses of capital, but different quantities of constant capital used up in the production process of different sectors, depending on their various organic compositions.

My point about the "immediate" or "simultaneous" adoption of the newer lower socially necessary labour time with a revolution of productivity, is not to say that this is literally "simultaneous", I had forgotten I was treading on toes by using that word, I meant that it will be the time that it takes for the new lower socially necessary labour time to be be generalised across a branch of industry, i.e. almost simultaneous if you prefer.

It means that capitalists will not receive the rate of profit they had anticipated to earn on their "historic" investment, once the new lower price of production is introduced. At that point they will have to write off the now redundant value of their "historic" investment, if not "simultaneously", then at least much sooner than they had anticipated.

Sat 24, October 2009 @ 14:17

bill j said…

As for the last bubble, the paradox is that while it was a financial bubble, profits rose most strongly in non-financial and foreign sectors. Financial profits as a proportion of GDP hovered around 20% throughout this period. The sub-prime bubble was a product of an excess of foreign capital driving down interest rates, and the desperate attempts of the financial sector to offset the stagnation of their particular profits through increasingly reckless lending policies.
Since slumped over the autumn of 2008, they bottomed at pretty high level, and have been recovering very fast through the course of 2009. That's why its way to soon to dismiss that rise in profit rates as simply a product of the bubble.
It was in fact the result of the integration of the former non-capitalist planned economies into capitalism, notably, China.

Sat 24, October 2009 @ 14:24

mne said…

"It means that capitalists will not receive the rate of profit they had anticipated to earn on their "historic" investment, once the new lower price of production is introduced. At that point they will have to write off the now redundant value of their "historic" investment, if not "simultaneously", then at least much sooner than they had anticipated."

I don't know why you say that as though that would contradict what I said. I stated this several times too. But there's no disagreement on this point, as far as I can see.
The historical cost vs. replacement cost debate (as I understand it) is NOT about whether devaluation should be charged against profits (for older capitals) as a loss. On that, there's no disagreement.
Rather, the question is: after accounting for this loss (due to devaluation of the capital stock), on what measure of the capital stock should we calculate the profits that firms did receive? In other words, what is in the denominator? Should we subtract devaluation from the denominator too? that is, after taking the loss through its profits, can "older" capitals at the same time raise their profit rate by revaluing their capital stock to newer, lower prices?
I think it's quite obvious that the answer is no. This would only be a fictional profit rate. (Though it would indicate what the prospective RoP might be on newer investments, so I'm not saying it's meaningless - except that prices will change again.)
But this is in effect what the replacement cost calculation does. After taking profits (which already contain losses due to devaluation of past investments in C) it compensates this effect by RETROACTIVELY revaluing the capital stock to its new, lower price. And this is an illegitimate step, in my view. The rate of return should be calculated on the actually advanced capital. Again, this does not disregard the effect of moral depreciation, on the contrary, that effect is accounted for in the profit figures. But it is illegitimate to artificially raise the RoP by using the present value of the capital stock in the denominator.

Kliman: "a rate of profit is the ratio of the profit of one moment to the sum of capital that was ACTUALLY advanced at earlier moments, not the amount that would have been advanced if the means of production “had to be paid for at present prices”"

I simply don't see how this could be otherwise. And again, this does not mean that devaluation of older capitals does not affect their profits. It does affect it. But it does not help them at the same time by magically revaluing their past investments.

---

As for the 2002-2007 business cycle, I don't know. Let's just say it's too early to tell whether it was a bubble or the start of a new long boom. All I'm saying is, I find your insistence (claiming that it was the beginning of a new long upturn) a bit disproportional. It's possible that you're right, but I'm not sure.
Let's just say we don't really know yet - at least I don't. I need to do further research on this.

Sat 24, October 2009 @ 15:04

bill j said…

OK. Progress!

On the second point its not obvious the answer is no. After the now redundant capital has been written off - that is precisely what has happened to it - it no longer exists - it has been written off - counted as a loss - in other words disappeared.
So it is no longer included in the calculation of the rate of profit.
If it was then it would not have been written off.
What we're talking about here is a write off that is faster than the anticipated rate of depreciation. That rate of depreciation - something that has accelerated over the last years as computerisation has taken hold - is included in the calculation of the rate of profit. Write offs faster than that anticipated rate are not included and are a loss that is born by the particular capitalist unfortunate enough to own the now out of date machinery.
By claiming that the rate of profit is based on the amount of capital actually advanced, rather than what it costs now (or rather what its socially necessary cost is now - accepting that there is a time between buying the new capital and prices being brought down to that average i.e. its not "immediate" in that sense) Kliman ignores the fact that out of date capital still has to produce at the actual socially necessary labour time now, not that which was originally intended when the historic investment was made.
And of course why is any of this possible? Its because capitalists do not have to pay for the entirety of the fixed capital installed in their factory at the moment it is installed, but rather at the point which it is used.
Big capital investments - i.e. jet engines, aeroplanes etc. are a good example of this, they are effectively never owned by their purchasers but on long term leases from their suppliers, who included maintenance as part of the deal.
Even bigger capital investments, roads, nuclear plants, airports, railways etc. are basically paid for by the state.
Other fixed investments that are paid for by the capitalist, are still assets that can be borrowed against, mortgaged etc. and that capital can earn a rate of return, until the point that it is used up in production, depreciated or written off.
BTW I'm not claiming that the last boom was the beginning of the long wave, I count that as having started in the early 1990s alongside the restoration of capitalism in the former Stalinist centrally planned non-capitalist states. Its just that their impact on the world economy only really became manifest during the last boom.

