Marx's crisis theory: overrated?

[Die Neue Zeit]

Marx's crisis theory was written during the Long Depression, a time when it was quite tempting to predict the "final fall" of capitalist production. On the other hand, Bernstein's political revisionism came about after the emergence from the Long Depression. From time to time, bourgeois academics and economists resort to crisis theory ("Marx for the bourgeoisie," as I like to call this vulgarism) when conventional economics fails so miserably. However, much of the left also resorts to crisis theory, particular its application to economic depressions and overstressing "decadence" and "decay," in an exhibition of fatalism / apocalyptic predestinationism (a sort of secular Calvinism) underpinned ultimately by organizationally defeatist spontaneism (such as fetishes for riots), only to lose out to far-right gains.

The "anatomy" of class struggle and social revolution couldn't be so different, tied more to expectations for a substantive impact of progressive change being dashed.

[Dumb]

As I like to point out habitually, capitalism is but one of several systems to pop up historically speaking, and will fall at some point just like every system that came before. However, just because we lose capitalism doesn't mean we gain socialism; what happens if our economy is automated to the point that the bourgeoisie no longer depends on extracting surplus value from 99% of the population?

We should worry - not only about whether or not we'll ever achieve socialism, but also about whether we'll wind up with a system even worse than capitalism (if capitalism doesn't destroy the planet first).

[Os Cangaceiros]

I don't really get what this OP is about.

Capital often experiences crises related to it's productive capacities. This is pretty much admitted by economists of all persuasions, although of course the large majority don't put it into Marxian terms (they'll talk about the "business cycle", "market distortions", etc.) I'm not sure how this is overrated...?

[Jose Gracchus]

DNZ wants to make revolutionary situations purely a question of organizational and political lines, properly assembled, and not the result of real material causes. Pleading for his own creations, no doubt.

[S.Artesian]

Marx's crisis theory was written during the Long Depression, a time when it was quite tempting to predict the "final fall" of capitalist production. On the other hand, Bernstein's political revisionism came about after the emergence from the Long Depression. From time to time, bourgeois academics and economists resort to crisis theory ("Marx for the bourgeoisie," as I like to call this vulgarism) when conventional economics fails so miserably. However, much of the left also resorts to crisis theory, particular its application to economic depressions, in an exhibition of fatalism / apocalyptic predestinationism (a sort of secular Calvinism) underpinned ultimately by organizationally defeatist spontaneism (such as fetishes for riots), only to lose out to far-right gains.

The "anatomy" of class struggle and social revolution couldn't be so different, tied more to expectations for a substantive impact of progressive change being dashed.

Historically inaccurate. Marx's theory of crisis, which was hardly developed into a single unified theory, was developed through his writings in his Economic Manuscripts 1857-1864. The long depression, which was not a continuous long depression, but more properly a long deflation, where prices continuously fell and capital lurched from expansion to overaccumulation to contraction to expansion etc. began in 1873.

Marx's analysis is more influenced by the panic and contraction of 1857 than the long deflation, as all 3 volumes of Capital existed in either there completed, or draft form by 1870.

History is one of the many things DNZ can't get straight.

[syndicat]

there are axtually several different theories of crisis in marx. liberal economist Paul Krugman believes the period we are entering now is likely to be like the Long Depression.

anyway, the three theories are:

1. rooted in the supposed tendency of the rate of profit to fall. but capitalists at present are experiencing record high profits...yet the system is not exactly in good health.

2. the underconsumptionist theory.

3. the class struggle theory. the profits squeeze of the '70s is arguably explained by this theory.

FWIW, i'm more inclined to 3 than the others.

[Die Neue Zeit]

Historically inaccurate. Marx's theory of crisis, which was hardly developed into a single unified theory, was developed through his writings in his Economic Manuscripts 1857-1864. The long depression, which was not a continuous long depression, but more properly a long deflation, where prices continuously fell and capital lurched from expansion to overaccumulation to contraction to expansion etc. began in 1873.

Marx's analysis is more influenced by the panic and contraction of 1857 than the long deflation, as all 3 volumes of Capital existed in either there completed, or draft form by 1870.

History is one of the many things DNZ can't get straight.

You know exactly what "crisis theory" I am referring to:

http://www.marxists.org/archive/marx/works/1867-c1/ch32.htm


Along with the constantly diminishing number of the magnates of capital, who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds.

The 1857 crisis was more like a boom-and-bust cycle than a real crisis. Now:


there are axtually several different theories of crisis in marx. liberal economist Paul Krugman believes the period we are entering now is likely to be like the Long Depression.

anyway, the three theories are:

1. rooted in the supposed tendency of the rate of profit to fall. but capitalists at present are experiencing record high profits...yet the system is not exactly in good health.

2. the underconsumptionist theory.

3. the class struggle theory. the profits squeeze of the '70s is arguably explained by this theory.

FWIW, i'm more inclined to 3 than the others.

Why only three theories? Bastard Keynesianism is stuck with underconsumptionist theory. However, it ignores worker savings up to the point of discretionary savings. This is directed tied to increased consumer debts.


DNZ wants to make revolutionary situations purely a question of organizational and political lines, properly assembled, and not the result of real material causes. Pleading for his own creations, no doubt.

The material stage is already set (tendencies to concentrate and centralize capital, labour becoming social, much "entrepreneurship" and "innovation" being done these days by workers in research teams, not by businesses). People pull the little strings, and institutions pull the big strings. However, actual revolutionary periods are historically independent of depressions (such as the years leading to WWI, as noted within Orthodox Marxism).

[ZeroNowhere]

Jargon is a serviceable substitute for analysis.

[syndicat]

Why only three theories? Bastard Keynesianism is stuck with underconsumptionist theory. However, it ignores worker savings up to the point of discretionary savings. This is directed tied to increased consumer debts.now what are you on about? your comment here makes no sense. in the USA workers have virtually nil savings. to the extent workers are able to save, it's just saving up to buy something, like a car. how is this related to crisis theory?

[Rowan Duffy]

1. rooted in the supposed tendency of the rate of profit to fall. but capitalists at present are experiencing record high profits...yet the system is not exactly in good health.

Which capitalists? What are the statistics that lead you to believe that there has been an increasing profit rate in the current downturn? I don't think that all the investment in stores of value makes sense if there are lots of profit making opportunities.



2. the underconsumptionist theory.

Underconsumption seems to fit the current crisis reasonably well considering there is a contraction in employment, reduced spending and reduced access to credit for additional spending. However, this theory looks epiphenomenal. *Why* we have hit a crisis that has resulted in underconsumption is not explained.



3. the class struggle theory. the profits squeeze of the '70s is arguably explained by this theory.

FWIW, i'm more inclined to 3 than the others.

How are workers squeezing profits in the current crisis? I don't understand how 3 fits.

Personally, I think a combination of 1 with Minsky's theory of the cyclic incapacity of capitalists to judge risks or independently act rationally in a bubble are the best bets.

[Die Neue Zeit]

now what are you on about? your comment here makes no sense. in the USA workers have virtually nil savings. to the extent workers are able to save, it's just saving up to buy something, like a car. how is this related to crisis theory?

Well, there are things like retirement savings. Without retirement savings under the current state of economic affairs, there's no future, debt-free consumption. Underconsumption refers to consumption in the here and now, since "in the long run, we're all dead."

Without other kinds of savings up to the point of discretionary savings, people have to take on mortgages, and these have interest costs and costs of default.

[syndicat]

Well, there are things like retirement savings. Without retirement savings under the current state of economic affairs, there's no future, debt-free consumption. Underconsumption refers to consumption in the here and now, since "in the long run, we're all dead."

Without other kinds of savings up to the point of discretionary savings, people have to take on mortgages, and these have interest costs and costs of default.

the biggest form of retirement benefit for the working class in the USA is Social Security. there is no savings here.

the bit about mortgages makes no sense. working class people and even middle class people don't have enough income to not take out a mortgage to buy a house.

and you've not explained how this is related to crisis theory.

in the present crash in the USA the home ownership rate has fallen from 68 percent to 65 percent...about what it was before the housing bubble circa early '90s. black and Latino working & middle classes especially lost billions of assets.

now, this does affect the crisis in the following way. it lowers the disposable income of much of the population. during the housing & credit bubble, people were living off debt, by using equity on their house, even only paper equity, to maintain living standards. with this way to sustain disposable income gone, markets for consumer goods are undermined due to the decline in working class incomes over the past 30+ years.

but this decline is due to the inability of the working class to mount a serious collective struggle....the bureaucratic "partnership" unionism proved unable to fight. so a low level of working class social power made the working class vulnerable to an aggressive employer offensive, which increased profits and incomes of the wealthy but undermined buying power for the working class, and thus underemined markets.

looking at it this way, it was a feature of the class struggle in this period that is an important explainer of the crisis. this is an example of the class struggle theory of crisis.

[Die Neue Zeit]

the biggest form of retirement benefit for the working class in the USA is Social Security. there is no savings here.

Yeah, and SS is quite paltry. In Europe, not only are there welfare states, but there are positive savings rates. Keep in mind that, historically, welfare states were created to drive down savings rates.


the bit about mortgages makes no sense. working class people and even middle class people don't have enough income to not take out a mortgage to buy a house.

and you've not explained how this is related to crisis theory.

It does, via the LTV. Cockshott and his comrades did studies on worker incomes, and receiving about double the amount received today would boost consumption and discretionary savings. Exploitation not only leads to "underconsumption," but to lower discretionary savings for workers.

[S.Artesian]

Which capitalists? What are the statistics that lead you to believe that there has been an increasing profit rate in the current downturn? I don't think that all the investment in stores of value makes sense if there are lots of profit making opportunities..

How about the US capitalists, at least up until the 3rd quarter of 2010? That's what all that unemployment does, changes the ratio between c and v so that the rate of surplus value increases to the point where it offsets the decline in profitability.

Of course since the source of the problem is not in underconsumption, [Marx is no way no how an "underconsumptionist,"] but rather in the overproduction of capital, the over-accumulation of the means of production of capital, such temporary respite is generally short-lived without a more significant alteration to the ratios. 1936-1937 was one such moment of temporary recovery; 2010 was another.




Underconsumption seems to fit the current crisis reasonably well considering there is a contraction in employment, reduced spending and reduced access to credit for additional spending. However, this theory looks epiphenomenal. *Why* we have hit a crisis that has resulted in underconsumption is not explained.


How can underconsumption explain the current crisis when 1) the crisis begins when consumption is expanding 2) the brief recovery is based on reducing consumption?



How are workers squeezing profits in the current crisis? I don't understand how 3 fits.

Certainly not in the current crisis, but if you look at the recovery after the 2001 recession in the US, the recovery was based on rigorous reductions in capital expenditures and hold wage rates below their 2000 levels. Wages did not exceed their 2000 level until 2005 or 2006. Capital spending resumed in 2006, which incidentally was the year the rate of return on property, plant, and equipment of US manufacturers peaked and turned down. Coincidence? Not hardly.


Personally, I think a combination of 1 with Minsky's theory of the cyclic incapacity of capitalists to judge risks or independently act rationally in a bubble are the best bets.

Which means what? A sufficiently intelligent capitalist would "act rationally" would be able to judge risk and capitalism would be delivered from the "irrationality" of accumulation? Yeah, well we had that experiment-- it was called "Quantitative Analysis." It was called "credit default swaps." It was called "risk management." It was "tranches," structured investment vehicles, VaR [value at risk], all mathematically certain to provide a positive return.

This notion of the bourgeoisie acting irrationally is a fundamentally idealist substitution for Marx's critique of capital;-- capital's inability to sustain valorization as it expands.

[Die Neue Zeit]

This notion of the bourgeoisie acting irrationally is a fundamentally idealist substitution for Marx's critique of capital;-- capital's inability to sustain valorization as it expands.

By itself it is idealist, but it is an excellent complement against economic determinism. A behavioural approach to political economy might help explain problems in the political sphere for workers, such as the lack of drive to establish even mere "labour" parties in the US despite legal odds, or the historical retardation of British Labourism from the outset (as opposed to Continental socialist worker movements).

[NeoSigurd]

As I like to point out habitually, capitalism is but one of several systems to pop up historically speaking, and will fall at some point just like every system that came before. However, just because we lose capitalism doesn't mean we gain socialism; what happens if our economy is automated to the point that the bourgeoisie no longer depends on extracting surplus value from 99% of the population?

We should worry - not only about whether or not we'll ever achieve socialism, but also about whether we'll wind up with a system even worse than capitalism (if capitalism doesn't destroy the planet first).

You bring some good points, however I doubt the people will let things get so bad that they actually let capitalism destroy the planet. If only because planetary destruction is bad for business.

[S.Artesian]

By itself it is idealist, but it is an excellent complement against economic determinism. A behavioural approach to political economy might help explain problems in the political sphere for workers, such as the lack of drive to establish even mere "labour" parties in the US despite legal odds, or the historical retardation of British Labourism from the outset (as opposed to Continental socialist worker movements).