Sat 24, October 2009 @ 18:17

Andrew Kliman said…

"bill j" (Bill Jefferies) wrote, above (Sat 24, October 2009 @ 14:17): "The heart of Brenner's theory is the idea that capitalism is in perpetual decline, stagnant, and so on, ..., so it seems reasonable to assume that if Kliman and co also describe a continued downward path for profit rates, ... they too believe or at least should believe, that capitalism is stagnant. After all the rate of profit is the motive for capitalist accumulation, if the rate of profit is stagnant so should capitalist accumulation be. If they don't think that then they need to explain why."

No, this is all backwards. If Jefferies doesn't have clear evidence of what I believe, then he shouldn't go around telling people that I believe what he only *assumes* I believe, especially in public like this.

If he messes up, as he did, he should simply retract the false statement.

That he thinks his assumption was reasonable is no excuse, and not a good reason to refrain from issuing a retraction.

When you assume, you make an ass of u and me.

That he fails to understand how I can think that the rate of profit has been stagnant (or falling) while also thinking that capitalism has not been stagnant is no excuse. It is not a good reason to refrain from issuing a retraction.

Whether he regards my thinking about this as logically consistent or not is simply irrelevant. The issue is not whether my beliefs seem reasonable to him. The issue is whether what appears on the Permanent Revolution website about what I believe is or isn't truthful. Permanent Revolution claims to be an organization whose starting point is that it tells the truth.

So he should issue a retraction even if I do not convince him that my thinking here is consistent, and he should issue a retraction even if I do not bother to explain why my thinking here is consistent.

In fact, I'm not going to explain that until he accepts the following: He is the one suggesting that my thinking is inconsistent. So he is the one who bears the burden of demonstrating that my thinking is inconsistent. I do not bear the burden of demonstrating that it is consistent.

Sun 25, October 2009 @ 02:13

bill j said…

Not sure what you're on about.

If the rate of profit is the motive force for capitalist production and you believe that the rate of profit is stagnant, it is reasonable to assume that you believe that capitalist production is stagnant.

Otherwise I don't see the point of the discussion.

What's more you agree with Harman's description of capitalism as "Zombie capitalism". You say that it remains in the period that began after the end of the long boom in 1973. And you ponder whether the US economy will ever recover.

If you think that the rate of profit is stagnant but capitalism is not stagnant then explain why. What's unreasonable about that?

Sun 25, October 2009 @ 10:39

bill j said…

What's more having just read your paper about a persistent fall in the rate of profit - which we're not allowed to quote without your permission - I draw readers attention to the Introduction page 3 paragraph 3, suffice it to say - it confirms that in your opinion the economy has been stagnant.

http://akliman.squarespace.com/persistent-fall

2nd draft

Sun 25, October 2009 @ 20:53

Andrew Kliman said…

Dear bill j,

You wrote that my review of _Zombie Capitalism_ “re-treads” a “well worn road” according to which "capitalism is stagnant and has been for nearly four decades now. Throughout the period of globalisation …, capitalism has seen declining production and investment .... The digital age, internet revolution and Nintendo Wii Fit are all manifestations of capital’s inability to revolutionise the productive resources."

You have no evidence (and you will not find evidence) that I have claimed, in the review or elsewhere, that "Throughout the period of globalisation …, capitalism has seen declining production."

Will you retract this?

You have no evidence (and you will not find evidence) that I have claimed, in the review or elsewhere, that "Throughout the period of globalisation …, capitalism has seen declining ... investment."

Will you retract this?

You have no evidence (and you will not find evidence) that I have claimed, in the review or elsewhere, that "capital[is unable] to revolutionise the productive resources."

Will you retract this?

You have no evidence (and you will not find evidence) that I have claimed, in the review or elsewhere, that "The digital age, internet revolution and Nintendo Wii Fit are all manifestations of capital’s inability to revolutionise the productive resources."

Will you retract this?

What I wrote on p.3 does NOT "confirm[ ] that in [my ] opinion the economy has been stagnant" in the sense you meant when you wrote I "re-tread" the "well worn road" according to which "capitalism is stagnant .... Throughout the period of globalisation ..., capitalism has seen declining production and investment .... The digital age, internet revolution and Nintendo Wii Fit are all manifestations of capital’s inability to revolutionise the productive resources."

What I wrote on p. 3 was this:

"in contrast to what occurred in the Great Depression and World War II, capital was not sufficiently destroyed during the global economic slumps of the mid-1970s and early 1980s, largely because of demand-management policies meant to prevent a repeat of the Depression. Thus the rate of profit has remained at a level too low TO SUSTAIN A NEW BOOM.