OK, I offer a free digital download of the Sex Pistols first album Never Mind the Bollocks... to any person who knows, and can prove, how Minsky's theory of "overreach," or Greespan's of "excessive exuberance," or anyone else's theory of crisis as the product of capitalists' irrational behavior, has the slightest thing to do with the "lack of drive" or "lack of consciousness" or any of the other lacks of working class organization and struggle.

Another DNZ non-sequitur, so he can avoid dealing with any material issue, like this, or his inaccurate and just plain ignorance of the historical context of Marx's critique, any deflecting the discussion into areas that have, like his comments, absolutely no meaning.

[Rowan Duffy]

.
How can underconsumption explain the current crisis when 1) the crisis begins when consumption is expanding 2) the brief recovery is based on reducing consumption?

It can't be a causal theory of the crisis. It can describe why the crisis has no easy exit.



Which means what? A sufficiently intelligent capitalist would "act rationally" would be able to judge risk and capitalism would be delivered from the "irrationality" of accumulation? Yeah, well we had that experiment-- it was called "Quantitative Analysis." It was called "credit default swaps." It was called "risk management." It was "tranches," structured investment vehicles, VaR [value at risk], all mathematically certain to provide a positive return.

No, the problem is that rational actions lead to the global irrationality. Minsky's theory is not about irrational actions leading to a bubble, but about rational ones.


This notion of the bourgeoisie acting irrationally is a fundamentally idealist substitution for Marx's critique of capital;-- capital's inability to sustain valorization as it expands.

I hold that the bourgeoisie are, to first approximation, rational. Global rationality and local rationality are entirely different beasts.

In a financial bubble there is a big payout for those who ride the increase. A rational player will be required to stay on the bubble to the last second if possible. If you don't then you lose out to a competitor who makes a better profit rate, leading to you getting far less investment than the alternatives. It's effectively a positive feedback cycle. This individual rational action sums to the global irrationality of a Minsky moment. The rapid fall in the value of assets leads to difficulties in finding any obvious profit opportunities and a response of purchasing stores of value. This leads to difficulty obtaining loans as capital is diverted to stores of value which leads to layoffs and eventually underconsumption. This manifested underconsumption helps to ensure the continuation of the liquidity trap until value has been sufficiently depressed.

[S.Artesian]

I hold that the bourgeoisie are, to first approximation, rational. Global rationality and local rationality are entirely different beasts.

In a financial bubble there is a big payout for those who ride the increase. A rational player will be required to stay on the bubble to the last second if possible. If you don't then you lose out to a competitor who makes a better profit rate, leading to you getting far less investment than the alternatives. It's effectively a positive feedback cycle. This individual rational action sums to the global irrationality of a Minsky moment. The rapid fall in the value of assets leads to difficulties in finding any obvious profit opportunities and a response of purchasing stores of value. This leads to difficulty obtaining loans as capital is diverted to stores of value which leads to layoffs and eventually underconsumption. This manifested underconsumption helps to ensure the continuation of the liquidity trap until value has been sufficiently depressed.

And I hold that the rationality or irrationality of the bourgeoisie is derivative, an expression of the inability, or ability, of capital to maintain the valorization of all previous and ongoing accumulation.

Look, in the US... the housing market turned in 2006 [along with the rate of return on PPE], but profits were still being booked into 2007. So was it "irrational" to continue the trading, circulation, investment of and into mortgage backed securities? Would liquidating all assets and hoarding the cash been the "rational" course? Whatever course that would have been, that would not have been the course of capital. Capital cannot withdraw itself from these circuits and remain capital. Or as they like to say on Wall St. "nobody ever got rich saving money. "

Now you can say those profits were fictitious and illusory, but going after profit no matter what is what capitalism is all about. That is the "prime mover," the causal factor. The rationality or irrationality of the pursuit itself is, or becomes, immaterial, depending on condition of reproduction.

Talking about, or blaming a crisis on the irrationality, even the "inherent" or "congenital" irrationality of capitalists is like blaming market extremes on speculators. I mean that's what and who the markets are for-- speculation, and the success and failure of such speculation-- that's how capital concentrates itself, centralizes itself, realizes and devalues itself.

The critical issue is the cause in both facets of the circuit-- the expansion and contraction, the valorization and the devaluation.

[Rowan Duffy]

Talking about, or blaming a crisis on the irrationality, even the "inherent" or "congenital" irrationality of capitalists is like blaming market extremes on speculators. I mean that's what and who the markets are for-- speculation, and the success and failure of such speculation-- that's how capital concentrates itself, centralizes itself, realizes and devalues itself.

You've misunderstood the notion of the Minsky moment entirely.

Global irrationality can arise from the failure to maintain a global optimality while every independent actor is maximising their own gain in an entirely rational fashion.

I've never claimed that there is any irrationality in any actor in the system. To first approximation, investors are rational. There are obviously factors of incomplete information and factors of occasional fraud etc. Those are secondary factors. The main cause is that local optimisation leads naturally to catastrophic global outcomes that do not maximise the individual outcomes either.

The obvious simple game theoretic example happens in the iterated prisoners dilemma. You can have everyone playing cooperatively and you'll get good global outcomes, all players end up with individually high payoffs. If someone starts to defect then they can get an immediate higher payoff, but this tends to cause tit-for-tat strategies and defecting can start to spread. Eventually you can have a complete collapse in the total aggregate payoff as well as each individuals scores. What was a locally good strategy becomes a global catastrophe.

This is a systemic irrationality that has nothing to do with individual capitalists being bad people or immaterial causes or whatever you are on about.

[S.Artesian]

See, you've misunderstood my comments entirely.

That is to say: that the rationality or irrationality of the capitalists as a class is immaterial. All Minsky [and you} are doing is burnishing the old 'contrarian' dogma "When everyone else is buying, go short. When everyone is selling, go long." Or the old "beggar thy neighbor" criticisms when capitalists use devaluation, dumping, etc. to gain trade advantages.

All this "game theory" comes down to is wagging a moral finger at the greed of capitalists. Big fucking deal. Yeah greedy they are. So what? Greed is a function of the need to accumulate; to aggrandize surplus value.

The simple game theory, iterated prisoners, whatever bullshit bourgeois economists are flogging this time, has absolutely nothing to do with the conflicts, contradictions of capital. This isn't about breaking global ranks to maximize one's return, it's about the conflict between the means and relations of production

The "breakdown" has nothing to do with individual players maximizing their individual return but rather everything with the inability of capital to sustain valorization.

What caused the economic downturn in 2007-2008? Local optimization? The accumulation of local optimizations? That's nonsense. Didn't happen then, just as it didn't happen that way in 2001; just as it didn't happen that way in 1991, 1986, 1981-82 etc etc etc.

[Die Neue Zeit]

OK, I offer a free digital download of the Sex Pistols first album Never Mind the Bollocks... to any person who knows, and can prove, how Minsky's theory of "overreach," or Greespan's of "excessive exuberance," or anyone else's theory of crisis as the product of capitalists' irrational behavior, has the slightest thing to do with the "lack of drive" or "lack of consciousness" or any of the other lacks of working class organization and struggle.

Rational vs. irrational behaviour on the part of all parties involved, perhaps? :glare:

The "rational self-interest" of the working class in the US dictates the formation of (at minimum) a Labourite party flood-funded by the yellow unions, but this hasn't happened yet.

Behavioural economics & finance: where's Marx? (http://www.revleft.com/vb/behavioural-economics-finance-t97546/index.html)


I hold that the bourgeoisie are, to first approximation, rational. Global rationality and local rationality are entirely different beasts.

In a financial bubble there is a big payout for those who ride the increase. A rational player will be required to stay on the bubble to the last second if possible. If you don't then you lose out to a competitor who makes a better profit rate, leading to you getting far less investment than the alternatives.

I don't know, comrade. People with more conservative investment profiles are very unlikely to "stay on the bubble to the last second." The phenomenon of "profit taking," for instance, is where during the middle of a stock market boom there's a selloff day. Then, of course, comes the more typical behaviour of Buy High, Sell Low.

[Rowan Duffy]

That is to say: that the rationality or irrationality of the capitalists as a class is immaterial. All Minsky [and you} are doing is burnishing the old 'contrarian' dogma "When everyone else is buying, go short. When everyone is selling, go long." Or the old "beggar thy neighbor" criticisms when capitalists use devaluation, dumping, etc. to gain trade advantages.

Emergent phenomena are very real. There is nothing moral about local rules leading to global behaviour. In fact Marx talks about how quantity can lead to changes in quality. Such emergent behaviour of individual rational decisions is an example.

Capitalism is a system formed of the social relations between humans. It must be understand as arising from those interactions. The contradictions inherent in capitalism have, as a micro-foundation, those social interactions.



All this "game theory" comes down to is wagging a moral finger at the greed of capitalists. Big fucking deal. Yeah greedy they are. So what? Greed is a function of the need to accumulate; to aggrandize surplus value.

There is no moral finger waving. There is no way in which capitalist crisis could be overcome by way of individual choices made in a capitalist market place. The social relations build into their structure the tendency towards crisis.



The simple game theory, iterated prisoners, whatever bullshit bourgeois economists are flogging this time, has absolutely nothing to do with the conflicts, contradictions of capital. This isn't about breaking global ranks to maximize one's return, it's about the conflict between the means and relations of production

Emergent phenomena are widely studied and give rise to useful predictions. You can wave your hands violently and claim that it has no explanatory power but it wont make it true.

[S.Artesian]

Emergent phenomena are very real. There is nothing moral about local rules leading to global behaviour. In fact Marx talks about how quantity can lead to changes in quality. Such emergent behaviour of individual rational decisions is an example.

I didn't say they weren't real; I said they weren't, aren't, causal. Marx's explanation of quantity into quality is historical, social, about the quantity of labor employed in a specific social configuration qualitatively changes class organization, and the basis for accumulation. The origin of the change or the "crisis" if one were to develop in Marx's example in vol 1. of Capital is in the relations of social labor, not in the "game playing" of prisoners, prison guards, wardens, bond traders, etc.


Capitalism is a system formed of the social relations between humans. It must be understand as arising from those interactions. The contradictions inherent in capitalism have, as a micro-foundation, those social interactions.



That's a fine abstraction you got there, but what's that mean concretely? Concretely the relations Marx analyzes are relations between labor and property, between labor and the conditions of labor, between laborers and property owners, between classes.

Marx is very clear in describing the relations among capitalists as derivative, secondary, determined by that class relation. He refers to the actions of capitalists as those of "hostile brothers." He does not attribute the contradictions of capitalism to that hostility or that brotherhood.

In fact, in his Economic Manuscripts Marx talks of the capitalists as the personification of capital, and their growing irrelevance,to accumulation, as capital becomes a self-mediating relation of production. The relation between capitalists and capital is transformed into the relationship between Frankenstein's monster and Frankenstein himself. Says the monster: "You are my creator, but I am your master. You must obey!"


There is no moral finger waving. There is no way in which capitalist crisis could be overcome by way of individual choices made in a capitalist market place. The social relations build into their structure the tendency towards crisis.


And exactly what is that social relation; what is the determining social relation, not in the final analysis, but in the initial?

Look let's start from the beginning:

1. Does anyone accept DNZ's characterization of the historical context of Marx's "crisis theory" as the "long depression"? If so, please explain how the period beginning in 1873 impacted Marx's work of 1857-1867, up to 1870.

2. Is the determining factor in capitalism's tendency toward repeated crises, structural "slowing," in the valorization process, in the exchange with labor power, in the relationship between the means of production as private property and the relations of production, the organization of labor as wage-labor? Or is it somewhere else? If the determining factor is that valorization process, then we should be able to, and we can, trace the "crisis" to exactly that change between c and v in capitalist reproduction.

[Rowan Duffy]

I didn't say they weren't real; I said they weren't, aren't, causal.

Causality is over-rated. Predictive power is more important. It is predictive. I don't care whether you think it's causal or not, and nobody in physics will either.



That's a fine abstraction you got there, but what's that mean concretely? Concretely the relations Marx analyzes are relations between labor and property, between labor and the conditions of labor, between laborers and property owners, between classes.

You know what? Knowledge did not stop with Marx. You're back to your "only reveled truth from the prophet is valid" type arguments. It's pure rubbish.

The model I gave involves capitalists interacting in a market attempting to obtain maximum profit from investment opportunities. It happens to be substantially the same as Marx's model.


In fact, in his Economic Manuscripts Marx talks of the capitalists as the personification of capital, and their growing irrelevance,to accumulation, as capital becomes a self-mediating relation of production. The relation between capitalists and capital is transformed into the relationship between Frankenstein's monster and Frankenstein himself. Says the monster: "You are my creator, but I am your master. You must obey!"

I'm not particularly bothered with teleological characterisations of phenomena as many in the scientific community seem to be. I think you can view capitalism as having various emergent characters. However, your teleology is thoroughly mystical. You're endowing capitalism with god like status and denying that we can understand it from the perspective of the microfoundations of social interactions. Your only justification for this approach so far appears to be that you think it is what Marx really meant (or that alternative approaches are tainted by bourgeois economics).

[S.Artesian]

Causality is over-rated. Predictive power is more important. It is predictive. I don't care whether you think it's causal or not, and nobody in physics will either.

Priceless. For everything else there's Mastercard. Yeah real predictive. That's why Wall Street hired all those physicists and math professors to develop the quant programs that were "predictive." They were predictive right up until they weren't. You might want to pay attention to how capitalism actually functions.




You know what? Knowledge did not stop with Marx. You're back to your "only reveled truth from the prophet is valid" type arguments. It's pure rubbish. No it certainly did not. However, you're the one who brought up Marx's references to quantity and quality. I'm simply pointing out how you got his references wrong.


The model I gave involves capitalists interacting in a market attempting to obtain maximum profit from investment opportunities. It happens to be substantially the same as Marx's model.

Sounds like your using the revealed truth from the prophet argument to make a case for your "microcosm." And I'm saying your "model" of capitalists interacting is historically, socially, concretely not the same as Marx's analysis of the cause of crises; of Marx's predictions for the emergence of crises.


I'm not particularly bothered with teleological characterisations of phenomena as many in the scientific community seem to be. I think you can view capitalism as having various emergent characters. However, your teleology is thoroughly mystical. You're endowing capitalism with god like status and denying that we can understand it from the perspective of the microfoundations of social interactions. Your only justification for this approach so far appears to be that you think it is what Marx really meant (or that alternative approaches are tainted by bourgeois economics).Capitalism has a purpose, which is in the aggrandizement of surplus value and the accumulation of capital. That's a social relation, not a religious belief.

And Marxism isn't epistemology, it isn't about "understanding capital" for this or that "perspective," it's about how capitalism actually functions, about the material forces that compel class struggle. My "justification for my approach" is that we can actually answer questions like "Is Marx's crisis theory overrated?" "Was Marx's crisis theory determined by the 'long depression.' Remember those? Those were the original issues of this thread, and questions you don't answer.


And we can answer other questions, like... are the "micro-relationships" of capital determining relationships and thus relationships that compel the abolition of capital?

[Paul Cockshott]

Causality is over-rated. Predictive power is more important. It is predictive. I don't care whether you think it's causal or not, and nobody in physics will either.


Not entirely true, Deutsch is very strong on causality, rightly so I think.

[Rowan Duffy]

Not entirely true, Deutsch is very strong on causality, rightly so I think.

Are you speaking of David Deutsch?

I used to think causality was a good idea but after beating my head against quantum systems for a few years I began to doubt it. Saving causality requires some serious contortions, which might include non-locality, non-realism or bicausality (retrocausality + causality).

What does causality really buy you? It seems to me that there isn't much use to it at all.

[Paul Cockshott]

Are you speaking of David Deutsch?

I used to think causality was a good idea but after beating my head against quantum systems for a few years I began to doubt it. Saving causality requires some serious contortions, which might include non-locality, non-realism or bicausality (retrocausality + causality).

What does causality really buy you? It seems to me that there isn't much use to it at all.

I mean David Deutsch, yes.
What you call bi-causality is implicit in the time symmetry of the laws of mechanics.

[S.Artesian]

How about staying on topic? so Paul, do you think Marx's crisis is "overrated"? if so, do you think that reflects the impact of the long deflation on Marx's work?

[syndicat]

How are workers squeezing profits in the current crisis? I don't understand how 3 fits.


i didn't say they were. the class struggle theory isn't just about a profits squeeze. that can happen only in a period when the working class has built up its institutional bargaining power & social power (through self-activity and self-organization) to the point that it can demand increasing compensation as productivity rises.

it's the relative weakness of labor that is at issue in the present period. the bureaucratization & conservatization of the labor movement post WW2 and in the USA the increasing construction of a legal cage that criminalizes all the effective forms of worker action set the stage for declining compensation.

as compensation declined, a crisis from declining purchasing power was averted only due to credit bubbles. with the crash of the housing bubble, the system was exposed to the full force of diminished purchasing power. because capitalists have no confidence they can make adequate profis through an expansion of production of consumer goods, they seek out speculative or unproductive forms of investment (such as mergers & acquisitions).

profits are in fact at historic highs. companies have used the crash to cut workforces, forcing people who remain to work harder and have not made new hires...leaving 25 million unemployed in the USA. they won't hire because there isn't the demand for product. there isn't the demand for product because of declining wages.

but you can't explain declining compensation while ignoring what the working class does or the dynamics of the class struggle. you have to explain the declining bargaining power.

[RedTrackWorker]

i didn't say they were. the class struggle theory isn't just about a profits squeeze. that can happen only in a period when the working class has built up its institutional bargaining power & social power (through self-activity and self-organization) to the point that it can demand increasing compensation as productivity rises.

it's the relative weakness of labor that is at issue in the present period. the bureaucratization & conservatization of the labor movement post WW2 and in the USA the increasing construction of a legal cage that criminalizes all the effective forms of worker action set the stage for declining compensation.

as compensation declined, a crisis from declining purchasing power was averted only due to credit bubbles. with the crash of the housing bubble, the system was exposed to the full force of diminished purchasing power. because capitalists have no confidence they can make adequate profis through an expansion of production of consumer goods, they seek out speculative or unproductive forms of investment (such as mergers & acquisitions).

profits are in fact at historic highs. companies have used the crash to cut workforces, forcing people who remain to work harder and have not made new hires...leaving 25 million unemployed in the USA. they won't hire because there isn't the demand for product. there isn't the demand for product because of declining wages.

but you can't explain declining compensation while ignoring what the working class does or the dynamics of the class struggle. you have to explain the declining bargaining power.

so you think if workers were paid more there'd be no crisis?

[S.Artesian]

as compensation declined, a crisis from declining purchasing power was averted only due to credit bubbles. with the crash of the housing bubble, the system was exposed to the full force of diminished purchasing power. because capitalists have no confidence they can make adequate profis through an expansion of production of consumer goods, they seek out speculative or unproductive forms of investment (such as mergers & acquisitions).

Nope. That's not what happened. There's no "crisis" of declining purchasing power-- underconsumption--based on reduced compensation. At least not in the 2000-2011 period.

[syndicat]

if you think not, then you need to provide some evidence and say what you think was actually happening.

financialization, diminished controls on the finance sector, funds flowing into speculative forms of investment. how to explain this direction of investment rather than its investment in production of consumer goods & services?

once the bubble is burst, what then? why does the bursting of the bubble lead to a quagmire of high unemployment, little investment in real production? it leads to this because the effects of 30 years of declining working class wages now faces capital as inadequate demand.

[Paul Cockshott]

I dont think he has a 'crisis theory' pre se separable from his general analysis, and that general analysis is certainly not overrated, but has tended to be seriously underrated.

[S.Artesian]

if you think not, then you need to provide some evidence and say what you think was actually happening.

financialization, diminished controls on the finance sector, funds flowing into speculative forms of investment. how to explain this direction of investment rather than its investment in production of consumer goods & services?

once the bubble is burst, what then? why does the bursting of the bubble lead to a quagmire of high unemployment, little investment in real production? it leads to this because the effects of 30 years of declining working class wages now faces capital as inadequate demand.


Sure. You can read all about it here:

http://insurgentnotes.com/2010/06/paper-torches/

and here:

http://insurgentnotes.com/2010/08/elephant-on-a-skateboard/


and here:

http://thewolfatthedoor.blogspot.com/2008/11/dismal-science-wonderful-world.html


and here:

http://thewolfatthedoor.blogspot.com/2009/06/papers-dragons-tigers-scissors.html


http://thewolfatthedoor.blogspot.com/2008/11/pma-3.html


Plus in the threads too numerous too mention right here.

Sorry to not write the arguments out in detail, again, but it's easier, for me at least this way.

So have at it. A splendid time is guaranteed for all.

[syndicat]

sorry. the writing's too convoluted for me to put energy into figuring it out.

[S.Artesian]

That's your personal problem. I can't believe anyone finds the language in " Paper...Torches" convoluted. But hey... you learn something new everyday... provided you make the effort.

Investment does not flow into financial instruments because of a lack of effective purchasing power. Investment flows into financial instruments due to impaired valorization of the means of production organized as capital. If valorization is too convoluted a word for you, sorry, it's the best I can do on long or short notice.

PS: Try this one written in 2004 as part of the general background. Written in language so simple even George W. Bush could understand it:

http://thewolfatthedoor.blogspot.com/2004/12/reprint-on-reproduction.html (http://thewolfatthedoor.blogspot.com/2004/12/reprint-on-reproduction.htmlhttp://)

[Paul Cockshott]

Investment does not flow into financial instruments because of a lack of effective purchasing power. Investment flows into financial instruments due to impaired valorization of the means of production organized as capital. If valorization is too convoluted a word for you, sorry, it's the best I can do on long or short notice.
Looking at the language that this is being discussed with, I think at times it does not help understand things. Capital can not flow into financial instruments since the latter are not capital. Capital is embodied value, and historically it existed in three forms money capital, constant capital and variable capital. But that was in the days of commodity money. Now, with the abolition of commodity money, only two forms of capital exist : constant and variable.

in the days of gold coins money embodied labour and was a store of value, now, when money is just a data record on the hard drives of servers in the banks, it no longer either requires labour to create it.
In consequence it can not act as a store of value.

It can act as a claim to receive value certainsly, so that to the individual capitalist, current accounts, bonds and more sophisticated financial instruments appear to be stores of value, but from Marx's standpoint these are all fictitious capital.

It follows that the financial sector can not absorb surplus value in financial instruments. Surplus value is surplus labour embodied in commodities and there is no magic that will transform commodities into records on magnetic disks. The apparent movement into financial instruments is a mask for real movements of value and thus of labour
:
1. A movement of labour into making unproductive military goods
2. A movement of labour into building houses and making consumer goods purchased on credit
3. A movement of labour into producing unproductive luxuries and unproductive equipment and buildings for the financial elite. They claim to pay for these from the appreciation of the financial assets under their control, but since the latter are fictitious, this masks a conversion of surplus value into revenue that was unmasked in the financial crisis

[S.Artesian]

First, I didn't say "capital" I said investment. I carefully chose the language to avoid the confusion, which in reality I think your explication introduces.

[Die Neue Zeit]

Looking at the language that this is being discussed with, I think at times it does not help understand things. Capital can not flow into financial instruments since the latter are not capital. Capital is embodied value, and historically it existed in three forms money capital, constant capital and variable capital. But that was in the days of commodity money. Now, with the abolition of commodity money, only two forms of capital exist : constant and variable.

Doesn't money-capital still exist? It isn't exactly the "commodity money" of employees buying stuff only from their employer, but still. :confused:


in the days of gold coins money embodied labour and was a store of value, now, when money is just a data record on the hard drives of servers in the banks, it no longer either requires labour to create it.
In consequence it can not act as a store of value.

So you're saying that fiat money cannot possibly be money-capital? :confused:

[syndicat]

Investment does not flow into financial instruments because of a lack of effective purchasing power. Investment flows into financial instruments due to impaired valorization of the means of production organized as capital. If valorization is too convoluted a word for you, sorry, it's the best I can do on long or short notice.


i didn't say that it did. i wasn't advocating an under-consumptionist theory. what i was defending was the role of the class struggle in economic crisis. Once the crash took place, that's when inadequate purchasing power is relevant.

now you seemed to say that debt was not a way that the working class were maintaining their purchasing power...on the grounds that the finance industry makes a profit off its loans. they are considered assets by banks because they generate income. but if a bubble inflates paper value of houses and people re-fi to support their consumption, pay their bills, then how is this not helping to maintain, for a time, their purchasing power?

there is a structural tendency for banks to become over-leveraged. they become an accident waiting to happen. that's precisely because loans are an asset for them.

[S.Artesian]

now you seemed to say that debt was not a way that the working class were maintaining their purchasing power...on the grounds that the finance industry makes a profit off its loans. they are considered assets by banks because they generate income. but if a bubble inflates paper value of houses and people re-fi to support their consumption, pay their bills, then how is this not helping to maintain, for a time, their purchasing power?

there is a structural tendency for banks to become over-leveraged. they become an accident waiting to happen. that's precisely because loans are an asset for them. ___What I said is that lack of effective demand is not the cause of this condition of capital. I believe in an earlier post you stated that lack of effective demand was a cause. I think lack of effective demand is a product of reduced profitability, derived from and determined by the success or lack thereof in the valorization process. The cause of this crisis, in particular, is the conflict between the labor process, the production process, and the valorization process.

This, by you, seems to me to be a variation on the theme of underconsumption:


as compensation declined, a crisis from declining purchasing power was averted only due to credit bubbles. with the crash of the housing bubble, the system was exposed to the full force of diminished purchasing power. because capitalists have no confidence they can make adequate profis through an expansion of production of consumer goods, they seek out speculative or unproductive forms of investment (such as mergers & acquisitions). And this, by you, is the effective demand theory:


they won't hire because there isn't the demand for product. there isn't the demand for product because of declining wagesAnd it makes no sense. If there is profitability, and expanding employment increases costs faster than it increases profitability, then there is no need for capitalists to hire laborers, and "effective demand" is immaterial as capitalism produces for profit, not demand.