"The result has been RELATIVE STAGNATION, as measured, for instance, by profitability that has not rebounded and by falling RATES OF GROWTH OF per capita GDP. Governments have repeatedly attempted to “manage” the relative stagnation by pursuing policies that encourage excessive expansion of debt. They have thus ARTIFICIALLY BOOSTED PROFITABILITY AND ECONOMIC GROWTH, but in
an unsustainable manner that has repeatedly led to burst bubbles and debt crisis. The present crisis is the most serious and acute of these." [caps added here]

There is nothing in this passage about declining production throughout the period of globalization. There is nothing about declining investment throughout the period of globalization. There is nothing about capital’s inability to revolutionise the productive resources. There is nothing about the digital age, internet revolution, and Nintendo Wii Fit being manifestations of such an inability.

So, are you going to retract what you wrote? Permanent Revolution claims to be an organization whose starting point is that it tells the truth.

Sun 25, October 2009 @ 21:58

bill j said…

Why would I? People can judge the argument for themselves. All of these demands for "retraction" are another means of shutting down debate, well worn and overused. Zinoviev started it in 1923 when he demanded Trotsky confess his "mistakes" over the scissor crisis. At the time this was considered outrageous. Now its just part of the every day.

But to return to the point - was it reasonable to assume from your article and your position that you thought that capitalism was stagnant?

You agree with Harman's assertion that capitalism is "Zombie capitalism". You agree with Harman's assessment that capitalism is in the period of post 1973 stagnation. Brenner, Harman and Choonara all assert that capitalist stagnation means falling profit rates, investment and a decline in capitalism's ability to revolutionise the productivie forces. This is particularly paradoxical in the period of the IT revolution, where the products of that revolution, like the Nintendo Wii Fit, are used in the everyday. You say in your review of Harman's Zombie book that you only have minor disagreements with it, mainly about the number of post war crises. You don't mention disagreement with his thesis of stagnation or any of its attendant symptoms, investment, revolutionising dynamic etc. You agree that profit rates - the motive force for capitalist production are stagnant - with the implication that capitalism itself is stagnant. You think that the US may not even recover from the recession. You write yourself the US is in a period of "relative stagnation".

From that evidence, I would suggest, it was reasonable to assume that you thought capitalism was stagnant. If you don't think that, then no problem, you don't think that. Just say why and people can begin to understand the argument.

I must admit I was amused by your review or my review, which started out by saying it was comradely, and ended up by calling me a liar over and over. What would your response be to an "uncomradely" review?

Mon 26, October 2009 @ 09:19

Andrew Kliman said…

"bill j" wrote, above: "I must admit I was amused by your review o[f] my review, which started out by saying it was comradely, and ended up by calling me a liar over and over."

Untrue. I said, and demonstrated, over and over that you wrote several untrue things. You do have a penchant for that.

Someone lies only if they say or write things with an intent to deceive. I had no reason to think at the time that your false statements were the result of an intent to deceive rather than the result of extreme sloppiness.

I still don't think you intend to deceive. In _On Bullshit_ (2005), Harry G. Frankfurt made an important distinction between "lies" and "bullshit." The description of the book at the publisher's site (http://press.princeton.edu/titles/7929.html) puts it as follows. Bullshitters are not "concerned about whether anything at all is true. They quietly change the rules governing their end of the conversation so that claims about truth and falsity are irrelevant. ... Liars at least acknowledge that it matters what is true. By virtue of this, Frankfurt writes, bullshit is a greater enemy of the truth than lies are."

Tue 27, October 2009 @ 11:34

bill j said…

Right. Enough said.

Tue 27, October 2009 @ 21:19

m said…

Harman replies to Husson.
http://www.isj.org.uk/?id=600

Wed 28, October 2009 @ 01:41

bill j said…

Harman's interesting. Essentially he only wants to do one thing, prove the rate of profits falling. He says;

"By contrast, Robert Brenner, Fred Moseley, Simon Mohun, Alan Freeman and Andrew Kliman have each provided figures which, although not identical, each show a genereal pattern that differs from Michel Husson’s."

Actually that's simply not true. If you look at Kliman's and Moseley's graphs they follow a trajectory very similar to Husson's. Mohun's ends in 2000 so it doesn't count, as does Dumenil and Levy's. Freeman's actually falls during the last boom, between 2003-2007, which makes you wonder why there was a recovery and not a deepening slump. Brenner's as we all know excludes most profits so its not surprising it never rises.

All of these references to the Okishio are a red herring. Mandel in his book Marxist economic theory also points out that rising productivity by cheapening constant capital can raise the rate of profit;

"However the tendency of the rate of profit to fall does not work uniformly, from year to year or from decade to decade. Its operation is restricted by a series of factors which work in the opposite direction...

b) Reduction in the price of constant capital – the organic composition of capital expresses not the ratio between the material bulk of the instruments of labour and the numbers of workers but the ratio between the value of the means of production and the price of the labour power hired. If the over all productivity of labour increases the value of each individual commodity declines. This law applies to all commodities including machinery and other means of production. The growth in the organic composition of capital also works in the direction of a lowering of the prices of machines and so of the value of constant capital in relation to variable capital and thus opposes the tendency of the rate of profit to fall."

p168 Marxist Economic Theory Mandel

Harman believes the opposite. He says;

"The fact that new machines will cost less to buy in a year or two’s time does not somehow reduce the amount you have already spent on your existing ones. In fact, the more rapidly technological innovation takes place and productivity rises, the more rapidly the machines suffer from “moral depreciation” and become obsolete. There is increased pressure on profitability as a result, not reduced pressure."