And this by you says exactly what you claim you are not saying:



financialization, diminished controls on the finance sector, funds flowing into speculative forms of investment. how to explain this direction of investment rather than its investment in production of consumer goods & services?

once the bubble is burst, what then? why does the bursting of the bubble lead to a quagmire of high unemployment, little investment in real production? it leads to this because the effects of 30 years of declining working class wages now faces capital as inadequate demand.

[syndicat]

What I said is that lack of effective demand is not the cause of this condition of capital. I believe in an earlier post you stated that lack of effective demand was a cause. I think lack of effective demand is a product of reduced profitability, what does "this condition of capital" refer to? it's not clear what you're talking about here.

i didn't advocate under-consumption as a theory of crisis. that's because there are various components of demand, and demand for consumer goods is only one. there is also demand for producer goods, and that could counter-act lesser demand for consumer goods by the working class.

you seem to not be aware of the class struggle theory of crisis.


If there is profitability, and expanding employment increases costs faster than it increases profitability, then there is no need for capitalists to hire laborers, and "effective demand" is immaterial as capitalism produces for profit, not demand.
i suppose it's a question of what needs explaining. at present corporate profits are at historic highs, even tho there is about 16 percent unemployment (U6 rate). they won't hire because they don't need to to make a profit. so is there a crisis or not at present?

in the '70s there was a profits crisis. that motivated the move to the neo-liberal phase. that shift has worked for the capitalists. they continually work to speed up work, move to areas with cheaper labor, flexibilize their labor demand, work to cut their taxes, attack public workers & their unions, shrink the social wage & the welfare state, tighten state limits on legal worker action. this neo-liberal strategy works for them...so far.

there is a crisis as far as the working class is concerned. the long decline in unionism and worker collective self-activity since the early '70s is an important factor in this.

if we want to explain the very high unemployment at present, and the changed circumstances of the working class post-2007-crash, how do we explain it? there is financialization and tendency to a bubble economy, and then the bubble bursts in a panic. bubbles artificially pump up demand for a time...as happened in the late '20s.

but you don't think demand has anything to do with why there is stagnation at a high level of unemployment now. that seems implausible to me.

[Paul Cockshott]

I noticed that you said investment, but was unsure wht you intended by this term which is used inconsistently by different schools of economists.What did you meanwhen you used it?

[S.Artesian]

I noticed that you said investment, but was unsure wht you intended by this term which is used inconsistently by different schools of economists.What did you meanwhen you used it?

Money pursuing more money. Money seeking expansion: M to M' by hook, crook, line, sinker.

EDIT: This:
The apparent movement into financial instruments is a mask for real movements of value and thus of labour is absolutely spot on.

I would add that all the activity in the financial markets does what activity in other markets do-- attempts to garner some portion of the total socially available profit generated by "productive labor," i.e. labor that yields a surplus value in the production process.

[S.Artesian]

what does "this condition of capital" refer to? it's not clear what you're talking about here.

"Crisis" is a term Marx uses meaning short-lived eruptions that attempt to restore the profitability of capitalism. This is a bit more than that, as this contains a structural conflict between means and relations of production of such depth, and intensity, being the product of overaccumulation that has gone one in the means of production since the end of the 1991 recession.

This is a "crisis" like the Great Depression was a crisis-- where the mechanism of the crisis itself cannot restore profitability and so destruction of the productive apparatus, on a mass scale, increasingly presents itself as the only way out... for the bourgeoisie.


i didn't advocate under-consumption as a theory of crisis. that's because there are various components of demand, and demand for consumer goods is only one. there is also demand for producer goods, and that could counter-act lesser demand for consumer goods by the working class.


Well, the sections I quoted from your own posts give the impression that you are offering variations on theories of underconsumption.


you seem to not be aware of the class struggle theory of crisis.

I'm aware of Marx's analysis of the components of crisis; of the barrier to accumulation; of the conflict between the labor process and the valorization process. I don't know what you mean by class struggle theory of crisis. In the current situation, it appears to me that you are arguing that it is exactly the lack of class struggle by the proletariat that determines this crisis. If that is so, then I disagree with your analysis. The bourgeoisie have been knocking the snot out of the working class for 35-40 years. Why does this "mega-crisis" appear now?


i suppose it's a question of what needs explaining. at present corporate profits are at historic highs, even tho there is about 16 percent unemployment (U6 rate). they won't hire because they don't need to to make a profit. so is there a crisis or not at present?

You got that ass-backwards comrade. They are making a profit, therefore they restrain their hiring in order to control costs. This again leads to overproduction, over-accumulation of the means of production as capital. The issue isn't consumption. Look what has happened in the semiconductor industry in the last 1.5 years. The price of 1 Gig of DRAM has dropped by 2/3 while actually unit shipments increased. Profitability is declining. Why? Because in 2009-10, the major producers used the opportunity to shutdown more costly lines, increased production based on 300mm wafers, spent beaucoup bucks on capital improvements and voila! reduced the increment of surplus value captured in each unit, and the ratio of s to c+v.


in the '70s there was a profits crisis. that motivated the move to the neo-liberal phase. that shift has worked for the capitalists. they continually work to speed up work, move to areas with cheaper labor, flexibilize their labor demand, work to cut their taxes, attack public workers & their unions, shrink the social wage & the welfare state, tighten state limits on legal worker action. this neo-liberal strategy works for them...so far.


Yes, indeed and all crises of capital are profits crises. And there was a "recovery" from the 1974 recession, based on recycling petro-profits; and when underlying declines in manufacturing profitability, overproduction, struck again, we had OPEC 2, and the Volcker recessions, and the asset-liquidation maneuvering of the bourgeoisie etc etc. In short, we have had the consistent attack on labor. That's going on right now. You cannot ignore the price increase in oil in 2003, after its decline in 2002, the role of the war in Iraq, the devaluation of the dollar, the keeping of wages below 2000 levels, and rigid limitations on capital spending between 2001-2005 in the recovery that created the conditions for the current contraction. Nor the role of the speculative blow out in oil prices, diminishing profits in most S&P companies in 2008.

None of this is caused by workers compensation rates.



there is a crisis as far as the working class is concerned. the long decline in unionism and worker collective self-activity since the early '70s is an important factor in this.


And there's one as far as the bourgeoisie are concerned. Just ask them.



if we want to explain the very high unemployment at present, and the changed circumstances of the working class post-2007-crash, how do we explain it? there is financialization and tendency to a bubble economy, and then the bubble bursts in a panic. bubbles artificially pump up demand for a time...as happened in the late '20s.


We explain it in terms of capital's need to reduce the cost of living labor engaged in production in order to aggrandize value. We explain it by pointing out that in 1970 when GM went on strike, there were 400,000 workers engaged in production. In 2007, there were 70,000, and yet GM's production capacity per worker is far greater than it was in 1970. We explain it by the changing value composition of capital and its impact on the rate of return on investment, or rate of return on property, plant, and equipment.


but you don't think demand has anything to do with why there is stagnation at a high level of unemployment now. that seems implausible to me.

Again, I do not think "declining effective demand" explains, determines the high level of unemployment. I think "demand" is a product of the valorization process.

[Paul Cockshott]

Doesn't money-capital still exist? It isn't exactly the "commodity money" of employees buying stuff only from their employer, but still. :confused:



So you're saying that fiat money cannot possibly be money-capital? :confused:

This is a hard question because as money moved from gold coin to bank accounts backed by gold and then to bank accounts based on government tax credits, to credit cards settlably by bank accounts based on tax credits, some thing apparently remained the same, even as other underlying social relations changed.

A credit card can be used to buy a meal just as a silver coin once could, and a $million credit in the bank backed by federal reserve dollars is as effective in commanding labour as $40000 siver coin once was.

But there are real differences. The silver dollars only existed in +ve quantities, the credit money exist in both negative and positive quantities. The silver dollars required labour to make and an expansion of money capital in silver required more mines to be sunk, positive and negative credit balances can be created ex nihilo without labour.
For an individual agent credit money gives the same social power as commodity money, but from the standpoint of the aggregate economy, money capital in the old sense no longer exists.

If one does not keep sight of this one can imagine that surplus value can be materialises as financial instruments or as credit money.

[syndicat]

You got that ass-backwards comrade. They are making a profit, therefore they restrain their hiring in order to control costs. This again leads to overproduction, over-accumulation of the means of production as capital.

i don't see how this follows. yes they restrict hiring to control costs. but they wouldn't restrict hiring if they couldn't get out sufficient production to meet demand with the restricted workforce they now have, after huge layoffs.

high profits may simply be a cash hoard, need not go into investment in means of production. can go into unproductive investment such as M&As.

[Die Neue Zeit]

For an individual agent credit money gives the same social power as commodity money, but from the standpoint of the aggregate economy, money capital in the old sense no longer exists.

If one does not keep sight of this one can imagine that surplus value can be materialises as financial instruments or as credit money.

So is this another one of those contradictions of evolving capitalist production, the tendency to socialize things but with one obvious road block?

In this case, like an aggregate economy based on labour credits, today's aggregate economy doesn't have money-capital? We just scrap the money-capital at the level of the individual agent and things like the black market get so easily reduced? :confused:

[This brings up more questions in my head, btw, re. my old discussion on transitional currencies like an electronic Workers Ruble (http://www.revleft.com/vb/transitional-restrictions-money-t155787/index.html), with a labour-to-money ratio and only legitimate intermediate transaction-based circulation, plus cheque- or money order-like expiry and no interest generation.]

[S.Artesian]

i don't see how this follows. yes they restrict hiring to control costs. but they wouldn't restrict hiring if they couldn't get out sufficient production to meet demand with the restricted workforce they now have, after huge layoffs.

high profits may simply be a cash hoard, need not go into investment in means of production. can go into unproductive investment such as M&As.


Talk about convoluted arguments, comrade, yours tends to be a classic in that sector.

Are you arguing that the cause of the crisis beginning in Dec 2007 was declining consumption, driven by reduced wages for workers?

If so, you need to account for the fact that in the US it was, finally, in 2006 I think that wages exceed their previous highs set in 2000, and increased again in 2007.

Are you arguing that 2007 represents a "Minsky moment" when excess speculation, etc. etc. "undermined" the manufacturing and industrial sectors?

Or is it your argument that the overall decline in "home base" manufacturing in the US caused the movement of money into financial instruments?

If the second -- a la Minsky-- sorry, saying banks have a tendency to overdo it is really saying nothing. Why is the question? Why is it overdoing it in hindsight and always and only in hindsight? Why is it hindsight in 2007 but not 2006?

Why was Enron, Worldcom etc. overdoing it in 2001 but not in 2000?

If you select the 3rd alternative, the decline in home base manufacturing-- then what makes that decline go "critical" in 2007, but not in 2003, 2004, 2005, 2006? Exactly how did the export of jobs, the export of capital, the offshoring lead to a critical reduction in the "demand" for US production, when for one thing, the top 20% of incomes in the US account for almost half the consumption?

Yes, the bourgeoisie can "satisfy demand," which means pretty much nothing, with restricted hiring. That's due to the amplification of the productivity of labor.

It is that amplification that leads to a boost in profits, and also leads to a decline, not because of restricted "demand" but because the very same augmentation of the labor process obstructs the valorization process, and that gets manifested in a shrinking rate of return on capital assets..

[Paul Cockshott]

If the second -- a la Minsky-- sorry, saying banks have a tendency to overdo it is really saying nothing. Why is the question? Why is it overdoing it in hindsight and always and only in hindsight? Why is it hindsight in 2007 but not 2006?

Because these are highly chaotic processes that are inherently unpredictable. What one can say is that as the ratio of reserves to liabilities falls the probability of a random walk in outgoings exceeding the reserves gets higher, and the rate at which it gets higher is non linear even if one makes the conservative assumption that the distribution of daily net withdrawals is normal.

The first bank to fail - Northern Rock, had a model where much of its funds came from the wholesale money market. This means that the number of effective depositors it had was far fewer than the millions of nominal depositors - it only took a small fluctuation in withdrawals by other depositors on the wholesale market to exceed its reserves. Thus even had its reserve ratio been safe for an old model bank with millions of retail depositors, the uncertainty in the daily withdrawals gets much larger with fewer depositors. This is the inverse of the law of large number.

In addition econophysicists had for some time prior to the crash been pointing out that many financial phenomena are not normally distributed, but have 'fat tailed' distributions meaning that the calculations on which risks were being made were making a serious underestimate of risk. Just when this risk would strike is a matter of chance, all that one could say in advance is that risk levels were rising

[syndicat]

Are you arguing that the cause of the crisis beginning in Dec 2007 was declining consumption, driven by reduced wages for workers?no. that's not what i was arguing. that would be an underconsumptionist view.

the bubble was an unsustainable level of lending in housing & other real estate. a panic is a situation where the house of cards comes down.

once the panic occurs, there is a contraction of lending. small businesses for example have had a much harder time getting loans. it's harder to obtain a mortgage because banks tightened up standards.

the lending activities that were artificially pumping up demand were thus pulled back. this pulls back consumption to a lower base line that is determined by wages that have declined by over 20 percent for much of the working class over the past 30 years.