Of course Harman leaves out raw materials, alongside wages, the largest part of the cost of a commodity. Rising productivity does cheapen circulating constant capital immediately. Rising productivity cheapens fixed capital too, as it reduces the value of the assets that the capitalist holds. Its no good them complaining that they paid good money for their machines, their good money is now bad money, wasted money, above the socially necessary labour time necessary for the production of their machines and therefore gone. That means a fall in the rate of profit for that capitalist, but an increase in the rate of profit across the board as it destroys the value of their out of date machines. As Mandel explains.

Actually Kliman gives a nice example of where he goes wrong on page 46/47 of his "Persistent Fall" piece. Unfortunately, we are not allowed to quote from it without permission, but anyway the gist is, there are a load of farmers who see the price of their corn fall. Therefore, their sales do not match what they need to cover the cost of their circulating constant capital or wages (for some reason he leaves out fixed capital). According to Kliman because the farmers expected to receive a higher value for their produce - the historical value - this is the value they should receive and upon which they base their rate of profit. But of course, they don't receive it. The price of corn has actually fallen. Therefore, in the real world their income and their rate of return has actually fallen too. Kliman complains that if this is true the farmers will drown in debt. The banks may even refuse to extend them loans.

But well that's tough, banks aren't charities and its a competitive system, consumers aren't going to pay any old price for their corn, only for the necessary social labour time embodied in it. They're damned if they're going to buy above the odds at what the farmers would like to guarantee their rate of profit based on their "historic capital".

As the farmers cannot now pay their debts they go bust. So what happens next? A rival capitalist now buys up their farms, stock and all for next to nothing, and sets the now expropriated farmers to work on their former land as wage slaves. The organic composition of capital falls alongside the price of constant capital and wages are probably lower too (although that's not necessary for the example) and as a result the rate of profit rises. Simple huh?

Wed 28, October 2009 @ 09:16

bill j said…

There's a good real life example of this here;

Nintendo Cuts Earnings Forecasts as Wii Sales Slump

Oct. 29 (Bloomberg) -- Nintendo Co., the world’s largest maker of video-game players, lowered its annual profit and revenue forecasts on slumping sales of the company’s flagship Wii consoles.

Net income will fall to 230 billion yen ($2.5 billion) in the year to March 2010, the Kyoto-based company said in a statement today. The projected profit, the first annual drop in six years, missed the 270 billion yen median of 23 analyst estimates compiled by Bloomberg.

Full-year operating profit, or sales minus the cost of goods sold and administrative expenses, will probably fall 33 percent to 370 billion yen and revenue may drop 18 percent, Nintendo said.

http://www.bloomberg.com/apps/news?pid=20601080&sid=aEMIkS4v0cAo

Thu 29, October 2009 @ 10:29

m said…

that'a good example of what? that Nintendo exists? that profits are falling across the board?
of "sales minus the [historical] COST of goods sold and administrative expenses"?

Thu 29, October 2009 @ 11:35

Graham B said…

mne,

Andrew Kliman's non-simultaneous valuation of inputs and outputs - ie. using historical costs of fixed capital - leads him to conclude that rising productivity will TEND to depress the rate of profit. Ok - Okishio is wrong when he says the rate of profit will always rise with productivity - but my question to you is:
Are there ANY circumstances in which productivity growth can reverse this tendency?

Thu 29, October 2009 @ 12:46

m said…

"Are there ANY circumstances in which productivity growth can reverse this tendency?"

I'm not sure why you ask this. Of course there are. Why wouldn't there be? I've never claimed there aren't.

as you said (according to Kliman) "rising productivity will TEND to depress the rate of profit" - yes, I believe too that this is the basic tendency, but this is constantly checked, counteracted and sometimes reversed by productivity increases that cheapen new capital equipment (but not old ones) AND sufficiently boost the rate of SV (+ wage-cutting/hiring new low wage people etc. in itself have the effect of raising the rate of SV of course).
however, the LTFRP is still about the paradoxical phenomenon that productivity growth will tend to depress the RoP. Rising productivity has a double-edged effect, and it's only under certain circumstances,that it's net effect on the RoP is positive.
I'm only saying this, because some people portray productivity growth as though it had an unequivocally positive effect on the RoP, and the ONLY factor that could depress the latter were the rise of the wage share, or indeed the lack of productivity growth (or, as in Brenner, "overcompetition").

the integration of a part of the Chinese (and other east Asian) labour force to the world market certainly raised the rate of exploitation, as you point out correctly. I'm not sure however if that was enough to launch/sustain a new (long) boom for capital on the global scale. Based on what I've read by Paul Burkett&Martin Hart-Landsberg and others on China, I also have my doubts about the sustainability of China's boom. I doubt if the integration of Eastern Europe and Russia had a major effect, as investment to these countries haven't been very significant in comparison w/ the capital stock of the central capitalist countries. (their own [I mean CEE/Russian] industry was wiped out, but that didn't necessarily help Western capital that much in terms of profitability)

But as I said, I'd rather say I'm NOT SURE (whether we have witnessed a new long wave since the early 90s), than to claim with full confidence that we have not. All I'm saying is that your insistence (about a new long wave) seems a little bit disproportional to me, esp. compared to the actual body of corroborating evidence we have (basically the dot-com boom years, and then a few years after 2002). And while Bill_J accused Andrew Kliman of manipulating capital stock measures to get the desired results, it seems to me that it is rather you taking the "replacement cost" side which is a political move to sustain your analysis that you have worked out in the preceding years here. [which I enjoyed reading, and I appreciated your openness, which is quite rare in Trotskyist circles, so don't get me wrong]

(BTW, if you think Harman, Kliman etc. are hard-line catastrophists, you should read some German journals, like Exit! (Robert Kurz) or Krisis...those guys have been predicting imminent collapse for the last 20 years at least, without even bothering to refer to profit rates, just with the help of a few quotes by Marx)

Thu 29, October 2009 @ 14:54

Graham B said…

I ask the (obvious) question as Kliman does not discuss the role of productivity in reducing the value of labour power and increasing relative SV and, as you say, this plays a part in the TRPF being "constantly checked, counteracted and sometimes reversed". If he does do it in this paper I am sure that he will loudly correct me (or maybe not). In fact, his analysis suggests that there has been NO shift from wages to profits in the US - something that Harman (or anyone else?) would certainly not agree with as even he sees this - and nothing else - as responsible for the rate of profit making up for 'half the fall'. One reason for this is because Kliman doesn't include executive remuneration and the like in profits.

"... I'm only saying this, because some people portray productivity growth as though it had an unequivocally positive effect on the RoP."

Yes, if you agree with Okishio, but Kliman seems close to saying the opposite. All a little one-sided.

I'll try to get back on the question of old/new fixed capital, moral depreciation and the rate of turnover.

I'm sure that Kliman does not like the label "catastrophist" but his work pretty much fits the bill when he ends up with the 70s RoP adjusted (down - as it should be) for price inflation and the 2002-2006 boom is 'explained away' by asset-price inflation - the 'real' trajectory in RoP, as he sees it.

Thu 29, October 2009 @ 16:17

bill j said…

@ MNE Its a good example that a current fall in sales will reduce the rate of profit now.

Kliman says that because Sraffian economists use current cost measures, anyone that uses current cost measures is a Sraffian. Unfortunately, one does not follow from the other, as the real life example of Nintendo - very apt - shows.

Kliman uses this type of logic - where the conclusion does not follow from the premise a few times - he says for example that labour saving technical changes cause the rate of profit to fall - again, wrong, not only in terms of what Marx directly said, but also in terms of the logical consistency of Marx's theory. The correct answer is that they can do both.

On page 47 Kliman explains that his opposition to historic measures (at least on my reading of it) is that if investors - in this instance farmers - made an investment but then prices fell - they would not receive the rate of profit they expected and would therefore go bust.

Indeed. That capitalists may go bust because of changes in prices meaning they do not earn the expected rate of profit, shouldn't really need any repeating at the end of a recession. Kliman of course accepts that crises can devalue capital elsewhere. That just means his theory is inconsistent.

Kliman objects to the idea that the values of assets can be revalued according to changes in prices. But prices do change in a capitalist economy and as Mandel in particular pointed out, it is only after the event, once output has been sold, that capitalists will know whether or not the will receive their expected return, whether the labour expended on producing their output was socially necessary.

The cheapening of constant capital through technological revolutions, caused by rising in productivity is a key counter veiling tendency to the tendency of the rate of profit to fall. It results in the devalorisation - to use Mandel's word - of both constant circulating and fixed capital.Harman doesn't accept that and neither does Kliman, but the logic is irresistible.

If the rising organic composition of capital causes the rate of profit to fall - not for the individual capitalist undertaking the investment - but for the capitalist class as a whole, then a falling organic composition of capital causes the rate of profit to rise - not for the individual capitalist who's capital is devalued - but for the capitalist class as a whole.

It does so by cheapening the cost of circulating constant by making it cheaper for capitalists who spend on raw materials, and by devaluing fixed capital by making capitalists go bust or by forcing them to take a write down on their investments, something which doesn't just happen during crises.

On reflection perhaps the whole counter position of historic to current measures is too one sided. It surely depends on where we are in the business cycle. In periods of rising profitability, then even historically inefficient capital can earn its designated average rate of return, in periods of crisis, even efficient capital cannot earn its historic designated rate of return, while inefficient out of date capital goes bust.

My preference is to use the current measure as it best reflects the current point of the business cycle. Kliman claims this represents some change on my behalf. It doesn't I've always worked out the rate of profit like this as I've explained elsewhere on this site. On reflection I might have to change my assessment of his book, if so no problem. But it doesn't alter the fact that all the references to Sraffa and Okishio made by both him and Harman are a smoke screen designed to blind the unwary.

Thu 29, October 2009 @ 17:25

Andrew Kliman said…

A correction.

Bill Jefferies wrote, above,

"My preference is to use the current measure as it best reflects the current point of the business cycle. Kliman claims this represents some change on my behalf. It doesn't ..."

This should read: "Kliman claims AND DEMONSTRATES UNEQUIVOCALLY THAT this represents some change on my behalf. HE IS ABSOLUTELY RIGHT."