[S.Artesian]

Like I said, saying nothing. Northern Rock's model was/is no different than the model followed by most banks for at least 10 years-- investing and issuing paper in the short-term commercial paper markets [more than 3/4 of the volume of which is accounted for by financial corporations].

The banks, commercial, investment, private, merchant, "shadow," savings, etc. all use these markets to run day to day operations, in essence borrowing short to lend long. They also rely extensively on repo markets, but the terms of delivery and settlement are so short that it simply is a way of keeping everyone in the game until the music stops.

But is that what we want to attribute the predicament of the banks to? "Borrowing short, lending long"? More saying nothing. In fact, all this is just the variation on the bourgeoisie's great mantra-- supply and demand-- that meaningless phrase that when repeated constantly by the uttere, brings a sense of comfort.

Wonderful. Leverage, even at ratios of 30:1 did not cause this collapse, this contraction.

The leverage is indicative of something else. It has to be, Paul-- by your own argument if finance really isn't capital, that it really can't lead to the contraction of capitalist reproduction. It can only reflect that.

Capitalist reproduction however, and the obstacles to that, can certainly lead to "de-leveraging" bankruptcy.

Random walks and chaos have absolutely nothing to do with this. This is not a "random event;" it didn't start out as a random event; it's not a "stampede"-- panic contagion with a mob mentality. It's none of that.

As for "econophysicists" -- there were just as many if not more employed by the investment banks for their "expertise" in quantifying strategies that measured, weighed, and mitigated risk. That's what the big dive into structured investment vehicles was all about. You lay all the econophysicists in the world end to end and you know where it would get to? No where. No place.

[S.Artesian]

no. that's not what i was arguing. that would be an underconsumptionist view.

the bubble was an unsustainable level of lending in housing & other real estate. a panic is a situation where the house of cards comes down.

once the panic occurs, there is a contraction of lending. small businesses for example have had a much harder time getting loans. it's harder to obtain a mortgage because banks tightened up standards.

the lending activities that were artificially pumping up demand were thus pulled back. this pulls back consumption to a lower base line that is determined by wages that have declined by over 20 percent for much of the working class over the past 30 years.

Why was it unsustainable? What made it unsustainable? Why was it sustainable in 2005, 2006 but not 2007?

At bottom your argument too winds up with the supply and demand mantra--"artificially pumping up demand" "pulling back consumption" determined by a wage decline of over 20 percent over 30 years-- wait so is it the fact that a threshold was crossed? Is it a 20 percent threshold-- but 15% is sustainable?

Panic? Panic is an irrational response, by definition. Is that what you are arguing? Irrational behavior triggered this contraction in lending? How about not? How about plummeting earnings? How about declining profitability? How about non-performing loans? How about declining asset values? How about the fact that 2 million homes are in foreclosure or delinquency?

And how can we even talk about this apart from the spike in the price of oil that directed profits into a handful of companies?

Not to mention the fact that the crisis begins at the moment when wages are increasing, reaching new highs..and employment is actually picking up.

Not to mention that the working class, at least as measured by income levels, provides not all that much of consumption.

It seems to me you are arguing, whether you accept it or not, under-consumption.

The references to panic, unsustainable, all wind up referring to demand. That's consumption theory.

[Paul Cockshott]

10 years is a short time in banking history. No British retail bank had failed since 19th cent. That a whole bunch failed in this last crisis indicates that the new model had higer odds of failing.

[syndicat]

How about declining profitability? How about non-performing loans? How about declining asset values? How about the fact that 2 million homes are in foreclosure or delinquency? what decline in earnings? why did house values decline? why did the loans start to become under-performing?

you want to believe that some universal always acting "tendency" to declining profits causes a crash. obviously if the tendency is always acting, it's not the relevant factor in the explanation.

under-consumption doesn't become relevant til the crash happens. then we can ask, why are employers not hiring? what are the consequences of mass unemployment? but under-consumption doesn't explain the crash or the bubble...as i've said before.

[Paul Cockshott]

10 years is a short time in banking history. No British retail bank had failed since 19th cent. That a whole bunch failed in this last crisis indicates that the new model had higer odds of failing.

[S.Artesian]

what decline in earnings? why did house values decline? why did the loans start to become under-performing?

you want to believe that some universal always acting "tendency" to declining profits causes a crash. obviously if the tendency is always acting, it's not the relevant factor in the explanation.

under-consumption doesn't become relevant til the crash happens. then we can ask, why are employers not hiring? what are the consequences of mass unemployment? but under-consumption doesn't explain the crash or the bubble...as i've said before.


It's not nice to answer a questions with a question-- answer mine first. So if underconsumption is relevant after the crisis begins, what causes the crisis. That is the original question.

So far all you've offered is that "lending was unsustainable, and the panic began." If finance is not capital, as PC maintains, then all the unsustainability in the world cannot create a contraction of capitalist reproduction. Of course you may not agree with PC, so tell me how this:


the bubble was an unsustainable level of lending in housing & other real estate. a panic is a situation where the house of cards comes down.

once the panic occurs, there is a contraction of lending. small businesses for example have had a much harder time getting loans. it's harder to obtain a mortgage because banks tightened up standards.

can be a cause, when it doesn't even amount to an accurate description of what did occur in the beginning of the contraction. First, there was no panic until August, Sept 2008 and Lehman Bros was buried in a mass grave, with room for others.

Secondly, lending and issuance of mortgage backed securities actually expanded through 2007 as the "house of cards" began to come down, i.e. delinquency and default rates on housing backed loans continued the rise first reported in 2006.

What you are arguing is that the "overexpansion of credit," necessitated by a decline in compensation is the cause of the crisis. That's underconsumption dressed up in banker blue.

No, I don't believe there is some universal godlike tendency determining this.

I think there are material, measurable changes in the ability of capital to aggrandize surplus value, and to realize that value as profit, changes/obstacles to valorization of capitalist production, manifesting themselves most acutely in the prices of oil, and the portion of profits redirected toward the oil companies marks, indexes, indicates this problem; and that that problem in valorization flushed money into the housing sector... beginning with the recovery from the 2003 recession.

The tendency of the profitability decline is in fact always present, and is in fact highly relevant as it is precisely that tendency that drives the attempts, tactics, and efforts of capitalist to offset the tendency, to counter the tendency-- between those two, the tendency and counter-actions, we have the complete cycle of capitalism, and the complete circuits of capital.

[syndicat]

What you are arguing is that the "overexpansion of credit," necessitated by a decline in compensation is the cause of the crisis. That's underconsumption dressed up in banker blue.

what happened was the flow of capital into financialization, currency speculation, new financial instruments. why would capital flow this way rather than into the real economy? lack of sufficient opportunities for profit given the available capital in the real economy?

[S.Artesian]

what happened was the flow of capital into financialization, currency speculation, new financial instruments. why would capital flow this way rather than into the real economy? lack of sufficient opportunities for profit given the available capital in the real economy?

Yes, that happened. And you know what that is one of those ongoing structural tendencies, ever-present in capitalism. So using your own argument, if it's ever present then.... how did you put it?


obviously if the tendency is always acting, it's not the relevant factor in the explanation.

[syndicat]

the supposed tendency of the profit rate to fall has never been established to my satisfaction, and in marxist orthordoxy is deduced from the labor theory of value...which i don't accept.

the crisis is an over-accumulation crisis, as i see it. over-accumulation can refer to several things...too much production capacity relative to demand, too many commodities being produced for the supporting level of demand, or profits and liquid assets that can't find profitable avenues of investment.

why an over-accumulation crisis now? if demand is pumped up by debt creation and a bubble in asset values, this encourages further investment in productive capacity. when the bubble bursts, and millions are unemployed and demand diminishes, the capitalists then face an over-accumulation crisis.

to quote David Harvey:

We find that 20 percent of GDP growth in the U.S. in 2002 was attributable to consumers refinancing their mortgage debt on the inflated values of their housing and using the extra money they gained for immediate consumption (in effect mopping up overaccumulating capital...)

[S.Artesian]

The supposed accuracy, viability of David Harvey's take on Marx, and Harvey's understanding of capitalism, has never been demonstrated to my satisfaction. The inadequacy of Harvey's critique of modern capitalism has, on the other hand, by almost everything he writes-- so 3 years or so ago, there was a looming oil shortage, and now we have overaccumulation of essentially fictitious capital as a cause when, like the inflated price of anything, that's an effect.

[Rowan Duffy]

Possibly relevant to the discussion: http://www.cpgb.org.uk/article.php?article_id=1004525

I'm still note quite sure about the meaning of profits being reported currently. There was a huge shift of private debt to public debt which could look like profits when it's really just money being shift around.

[S.Artesian]

Possibly relevant to the discussion: http://www.cpgb.org.uk/article.php?article_id=1004525

I'm still note quite sure about the meaning of profits being reported currently. There was a huge shift of private debt to public debt which could look like profits when it's really just money being shift around.


I read Ticktin's article awhile ago. His central claim is that there's surplus "capital" floating around, slushing around, as overaccumulation, and that the bourgeoisie have demonstrated a "reluctance" to invest, something he claims has been going on for years.

So.....yes and no. First, I'll confine my remarks to the situation in the US. Yes, investment rates post 1970 in production have been consistently below those of the 1945-1970 period. Rates in the 1970s were below those in the 60s, rates in the 1980s were below that of the 1970s, but..........but rates after 1992 are above the rates of the 1980s, and actually were the highest since the 1960s... ending with the speculative bust of 2000-2001.

Rates of productive investment were severely pinched after 2001, with the replacement rate for fixed asset investment industry falling below 100%, meaning capital was not replacing the capital it consumed in the production and valorization processes.

Guess what? That works for only so long, and in late 2005, and 2006 capital expenditures ticked up again, and again in 2007..... just in time for the rate of return on investment in PPE to turn down again.

Sure there's "surplus capital"-- and Marx did analyze it. That's what overproduction. All overproduction, he writes in Vol 3, is overproduction of the means of production as capital. The barrier to capitalist accumulation is capital itself-- all that good, poetic stuff people like to ponder... and dismiss.

Don't know what you mean about private debt being moved into public debt: if you mean banks and financial institutions-- yes, the bourgeoisie have created their bad banks, and their called the national treasuries of the advanced countries.

But in industrial production in the US-- no such thing has occurred. Corporate cash levels are at record highs, and debt, despite the 2010 "year of the bond issuance" is at relatively low levels.

[Rowan Duffy]

Sure there's "surplus capital"-- and Marx did analyze it. That's what overproduction. All overproduction, he writes in Vol 3, is overproduction of the means of production as capital. The barrier to capitalist accumulation is capital itself-- all that good, poetic stuff people like to ponder... and dismiss.

How does this get you to a causal theory of crisis. The overproduction of productive fixed capital manifests what exactly which leads to crisis?



Don't know what you mean about private debt being moved into public debt: if you mean banks and financial institutions-- yes, the bourgeoisie have created their bad banks, and their called the national treasuries of the advanced countries.

http://a7.sphotos.ak.fbcdn.net/hphotos-ak-snc6/188917_10150124932874069_746074068_6655277_2375895 _n.jpg

[S.Artesian]

The overproduction of productive fixed capital manifests what exactly which leads to crisis? The line above the line you quoted:


Guess what? That works for only so long, and in late 2005, and 2006 capital expenditures ticked up again, and again in 2007..... just in time for the rate of return on investment in PPE to turn down again.
As for the graph, what counts are the components, no? So saying that debt is being moved to the public sector from the private doesn't tell us from which areas of the private sector--- my bet it's from banks, the GSEs, financial institutions, AIG, that sort of thing.

OTOH FNMA, FMAC are a wonderful example of waving a different magic wand. By placing them in "conservatorship" the US Treasury avoids putting its debt on its balanced sheet.

Free Andy Fastow! A man ahead of this time.

Like I said before look at the cash levels, cash flow levels, debt levels of the non-financial companies.

[syndicat]

So.....yes and no. First, I'll confine my remarks to the situation in the US. Yes, investment rates post 1970 in production have been consistently below those of the 1945-1970 period. comparisons to the 1945-70 period proves nothing. that period was abnormal relative to the history of capitalism. the average rate of growth since the mid-19th century has been 3 percent per year but was 4.5 percent during the post-WW2 boom.

profit rates recovered in the late '80s and '90s...the neo-liberal strategy has worked for the capitalist class...so far.


overaccumulation of essentially fictitious capital as a cause when, like the inflated price of anything, that's an effect

so you claim.

[Die Neue Zeit]

Possibly relevant to the discussion: http://www.cpgb.org.uk/article.php?article_id=1004525

I'm still note quite sure about the meaning of profits being reported currently. There was a huge shift of private debt to public debt which could look like profits when it's really just money being shift around.

I've posted that article here in the Theory forum for your benefit and S.Artesian's:

http://www.revleft.com/vb/theory-capitalist-disintegration-t160965/index.html

[S.Artesian]

comparisons to the 1945-70 period proves nothing. that period was abnormal relative to the history of capitalism. the average rate of growth since the mid-19th century has been 3 percent per year but was 4.5 percent during the post-WW2 boom.

profit rates recovered in the late '80s and '90s...the neo-liberal strategy has worked for the capitalist class...so far.



so you claim.