At the end of Bill Jefferies' review of my book in Permanent Revolution, we find the following:

"profit rates are measured against the actual cost [historical cost] of fixed capital … rather than its notional cost [current cost or replacement cost]. … If the rate … of profit is measured against the new notional value i.e. its value if it had to be paid for at present prices [i.e., at the current cost of fixed capital], then it is possible to show that rates of profit are low or falling, even when they are high and rising. [Bracketed material inserted by me—AJK]

In _On Bullshit_ (2005), Harry G. Frankfurt made an important distinction between "lies" and "bullshit." The description of the book at the publisher's site (http://press.princeton.edu/titles/7929.html) puts it as follows. Bullshitters are not "concerned about whether anything at all is true. They quietly change the rules governing their end of the conversation so that claims about truth and falsity are irrelevant. ... Liars at least acknowledge that it matters what is true. By virtue of this, Frankfurt writes, bullshit is a greater enemy of the truth than lies are."

Thu 29, October 2009 @ 21:00

Andrew Kliman said…

"The point of departure . . . is the independent form of value which maintains itself, increases, measures the increase against the original amount . . . . The relation between the value preposited to production and the value which results from it––capital as preposited value is capital in contrast to profit––constitutes the all-embracing and decisive factor in the whole process of capitalist production." -- Marx (Collected Works, Vol. 32, 1989, p 318)

"Profit . . . expresses in fact the increment of value which the total capital receives at the end of the processes of production and circulation, over and above the value it possessed before this process of production, when it entered into it." -- Marx (Collected Works, Vol. 33, 1991, p 91)

Thu 29, October 2009 @ 21:14

bill j said…

Actually you didn't demonstrate anything you just inserted your interpretation in between my words. Its a curious method of polemic, but if it keeps you happy.
Back to the substantive point, when you argue that productivity, by lowering the organic composition of capital, cannot raise the rate of profit, you're wrong aren't you? In fact as Graham's pointed out its almost an inverted Okishio theory, inasmuch as you just put a negative where he put a positive.

Thu 29, October 2009 @ 22:35

Andrew Kliman said…

Bill Jefferies claims that I have not demonstrated that he upheld the view, when he wrote his review of my _Reclaiming Marx's "Capital": A refutation of the myth of inconsistency_," that the rate of profit is properly measured as the ratio of profit to the capital that has actually been advanced (which includes the historical cost of means of production rather than their current cost, i.e. replacement cost). I did not demonstrate this, he claims, because "you just inserted your interpretation in between my words" when I quoted him as follows:

"profit rates are measured against the actual cost [historical cost] of fixed capital … rather than its notional cost [current cost or replacement cost]. … If the rate … of profit is measured against the new notional value i.e. its value if it had to be paid for at present prices [i.e., at the current cost of fixed capital], then it is possible to show that rates of profit are low or falling, even when they are high and rising. [Bracketed material inserted by me—AJK]"

I think that the only plausible interpretation of "if it had to be paid for at present prices" is "its current cost" (or synonyms). And thus, in this context, the only plausible interpretation of "notional value" is "current cost" (or synonyms), so that the only plausible interpretation of "the actual cost of fixed capital" is "what it actually cost when it it was acquired" (or synonyms). I therefore stand by my view that the quotation serves to demonstrate unequivocally that he used to uphold the view that the rate of profit is properly measured as the ratio of profit to the capital that has actually been advanced.

If he has a different interpretation of the words in the review, he has not yet shared it with us. I would like him to do so. Then we can assess its plausibility.

Rising labor productivity cannot lower the organic composition of capital because changes in the organic composition mirror and are exclusively determined by changes in the technical composition of capital. If the claim is that I "argue that productivity, by lowering the VALUE composition of capital, cannot raise the rate of profit," it is false.

Why am I not surprised?

Fri 30, October 2009 @ 09:52

bill j said…

Not surprised about what?

"Rising labor productivity cannot lower the organic composition of capital because changes in the organic composition mirror and are exclusively determined by changes in the technical composition of capital. If the claim is that I "argue that productivity, by lowering the VALUE composition of capital, cannot raise the rate of profit," it is false."

The first half of your statement is wrong. If the price of raw materials falls, then the organic composition of capital will fall, without any change in its technical composition.

The second half of your sentence refutes the first half, if it accepts that rising productivity by lowering the value composition of constant capital raises the rate of profit.

This is the opposite of what you write in your paper where you state that rising labour productivity can only lower the rate of profit.

I'm afraid its a mess, but one of your own making.

Fri 30, October 2009 @ 11:52

m said…

Marx's definition:
"The value-composition of capital, inasmuch as it is determined by, and reflects, its technical composition, is called the organic composition of capital."

http://www.marxists.org/archive/marx/works/1894-c3/ch08.htm

Fri 30, October 2009 @ 14:09

bill j said…

"The difference between the technical composition and the value composition is manifested in each branch of industry in that the value-relation of the two portions of capital may vary while the technical composition is constant, and the value-relation may remain the same while the technical composition varies."

....