So I've written, and demonstrated in all those articles you can't be bothered to read.


I've posted that article here in the Theory forum for your benefit and S.Artesian's:

http://www.revleft.com/vb/theory-cap...965/index.html (http://www.revleft.com/vb/theory-capitalist-disintegration-t160965/index.html) __________________

This may come as a surprise to Die Neue Self-Aggrandizer, but some of us have our own connections to Ticktin's works.

[Die Neue Zeit]

This may come as a surprise to Die Neue Self-Aggrandizer, but some of us have our own connections to Ticktin's works.

The only surprise is your recent double-talk, Freudian slip, etc. on Permanent Revolution re. the leading role of the peasantry, but that's for the other thread.

[Rowan Duffy]

my bet it's from banks, the GSEs, financial institutions, AIG, that sort of thing.

Obviously.



Like I said before look at the cash levels, cash flow levels, debt levels of the non-financial companies.

To be honest, I'm not following your argument at all. Maybe you can lay it out in a linear fashion.

If overproduction created the crisis, because there were more expenditures in production of the means of production, what was the result of this that caused crisis? Each independent capitalist will know not to spend too much on expenditures that they can't make profits assuming that other factors don't intervene, so what precipitates crisis.

Okishio's theorem [not an endorsement] would say that this could lead to falling rates of profit. But you appear to believe that there isn't a falling rate of profit.

My understanding was that the crisis in the non financial industries was largely one of being unable to obtain the short term credit required to do basic things like stocking.

Any theory which doesn't take into account the difficulties in assessing risk seems fraught if it's to explain the current crisis. We had loads of various financial instruments floating around as a de-nationalised currency in the shadow banking sector and a huge number of point-to-point insurance type (CDS) contracts which lead to an extreme paucity of information. When we had AIG go, these inter-linked insurance contracts ended up bankrupting everyone because the total exposure was much larger than anyone could see. Why did AIG go? Small fluctuations are sometimes enough to cause big events if you have the wrong structure. See Tacoma Narrows (http://www.youtube.com/watch?v=j-zczJXSxnw)

What were these small fluctuations? I'd guess that difficulty in knowing what were productive investments and what were ponzi schemes is probably part of it.

[Paul Cockshott]

the supposed tendency of the profit rate to fall has never been established to my satisfaction, and in marxist orthordoxy is deduced from the labor theory of value...which i don't accept.
There is a whole slew of empirical studies now confirming the labour theory of value.

as to the applicability of the labour theory of value to predicting the actual rate of profit, one of my students a couple of years back did a nice interactive web page that lets you compare the predicted long term rate of profit according to the labour theory of value with the actual rate for any oecd country. You can see from the graphs that the theory predicts it about 3 years in advance
http://compbio.dcs.gla.ac.uk/cgi-bin/profits/home.cgi

[S.Artesian]

To be honest, I'm not following your argument at all. Maybe you can lay it out in a linear fashion.

Probably not. But I invite you to check the links to the articles I provided to Syndicat. Maybe the argument's not too convoluted for you.



If overproduction created the crisis, because there were more expenditures in production of the means of production, what was the result of this that caused crisis? Each independent capitalist will know not to spend too much on expenditures that they can't make profits assuming that other factors don't intervene, so what precipitates crisis.


"All overproduction is the overproduction of the means of production as capital." See Marx Capital Vol 3. Part 3, Chapters 13, 14, 15. Citing holy writ? No, just providing a reference to how this works, in perhaps less convoluted language.

See also Grossmann, The Law of Accumulation... IMO the best explanation of the breakdown of reproduction, and the failure of capital to valorize its own process of production.

Regarding "each independent capitalist will know not to spend too much on expenditures that they can't make profits.." that assumption is completely unjustified on your part and completely incongruent with your earlier "Minsky" theory how acting rationally becomes irrational. Why would you think that every individual industrial capitalist would have such knowledge and that such knowledge is the determining factor, the determining relation in what the capitalist does or does not do? And at the same time in the Minsky theory, think "finance capitalists" cannot ever perceive similar outcomes, and thus by acting "rationally," create an "overabundance" of such rationality, undermining its own rationality?

You pose the entire issue from the standpoint of the individual capitalist [and I might add, from the perspective of simple reproduction] when the beauty of vols. 2 and 3 of Capital is partly in Marx's demonstration how the individual capitalist is basically a simple functionary of capital's self-mediating, self-reproducing need for extended valorization? That the capitalist, functioning as an individual, functions as one of many "hostile brothers," and that while the individual capitalist thinks he or she is obtaining his or her "own surplus value" when realizing a profit in the markets, in reality he or she is only being awarded a portion, an aliquot part, of the total socially available profit.

The capitalist has, individually and collectively, an idea that his or her production, or rather ownership of production and its products will realize a profit, but he or she has no proof, no reality of that profit, until the circuits are actually completed in the markets, in the universe of exchanges when value might be realized as exchange value.

But the point of capitalist production is the accumulation of value through this realization in exchange. Consequently all capitalists are compelled to push more product into the markets, OR, seek competitive advantage by investing in the MOP to reduce the cost of production per unit, or both [because in fact these are facets of the same process].

Towards the end of the "long deflation" [BTW, does anyone care to answer the question regarding the influence of the long deflation on Marx's crisis theory posed by the OP?], US industries embarked on furious round of concentration, centralization, consolidation, forming huge trusts and syndicates. No news there. Part of the driving force behind this was the attempt by the major producers to limit competition which had been so devastating to "smooth accumulation" during the previous period. One of the later tactics used by these trusts was very akin to what you suggest the individual capitalist would do. The trusts sought to restrain production by actually leaving segments of the market open to competition, and then after the competitors had created these markets and their niches, buying them out.

This was viewed as a more sophisticated alternative to simply entering into a price, product competition with every new producer who brought out a new product. Microsoft kind of practices this "sophisticated" restraint of trade in its relations with software/apps producers, etc.

Well... to make a long story short.... didn't work.. unless of course you consider the recessions of 1907, 1912 and WW1 "working."


Okishio's theorem [not an endorsement] would say that this could lead to falling rates of profit. But you appear to believe that there isn't a falling rate of profit.

Heard of him; never read him. But I must be doing something right. Syndicat things I'm blind adherent to the TFROP, and you think I'm not.


My understanding was that the crisis in the non financial industries was largely one of being unable to obtain the short term credit required to do basic things like stocking.


Where did you read that? When was that ever proposed as a cause for the speculative blow off in oil prices, and the downturn in profitability? I've studied a whole lot of info available from various European and US government groups charged with tracking and explaining the course and the sources of economic distress and I have never heard that offered once by anyone. Major US industries, and in particular manufacturing, had reduced their links to banks, their dependence on syndicated loans during the period leading up to 2008, and were sitting on loads of cash... I mean loads, with the amounts held in other countries not even KNOWN for US industry as a whole.

Since 2008, US industry [excluding financial here as I take industry to EXCLUDE financial operations ] US cash assets have increased even more in 2010 to a record rate equal to 5.5% of TOTAL assets. And remember in 2009 and 2010, how US industry was able to issue record levels of short, medium, and long-term debt instruments at low interest rates.

Last time I heard of a US major corporation going under from lack of access to short-term financing it was in 1970 with the Penn Central, which caused the commercial paper money markets to freeze up. By 2007, the companies relying on the short-term CPMMs were finance companies, insurance companies, banks.

This time around what froze were loans to consumers, homeowners, issuers of municipal and state governments, small retail operations, and small businesses [and small businesses are not the major player in the US economy; they are not the engines of growth, the creators of jobs or any of that other stuff].


Any theory which doesn't take into account the difficulties in assessing risk seems fraught if it's to explain the current crisis. We had loads of various financial instruments floating around as a de-nationalised currency in the shadow banking sector and a huge number of point-to-point insurance type (CDS) contracts which lead to an extreme paucity of information. When we had AIG go, these inter-linked insurance contracts ended up bankrupting everyone because the total exposure was much larger than anyone could see. Why did AIG go? Small fluctuations are sometimes enough to cause big events if you have the wrong structure. See Tacoma Narrows (http://www.youtube.com/watch?v=j-zczJXSxnw)

What were these small fluctuations? I'd guess that difficulty in knowing what were productive investments and what were ponzi schemes is probably part of it.

Now, here's where we reverse roles. I don't follow any of the above 2 paragraphs at all. I have no clue to what that means or how it affects the profitability of capitalist production.

[ZeroNowhere]

That the capitalist, functioning as an individual, functions as one of many "hostile brothers," and that while the individual capitalist thinks he or she is obtaining his or her "own surplus value" when realizing a profit in the markets, in reality he or she is only being awarded a portion, an aliquot part, of the total socially available profit.I believe that RD would be of the view that such a view of capital as a totality realized in the many individual capitals is inconsistent with the law of value. I may be wrong on this, but if so it would perhaps not be sufficient to simply point out the content of volumes two and three in order to make the point.

[Paul Cockshott]

Where did you read that? When was that ever proposed as a cause for the speculative blow off in oil prices, and the downturn in profitability? I've studied a whole lot of info available from various European and US government groups charged with tracking and explaining the course and the sources of economic distress and I have never heard that offered once by anyone. Major US industries, and in particular manufacturing, had reduced their links to banks, their dependence on syndicated loans during the period leading up to 2008, and were sitting on loads of cash... I mean loads, with the amounts held in other countries not even KNOWN for US industry as a whole.

I dont know of the US but here that has been the continual complaint of government and business organisations in the aftermath of the credit squeeze.

[Paul Cockshott]

I believe that RD would be of the view that such a view of capital as a totality realized in the many individual capitals is inconsistent with the law of value. I may be wrong on this, but if so it would perhaps not be sufficient to simply point out the content of volumes two and three in order to make the point.
Who is RD and why did he believe that?

[syndicat]

But the point of capitalist production is the accumulation of value through this realization in exchange. Consequently all capitalists are compelled to push more product into the markets, OR, seek competitive advantage by investing in the MOP to reduce the cost of production per unit, or both

or making people work harder as in the multi-tasking under lean production, which lowers the wage expense per unit of output, or forcing people to work without pay (off the clock)...which is equivalent. lower wages make the capital-investing approach less attractive.

[S.Artesian]

or making people work harder as in the multi-tasking under lean production, which lowers the wage expense per unit of output, or forcing people to work without pay (off the clock)...which is equivalent. lower wages make the capital-investing approach less attractive.

Correct, increasing the intensity of labor, which of course is the same thing as more product is "extruded" per unit of labor; meaning also that more c, both fixed and circulating components is consumed.



I dont know of the US but here that has been the continual complaint of government and business organisations in the aftermath of the credit squeeze.


Determinant condition emphasized. Aftermath. Certainly not the cause. Don't you remember? The cause was "low interest rates" "easy money" etc etc. This never was, is not now, and will not be in the future a liquidity crisis. It has always been a solvency crisis.... for the banks.


I believe that RD would be of the view that such a view of capital as a totality realized in the many individual capitals is inconsistent with the law of value. I may be wrong on this, but if so it would perhaps not be sufficient to simply point out the content of volumes two and three in order to make the point.

RD is comrade Duffy. I appreciate comrade ZN's remark, and indeed that may be a problem, but certainly far less of a problem than hypothesizing the omniscient independent individual capitalist being able to restrain, mitigate, overproduction, especially when the comrade's "Minsky" thesis speaks of the impossibility of such successful individual actions dictating the social outcome.

I used the example of the reaction of businesses towards the end of the long deflation and into the 20th century to illustrate that point. We can point another manifestation of the impossibility of such "rationality" on the part of capitalists in the recent history of US capitalism-- the expansion of the 1990s-- were the improvements in applying digital technologies to control and communication aspects of capitalist production produced a real upsurge in US capital spending, and boost to profits only to lead to overproduction and a decline in profits which led to..........more overproduction. Cases in point: fiber optic connections. In 2001, it was estimated that 97% of the fiber optic cable networks strung [actually buried and usually alongside railroad right of ways] were unused-- "dark."

[syndicat]

now we have overaccumulation of essentially fictitious capital as a cause whenwhen the banks lend based on inflated house values, the borrower then goes out and commands commodities in the market. real causality doesn't happen from something fictitious.

and why exactly is it a solvency crisis for the banks? I agree that it is, but I'm not sure I see how this fits in your theory.

okishio is a Japanese Marxist economist who propounded a mathematical argument to refute the falling rate of profit theory. that is, that investment in means of production would necessarily generate a falling rate of profit.

[S.Artesian]

when the banks lend based on inflated house values, the borrower then goes out and commands commodities in the market. real causality doesn't happen from something fictitious.

Yes and no. What I'm trying to say is that the problem isn't that the banks are creating "fictitious capital" as opposed to "real, productive capital." Not IMO. It's not that I think there is no such thing as fictitious capital. Rather all capital becomes fictitious when it cannot expand, reproduce, accumulate itself quickly and massively enough. When valorization is obstructed, capital really begins to decompose.

The issue is what drives capital into devaluation. Well, prejudiced as I am, because I prejudicially think that it is the relationship between the means of production organized and capital, and labor organized as wage labor that creates accumulation, creates value, creates valorization, I think it is that same social relation that leads to devaluation. And that is clearly the overaccumulation of the means of production as capital, unable to exploit labor intensely or massively enough to offset the tendency of the rate of profit to decline.



and why exactly is it a solvency crisis for the banks? I agree that it is, but I'm not sure I see how this fits in your theory.


I don't know that I have a theory, so to speak, for the banks to fit into. I think it's a solvency crisis because the banks leveraged themselves on the basis of asset values rather than actual earnings-- actual valorization. So with a 30:1 leverage ratio, a 10% decline in asset values wiped out the original investment and all the earnings booked using a) mark to market valuations b)generated in the fees, etc. associated with the trades as all these trades were collateralized-- that is to say asset-backed and thus "real money" had to be put up to cover the gap between asset face value and asset market value.


okishio is a Japanese Marxist economist who propounded a mathematical argument to refute the falling rate of profit theory. that is, that investment in means of production would necessarily generate a falling rate of profit.

Yep. Know who he is; have never read his work.

[Paul Cockshott]

Determinant condition emphasized. Aftermath. Certainly not the cause. Don't you remember? The cause was "low interest rates" "easy money" etc etc. This never was, is not now, and will not be in the future a liquidity crisis. It has always been a solvency crisis.... for the banks.

Let me understand you, are you saying that it was not the reserve to deposit ratio of the banks that was too low, but that the capital to bad debt ratio was too low?

I have some sympathy with that in the current situation, though a fall in the reserve to deposit ratio has been a classic phenomenon of cyclical banking crises.

[Paul Cockshott]

I don't know that I have a theory, so to speak, for the banks to fit into. I think it's a solvency crisis because the banks leveraged themselves on the basis of asset values rather than actual earnings-- actual valorization. So with a 30:1 leverage ratio, a 10% decline in asset values wiped out the original investment and all the earnings booked using a) mark to market valuations b)generated in the fees, etc. associated with the trades as all these trades were collateralized-- that is to say asset-backed and thus "real money" had to be put up to cover the gap between asset face value and asset market value.

A key issue here is the consumption by the banks and their traders of an apparent surplus made on the appreciation of assets during the boom, this was a major cause of the insolvency - the point is thaat there can only be an insolvency if some set of agents has been consuming real embodied labour - and thus value.
The mechanism for thism is something that I tried to explain in an article for the international encyclopedia of social science ( written well before the crash ) here www.dcs.gla.ac.uk/publications/PAPERS/8668/rentiers.pdf
( it is very short, only a page of text to meet encyclopedia requirements )

Just as the crisis was breaking there was a conference on the 25th aniversary of Farjoun and Machover's work on probabalistic marxist economics, at that conference Allin and I put out this paper expaining how a dispersion of rates of profit ( one of F&M key points) innevitably means periodic financial crises
staffnet.kingston.ac.uk/~ku32530/PPE/cockshott.pdf
This is a reworking of stuff we did in the 70s in Communist Formation based on the work of Steindl which Monthly review had just republished http://monthlyreview.org/press/books/pb3185/
The work was originally done in the 50s.
The anallysis we developed in the 70s had at that time to rely on purely analytical techniques and the calculus became excessively complicated to understand but anyone willing to delve into the maths can find it here (www.open.ac.uk/socialsciences/hetecon/2001/abstracts/cockshott_p.PDF). By the 21st century it became possible to test the model with agent based computer simulation which is what we did just before the crash. It showed that as the economy develops you get a polarisation of the population of capitals into different sub populations based on their gearing ratios and profitability. Drawn on a scatter plot of gearing ratio against rate of change of gearing ratio, they look like a tadpole. The population with very negative gearing ratios ( more cash than real capital ) grows uncontrolably and by conservation laws eventually forces a large fraction of other capitals into insolvency.

What Artesian is saying about leverage is much the same as the points that Steindl made about the role of gearing ratios, which is what we attempted to model mathematically.

[Paul Cockshott]

when the banks lend based on inflated house values, the borrower then goes out and commands commodities in the market. real causality doesn't happen from something fictitious.

and why exactly is it a solvency crisis for the banks? I agree that it is, but I'm not sure I see how this fits in your theory.

okishio is a Japanese Marxist economist who propounded a mathematical argument to refute the falling rate of profit theory. that is, that investment in means of production would necessarily generate a falling rate of profit.
Okishio makes two key errors.


He assumes a uniform real profit rate which never actually exists
He assumes that this profit rate, rather than the financially determined interest rate is the marginal cost of capital to entrepreneurs.

[Rowan Duffy]

Regarding "each independent capitalist will know not to spend too much on expenditures that they can't make profits.." that assumption is completely unjustified on your part and completely incongruent with your earlier "Minsky" theory how acting rationally becomes irrational. Why would you think that every individual industrial capitalist would have such knowledge and that such knowledge is the determining factor, the determining relation in what the capitalist does or does not do? And at the same time in the Minsky theory, think "finance capitalists" cannot ever perceive similar outcomes, and thus by acting "rationally," create an "overabundance" of such rationality, undermining its own rationality?

There has to be some systemic change for the problem to manifest. Rational individual action in this case leads to rational allocation for the individual. You need to demonstrate some sort of global effect that this has in order for it to lead to a globally irrational situation.

In the Minsky theory there are clear global effects of the local actions which undermine the rationality. If you deny the falling rate of profit as the global effect which undermines the local rationality, they you have to have some other global parameter which does so.


You pose the entire issue from the standpoint of the individual capitalist

Here, I think you repeat the confusion that a large number of old-style Marxists have about the compositions of systems. The Mises crowd are proud of their ability to create the macro world as simply a scaled up version of the micro. In fact this happens repeatedly in neo-classical economics as we see with the aggregate demand curve and various models of banking or clearing houses existing as a unitary object scaled up from the individual micro-level.

I've heard Marxist, quite rightly, describe this as insane. It is insane. However, that doesn't mean that we can't do it in a sane manner where we recognise emergent behaviours of the global system. This is the strategy which has been taken up by scientific fields which must deal with ensembles of systems.

The fact of the matter is that movement to a macro system from a micro ensemble leads to global behaviour which does not mimic the micro ensemble.

If you say I'm dealing only with individual capitalists, you're wrong. I'm looking at the sum total behaviour of individual actions and their outcomes. You're trying to move directly to the macro without any connection with the micro.

Even this might be ok, we don't need a micro foundation for everything, however you don't even seem to have sets of macro variables which would lead to the type of behaviour.

see: http://robotics.cs.tamu.edu/dshell/cs689/papers/anderson72more_is_different.pdf

I'll address the other questions later.

[S.Artesian]

Let me understand you, are you saying that it was not the reserve to deposit ratio of the banks that was too low, but that the capital to bad debt ratio was too low?

I have some sympathy with that in the current situation, though a fall in the reserve to deposit ratio has been a classic phenomenon of cyclical banking crises.

Thanks for the sympathy. Of course, that's what has occurred here-- reserve to deposit ratio only became an issue after "mark to market" flipped itself over and bit the hand that was feeding it, which of course was its own.

Bear Stearns, Wachovia, WaMu, Merill Lynch all had leverage ratios well over 20 or 25 to 1. All these contracts, special investment vehicles, off balance sheet entities contained collateral obligations if mark-to-market valuations dropped by 3, 4, 5, 10 percent, etc. percent [hence the name collateralized debt obligations, or asset backed securities].

The US took certain critical steps to maintain consumer "confidence" and prevent runs,-- lifting the FDIC guarantee to $250,000 per regular account [a level previously reserved only for retirement accounts]; the FDIC-loan guarantee program, allowing banks to issue debt that was guaranteed by the FDIC.

And of course, not all that much of the non-performing debt has been written off yet.



A key issue here is the consumption by the banks and their traders of an apparent surplus made on the appreciation of assets during the boom, this was a major cause of the insolvency - the point is thaat there can only be an insolvency if some set of agents has been consuming real embodied labour - and thus value.
The mechanism for thism is something that I tried to explain in an article for the international encyclopedia of social science ( written well before the crash ) here www.dcs.gla.ac.uk/publications/PAPERS/8668/ (http://www.dcs.gla.ac.uk/publications/PAPERS/8668/)rentiers.pdf
( it is very short, only a page of text to meet encyclopedia requirements )

Just as the crisis was breaking there was a conference on the 25th aniversary of Farjoun and Machover's work on probabalistic marxist economics, at that conference Allin and I put out this paper expaining how a dispersion of rates of profit ( one of F&M key points) innevitably means periodic financial crises
staffnet.kingston.ac.uk/~ku32530/PPE/cockshott.pdf
This is a reworking of stuff we did in the 70s in Communist Formation based on the work of Steindl which Monthly review had just republished http://monthlyreview.org/press/books/pb3185/
The work was originally done in the 50s.
The anallysis we developed in the 70s had at that time to rely on purely analytical techniques and the calculus became excessively complicated to understand but anyone willing to delve into the maths can find it here (www.open.ac.uk/socialsciences/hetecon/2001/abstracts/ (http://www.open.ac.uk/socialsciences/hetecon/2001/abstracts/)cockshott_p.PDF). By the 21st century it became possible to test the model with agent based computer simulation which is what we did just before the crash. It showed that as the economy develops you get a polarisation of the population of capitals into different sub populations based on their gearing ratios and profitability. Drawn on a scatter plot of gearing ratio against rate of change of gearing ratio, they look like a tadpole. The population with very negative gearing ratios ( more cash than real capital ) grows uncontrolably and by conservation laws eventually forces a large fraction of other capitals into insolvency.

What Artesian is saying about leverage is much the same as the points that Steindl made about the role of gearing ratios, which is what we attempted to model mathematically.

That sounds very interesting. And to think, I didn't even use a model, never heard of Steindl, forgot almost all the calculus I know [on railroads, everything we need to know, we can calculate with pencil and paper, using simple math]. What I did do, and still do, though was pay close attention and follow the cash, in this case, the disappearing, evaporating "cash" supposedly locked up in asset values. Odd thing, I thought the whole asset-backed-security thing [which really had its start in the 70s with FNMA, and then the 80s with CDOs] reminded me of leverage buy outs but inside out-- pumping money into assets in order to push valuations, rather than liquidating the assets as occurred in LBOs in order to scoop up the cash flow.


There has to be some systemic change for the problem to manifest. Rational individual action in this case leads to rational allocation for the individual. You need to demonstrate some sort of global effect that this has in order for it to lead to a globally irrational situation.

I wish I was confident enough to say I understand what you are referring to, but I'm not. This is not an issue of "rational" or "irrational" actions by an individual or individuals. This is the result of impairment to valorization, a slowing of profitability. This occurred in industry, in manufacturing in the US, prior to the collapse of Bear Stearns.

In the US, the NBER identified December 2007 as the start of the recession, remember? That predates the financial "meltdown." Even predates the decline in wages, and the contraction of consumption, if I remember correctly [no sure thing these days].


In the Minsky theory there are clear global effects of the local actions which undermine the rationality. If you deny the falling rate of profit as the global effect which undermines the local rationality, they you have to have some other global parameter which does so.
I don't think "undermining" rationality as anything to do with this. I think the FROP, and my proxy for it-- rate of return on net PPE-- certainly drives capital into bursts of speculative activity, swindling, etc. etc. None of those things are rational or irrational. And none of that speculative activity etc is the cause for economic contraction.

And I don't want to make a big deal of it, but I don't think it's even a very good predictor of what is going to happen in the economy. How do you measure the proportion of speculative activity and decide, 5, or 3 years in advance-- "oh, that's it, we've crossed the threshold. Any day now the house of cards will come down"?



Here, I think you repeat the confusion that a large number of old-style Marxists have about the compositions of systems. The Mises crowd are proud of their ability to create the macro world as simply a scaled up version of the micro. In fact this happens repeatedly in neo-classical economics as we see with the aggregate demand curve and various models of banking or clearing houses existing as a unitary object scaled up from the individual micro-level.

I've heard Marxist, quite rightly, describe this as insane. It is insane. However, that doesn't mean that we can't do it in a sane manner where we recognise emergent behaviours of the global system. This is the strategy which has been taken up by scientific fields which must deal with ensembles of systems.
I'm repeating the confusion because I'm recognizing the insanity of the way this argument has been historically presented? And you, you're not confused, why again? Because despite the fact that it has been an insane endeavor, and more than that, an endeavor to obscure the actual social relations that determine the movement of capital, because it has been in short an ideology at the service of the ruling class, you think it can be done in a sane manner?


The fact of the matter is that movement to a macro system from a micro ensemble leads to global behaviour which does not mimic the micro ensemble.
This might or might not be the fact of some matter somewhere. Here and now it has nothing to do with the accumulation of capital and the valorization of the production process.