"We get practically the same result if the technical conditions are the same in both spheres of production, but the value of the elements of the employed constant capital is greater or smaller in the one than in the other. Let us assume that both invest £100 as variable capital and therefore employ 100 labourers per week to set in motion the same quantity of machinery and raw materials. But let the latter be more expensive in B than in A. For instance, let the £100 of variable capital set in motion £200 of constant capital in A, and £400 in B. With the same rate of surplus-value, of 100%, the surplus-value produced is in either case equal to £100. Hence, the profit is also equal to £100 in both. But the rate of profit in A is 100/(200c + 100v) = ⅓ = 33⅓%, while in B it is 100/(400c + 100v) = 1/5 = 20%"

http://www.marxists.org/archive/marx/works/1894-c3/ch08.htm

It seems to me that Kliman - and Harman and Choonara inasmuch as the follow him - have what Bukharin describes as a subjective labour theory of value aka Adam Smith. Inasmuch as they determine the profit rate according to the subjective desire, intention or expectation of the capitalist based on what they expect to earn from their investment, compared with the objective labour theory of value of Marx, which asserts that they may expect to receive one rate of profit, but if society values their output differently from their expectations, i.e. according to an objective rather than a subjective criteria, then they will receive a very different rate of return from that which they expect.

Fri 30, October 2009 @ 15:15

Graham B said…

"I call the value-composition of capital, in so far as it is determined by its technical composition and mirrors the changes of the latter, the organic composition of capital."
http://www.marxists.org/archive/marx/works/1867-c1/ch25.htm

Whatever the exact meaning of "reflects" or "mirrors", the organic composition of capital refers to the value of the means of production and this includes raw materials.

"Other conditions being equal, the rate of profit, therefore, falls and rises inversely to the price of raw material. This shows, among other things, how important the low price of raw material is for industrial countries..."
http://www.marxists.org/archive/marx/works/1894-c3/ch06.htm

Andrew Kliman writes:
"...because changes in the organic composition mirror and are exclusively determined by changes in the technical composition of capital."
So he is wrong to say "exclusively" - and Marx didn't use it in this context - as it implies that a fall in the price of raw materials (no change in mass) would have no impact on the OCC.

Fri 30, October 2009 @ 15:31

Andrew Kliman said…

Bill Jefferies asked, "Not surprised about what?" Sorry, I thought it was obvious. Guess not. I wrote, "If the claim is that I 'argue that productivity, by lowering the VALUE composition of capital, cannot raise the rate of profit,' it is false.

"Why am I not surprised?"

What I meant was, "Why am I not surprised that Jefferies made a false claim about what I wrote?"

"m" has provided one passage in which Marx defines the organic composition of capital in a manner substantively the same as I did above. Here is another, from the start of ch. 25 of vol. 1 of _Capital_:

"The composition of capital is to be understood in a two-fold sense. On the side of value, it is determined by the proportion in which it is divided into constant capital or value of the means of production, and variable capital or value of labour-power, the sum total of wages. On the side of material, as it functions in the process of production, all capital is divided into means of production and living labour-power. This latter composition is determined by the relation between the mass of the means of production employed, on the one hand, and the mass of labour necessary for their employment on the other. I call the former the *value-composition*, the latter the *technical composition* of capital.

"Between the two there is a strict correlation. To express this, I call the value-composition of capital, in so far as it is determined by its technical composition and mirrors the changes of the latter, the *organic composition* of capital."

Thus, Bill Jefferies is wrong when he claims that "If the price of raw materials falls, then the organic composition of capital will fall, without any change in its technical composition."

And thus, he is wrong when he claims that "The second half of [my] sentence refutes the first half."

So he is also wrong when he writes "I'm afraid its a mess, but one of your own making." It is his mess, of his making.

Why am I not surprised (that he wrongly charges me with a mess of my own making when in fact it is his mess of his own making)?

As for his claim that I state in some unnamed paper that, in *his* words, "rising labour productivity can only lower the rate of profit," I'd like to see the exact quote. I strongly suspect that I didn't use the words "can only." If the passage in question is from "Persistent Fall," he has my permission to quote me *if* he also provides the surrounding context. In my _Reclaiming Marx's "Capital": A refutation of the myth of inconsistency, p. 123, I wrote: "As Marx (1991a: 342–43) recognized, the cheapening of means of production does reduce the capital value advanced, and thus it tends to counteract the tendency of the rate of profit to fall. My point is simply that it cannot do so *retroactively*." I have not changed my position.

Speaking of changes in position, I want to return to THE CRUCIAL questions that I wrote about above--but which his comment doesn't address: Has he changed his view? If so, WHY? He has claimed that I have not demonstrated that he upheld the view, when he wrote his review of _Reclaiming Marx's "Capital"_, that the rate of profit is properly measured as the ratio of profit to the capital that has actually been advanced (which includes the historical cost of means of production rather than their current cost, i.e. replacement cost). I did not demonstrate this, he claims, because "you just inserted your interpretation in between my words" when I quoted him as follows:

"profit rates are measured against the actual cost [historical cost] of fixed capital … rather than its notional cost [current cost or replacement cost]. … If the rate … of profit is measured against the new notional value i.e. its value if it had to be paid for at present prices [i.e., at the current cost of fixed capital], then it is possible to show that rates of profit are low or falling, even when they are high and rising. [Bracketed material inserted by me—AJK]"

I think that the only plausible interpretation of "if it had to be paid for at present prices" is "its current cost" (or synonyms). And thus, in this context, the only plausible interpretation of "notional value" is "current cost" (or synonyms), so that the only plausible interpretation of "the actual cost of fixed capital" is "what it actually cost when it it was acquired" (or synonyms). I therefore stand by my view that the quotation serves to demonstrate unequivocally that he used to uphold the view that the rate of profit is properly measured as the ratio of profit to the capital that has actually been advanced.

If he has a different interpretation of the words in the review, he is still not sharing it with us. I would like him to do so. Then we can assess its plausibility.

Fri 30, October 2009 @ 15:41

bill j said…

It is interesting what Kliman considers the "CRUCIAL" question. Its not actually the debate around the rate of profit - its what I think about his theory.

So have I "changed" my position on measuring profit rates? No. As I pointed out, I have already, elsewhere on this site, described a measure based on current cost - before I wrote my review of Kliman's book. Kliman's assertion that I only changed my position in order to show rising profit rates - something of course that his own historical graph also shows - is wrong. In fact my own calculations show a lower increase in the rate of profit than his during the period of the past boom. If I was simply concerned with showing a rising rate of profit I would have used his calculations rather than mine. BTW I don't see anything wrong with "changing" position on a question like this. Its not an issue of principle but only an attempt to arrive at the best estimate of profit rates.

Of course all these accusations of dishonesty, lies, bullshit, false claims and so on that Kliman issues with every post, have a single purpose, to close down debate and discussion and prevent a consideration of the real issues and indeed to close down discussion about his theory. That's a shame, but so what, it doesn't really matter.

Did I have a different interpretation of what Kliman wrote from what Kliman thinks he wrote? Undoubtedly. The whole discussion really revolves around the treatment of past investments and their relation to estimates of the rate of profit. Of course the cost of past investments, what was paid for them in the past, cannot be changed in the present. But the value of past investments - what they are worth now - can absolutely change in the present. Based on this discussion I don't know whether Kliman accepts that or not. But if his position is that past investments can only be valued at their historic cost, i.e. what was paid for them when they were paid for, rather than what they are worth now, then it is wrong. If he does accept that the value of past investments can change in the present then I don't see how he can insist everything is valued at its historic cost.

If Kliman does think that productivity can offset the tendency of the rate of profit to fall, than that's good, it might be an idea if he told Harman, who rejects the idea. Harman says in his recent reply to Michel Husson;

"There is a simply and conclusive counterargument, which has been put in different ways by Robin Murray,20 Ben Fine and Lawrence Harris,21 Guglielmo Carchedi,22 Alan Freeman, Andrew Kliman23 and myself.24 It is that the effect of increased productivity in reducing the cost of future investments does not help individual capitalists profit from existing investment. As the saying goes, “You cannot build the houses of today with the bricks of tomorrow.” The fact that new machines will cost less to buy in a year or two’s time does not somehow reduce the amount you have already spent on your existing ones. In fact, the more rapidly technological innovation takes place and productivity rises, the more rapidly the machines suffer from “moral depreciation” and become obsolete. There is increased pressure on profitability as a result, not reduced pressure.”

http://www.isj.org.uk/?id=600

This is not the view of Marx who explains that rising productivity can lower the organic composition of capital without changing the technical composition and raise the rate of profit;

"However, on the other hand the development of the productive power of labour in any one line of production, e.g., the production of iron, coal, machinery, in architecture, etc., which may again be partly connected with progress in the field of intellectual production, notably natural science and its practical application, appears to be the premise for a reduction of the value, and consequently of the cost, of means of production in other lines of industry, e.g., the textile industry, or agriculture. This is self-evident, since a commodity which is the product of a certain branch of industry enters another as a means of production. Its greater or lesser price depends on the productivity of labour in the line of production from which it issues as a product, and is at the same time a factor that not only cheapens the commodities into whose production it goes as a means of production, but also reduces the value of the constant capital whose element it here becomes, and thereby one that increases the rate of profit."

http://www.marxists.org/archive/marx/works/1894-c3/ch05.htm

But it is not really about trading quotes from Marx.

If the price of raw materials falls then the organic composition of capital will fall, and the rate of profit rise, without any change to the technical composition. That is true.

Sun 01, November 2009 @ 10:40

Aleksandar Sarovic said…

I don't get why the profit rate is so important to you! Capitalism will never fall because of the low profit rate because when profits lower in crisis capitalism simply destroy everything and starts increasing the profit rate from the begining again and again. Capitalism will be removed when a better system is invented and accepted. The first part of it is explained here http://www.sarovic.com/humanism_extensively.htm

Tue 01, December 2009 @ 18:21

ISJ 124: Kliman and Choonara review

Andrew Kliman

Downhill from there

Kliman's quibbles

Marxists and the rate of profit

Joseph Choonara and Goldman Sachs

Is Choonara right?

Conclusion

Bookmark with:

discussion of this article

Graham B said…

Graham B said…

Jason said…

mne said…

bill j said…

mne said…

Graham B said…

bill j said…

mne said…

mne said…

bill j said…

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mne said…

mne said…

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bill j said…

bill j said…

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m said…

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Aleksandar Sarovic said…

add to the discussion