If you say I'm dealing only with individual capitalists, you're wrong. I'm looking at the sum total behaviour of individual actions and their outcomes. You're trying to move directly to the macro without any connection with the micro.
How do you even know what the sum total behavior is? How do you have any method for tracking the consolidation, convergence of such "individual actions" ? What economic data do you use that provides you with the record of individual decisions that "connect" to become the macro?

You haven't displayed anything approaching an actual material analysis of the period since 2007, not to mention the build up to it.

[Rowan Duffy]

And you, you're not confused, why again?

Big systems are confusing, so I'm confused about the nature of the crisis or what might be a good and useful model for understanding it. I've merely stated that bubbles have a plausible explanation in a sum of rational actions leading to bulk irrational behaviour.

I'm also confused about your theory because you seem to jump all over the place. When things become "fictitious" in our theories then we have a real problem. The idea that asset values where not "real" is also a problem since they were very real, which is why they were used for leverage. A theory where we just say that something collapsed because it was fictitious is silly because I can always attribute any collapse post-facto as having been based on fictitious valuations. It doesn't bring us anywhere nearer the point of understanding crisis.

If we want to have a real meaningful theory of "fictitious" then we should have a theory of a divergence between some observable parameter and some underlying dynamics. If we can, for instance, attribute the price divergence from value that would be useful. However, how much does LTV really have to say about property valuations? I'd say not much. LTV has always been better suited to commodities than property, and since much of leveraging was against property debt, I'm not sure what parameter we can be fictitious in relation to.

I'm very much not confused about how you can have emergent behaviours and how there is absolutely no necessity for the bulk behaviour to be a scaled up version of the individual atoms. You appear to be.

[S.Artesian]

But I am not a partisan of the "fictitious capital" theory. I don't argue that the systemic contraction is due to "fictitious capital." I argue that it is determined by real change in profitability, real obstacles to continued valorization of the productive apparatus, and that all the speculative activity, swindle, etc etc is derivative.

[Paul Cockshott]

I am not sure what you mean by real obstacles to valorisation ( incidentally that word is a dreadful copout by the translator of the penguin grundrisse)

[S.Artesian]

I am not sure what you mean by real obstacles to valorisation ( incidentally that word is a dreadful copout by the translator of the penguin grundrisse)

Not so incidentally, Albert Dragstedt, who provides translations from the original German of chapter 1 of Capital, and The Immediate Results of the Production Process in his excellent [of course IMO] Value: Studies by Marx also utilizes valori(s)(z)ation as the appropriate equivalent word in English.

I don't know what's the copout about the word, as the word is used to mean the preservation of value through the aggrandizement, expansion of value; the preservation of the value of production process through the accumulation of more value.

Actually, it's been so long since I've reread the Grundrisse, I don't even recall it being used there; not that I doubt you. I remember first coming across it in Dragstedt's book, and then again in the Economic Manuscripts of 1857-1864 [minus the Grundrisse].

What are the real obstacles to valorization? The accumulation of the means of production as capital.

[Paul Cockshott]

Not so incidentally, Albert Dragstedt, who provides translations from the original German of chapter 1 of Capital, and The Immediate Results of the Production Process in his excellent [of course IMO] Value: Studies by Marx also utilizes valori(s)(z)ation as the appropriate equivalent word in English.

I don't know what's the copout about the word, as the word is used to mean the preservation of value through the aggrandizement, expansion of value; the preservation of the value of production process through the accumulation of more value.
As I recall it was an invented word invented in the mid 70s, it is possible that the The Immediate Results of the Production Process, which if I recall had appeared in French by about 1971 may have been the path by which the word appeard in English, since it looks very like a French word. I view it as a copout for a translator to get over their problems by simply introducing a foreign word rather than using the language that they are translating into.

I find the word as used ambiguous , you give several different meanings to it in a couple of sentences:
1. preservation of value
2. expansion of value
3. preservation of value in the production process
4. accumulation of more value

Further ambiguities arise with whether users of the term mean the preservation or expansion of exchange value or embodied labour content. If they mean the expansion of exchange value then obstacles to sale in the form of insufficient demand, shortages of credit etc would count as obstacles to 'valorisation' but you seem to be arguing against these sort of explanations. In which case you are probably meaning obstacles to the accumulation of embodied labour that arise from the relationship between the capital stock and the amount of living labour that can be exploited whilst producing things with that capital stock.

But if you use the 'valorisation' this will not necssarily be evident to readers.




Actually, it's been so long since I've reread the Grundrisse, I don't even recall it being used there; not that I doubt you. I remember first coming across it in Dragstedt's book, and then again in the Economic Manuscripts of 1857-1864 [minus the Grundrisse].

What are the real obstacles to valorization? The accumulation of the means of production as capital.

[Paul Cockshott]

I have checked and the word valorisation was in use in English prior to the 1970s but with a rather different meaning : the artificial maintainance of a price level by government intervention - particularly schemes by latin american governments to maintain coffee prices, It seems to have entered English usage from Brazil in the form of commentry on the Brazilian governments coffee valorization schemes which dated from 1906.

I think that the older translation of Kapitalverwertung as creation of surplus value is clearer in English.

[S.Artesian]

I have checked and the word valorisation was in use in English prior to the 1970s but with a rather different meaning : the artificial maintainance of a price level by government intervention - particularly schemes by latin american governments to maintain coffee prices, It seems to have entered English usage from Brazil in the form of commentry on the Brazilian governments coffee valorization schemes which dated from 1906.

I think that the older translation of Kapitalverwertung as creation of surplus value is clearer in English.


Yes, but the root of the word in French is valeur-- to value. Verwertung, if my rusty German serves me properly, means exploitation. Anyway-- Marx provides a working "definition" of valorisation as a process, essentially as the preservation of value through the accretion of more value, and I think that is the key.

Wonder how Kapitalverwertung would have been rendered in English prior to the 20th century.

What you describe as ambiguities, the different uses, are in fact facets of valorization as a process, as a relation of capital to labor, different facets of not capital as a "state" a thing, but a relation, requiring continuous reproduction. It is precisely for that reason that Marx refers to capital's development as a "self-mediating" relation. He speaks, in his Economic Manuscripts exactly and directly to the point that value, for capital, cannot really be preserved with the expansion of value, that the expansion of the means of production of value has the purpose, and the need, to be transformed into greater value through commodity production; that the expansion of the means of production of value only has "purpose" for capital to the extent that the exchange value of the means of production is transferred to the C' of the realized, expanded capital, and this can only be done through the progressive erosion of the use value of the means of production.

I think the best analysis of this process that I've read, besides Marx's own essays in the Economic Manuscripts, is Grossmann's in The Law of Accumulation...

[Travis Bickle]

The marxist crisis theories have been dealt with in Power in the Land (1983) by a georgist inspired economist Fred Harrison (Land Research Trust, London). The validity of the marxist crisis theories can effectively be ruled out when studying the earlier economic depressions that occured in the US. For example, the industrialization caught on later in the US, there could be no overproduction of unsold goods with ensuing cutbacks in production and firing of workers etc. etc. The problem facing marxist crisis theory today is the fact that, the more recent economic depression is very much aligned with those early cycles, which (also) were induced by the underlying real estate cycle, and that causal relationship between the real estate cycle and the wider economic cycle has only been interrupted by the second world war. The few marxist theorists that defend Marx crisis theory have been unable to respond to the critizism. The modern georgist crisis theory also poses an enourmous problem for the austrian crisis theory because the land cycle is autonomous and rears it ugly face and bring down the economy regardless of monetary or fiscal policies (monetary expansion or keynesianism).

At first glance all the recessions appear random.

2008, 2001/2, 1991, 1982, 1980, 1974, 1970, 1961, 1958, 1954, 1949, 1937, 1932, 1927, 1924, 1921, 1919, 1914, 1907, 1904, 1900, 1897, 1893, 1891, 1888, 1884, 1879, 1873, 1866, 1861, 1857, 1847, 1836/7, 1825, 1819

But on closer inspection, the land cycle runs like a clockwork, and induce the big depressions with mass unemployment at highly regular intervals

2008, 2001/2, 1991, 1982, 1980, 1974, 1970, 1961, 1958, 1954, 1949, 1937, 1932, 1927, 1924, 1921, 1919, 1914, 1907, 1904, 1900, 1897, 1893, 1891, 1888, 1884, 1879, 1873, 1866, 1861, 1857, 1847, 1836/7, 1825, 1819

The land cycle includes the so called OPEC crisis of 74' the arabs wrongly took the blame for. OPEC was a secondary phenomona. Harrison gives a clear exposition of the exact sequential order in which those events happened, and how they evolve in tandem with the land cycle. The attention to timing here is essential.

What determines the fate of the economy is how a society manage and let the ground rent manifest itself. The ground rent becomes an autonomous phenonema when government allow the ground rent to be enclosed (privatized as capital gains). In western economies the tax system actively supports speculation in land and real estate assets by not taxing capital gains while actively punishing the productive sector of the economy by taxing labour. The market transmits the wrong signals underpinned by a mad hatters tax regime.

[Paul Cockshott]

Can you give a more detailed reference to this Georgist crisis theory.

[robbo203]

there are axtually several different theories of crisis in marx. liberal economist Paul Krugman believes the period we are entering now is likely to be like the Long Depression.

anyway, the three theories are:

1. rooted in the supposed tendency of the rate of profit to fall. but capitalists at present are experiencing record high profits...yet the system is not exactly in good health.

2. the underconsumptionist theory.

3. the class struggle theory. the profits squeeze of the '70s is arguably explained by this theory.

FWIW, i'm more inclined to 3 than the others.


Well no - you've completely missed out the big one which really lies at the heart of Marx's own explanation for crisis - disproportionality theory. This is based on the argument that growth in capitalism is necessarily uneven and unconcordinated and thus generates knock-on consequences and ripple effects

The SPGB have done some good work on this . See for example

http://www.worldsocialism.org/spgb/education/Education%20Series%20Crises.html

http://www.worldsocialism.org/spgb/education/keynes.html

Their 1932 pamphlet "Why Capitalism will not collapse" is a classic

http://www.worldsocialism.org/spgb/education/keynes.html

[Jose Gracchus]

That geoism post proves nothing. Its pure bunk to propose because you find some correlations that seem regular that proves any causal mechanism.

[S.Artesian]

Well no - you've completely missed out the big one which really lies at the heart of Marx's own explanation for crisis - disproportionality theory. This is based on the argument that growth in capitalism is necessarily uneven and unconcordinated and thus generates knock-on consequences and ripple effects

The SPGB have done some good work on this . See for example

http://www.worldsocialism.org/spgb/education/Education%20Series%20Crises.html

http://www.worldsocialism.org/spgb/education/keynes.html

Their 1932 pamphlet "Why Capitalism will not collapse" is a classic

http://www.worldsocialism.org/spgb/education/keynes.html


Yes, disproportionality theory exists, no it is not what lies at the heart of Marx's own explanation of crisis. Marx's "explanations" are scattered throughout the 3 volumes of Capital, but take their most congruent, connected, unitary explanation in volume 3 when Marx discusses the tendency of the rate of profit to fall and links precisely what overproduction really is.

My view of the disproportionality theories, at least the ones I've read, is that they pretty much all derive from Luxemburg's Accumulation of Capital, and Rosa's theory is all based on the disproportionality between production and consumption, which Marx in various places rejects, but not to be fair completely without ambiguity.

EDIT: The three articles you link to don't provide any evidence that Marx's theory of crisis was a theory of disproportion, whereas in Vol 3 Marx specifically identifies the FROP as the cause of crisis, and identifies the crisis as one of the mechanisms for offsetting that tendency. That's what crisis is-- necessary, critical to capitalism.

All the disproportionality theories I've read revolve around the inherent disproportion between Depts 1 [production of the MOP] and 2 [production of the means of consumption]-- no matter how you cut it this is nothing other than the old "overproduction=underconsumption" argument which is also common to Rosa's argument. Again I think Grossmann has the best take on this, and the best critique of Rosa's Accumulation of Capital.

[S.Artesian]

Actually, I need to correct my statement: Not all disproportionality theories reduce themselves to theory of underconsumption. The best analysis of disproportionality, one that is so good that I think if the writer was able to continue with his analysis he would have dispensed with disproportionality as a cause, is Pavel Maksakovsky's The Capitalist Cycle [Haymarket Books].

It is truly a brilliant, and brilliantly written, analysis and advocacy of "disproportionality" as the cause of capitalist crisis.

[robbo203]

Yes, disproportionality theory exists, no it is not what lies at the heart of Marx's own explanation of crisis. Marx's "explanations" are scattered throughout the 3 volumes of Capital, but take their most congruent, connected, unitary explanation in volume 3 when Marx discusses the tendency of the rate of profit to fall and links precisely what overproduction really is.

My view of the disproportionality theories, at least the ones I've read, is that they pretty much all derive from Luxemburg's Accumulation of Capital, and Rosa's theory is all based on the disproportionality between production and consumption, which Marx in various places rejects, but not to be fair completely without ambiguity.

EDIT: The three articles you link to don't provide any evidence that Marx's theory of crisis was a theory of disproportion, whereas in Vol 3 Marx specifically identifies the FROP as the cause of crisis, and identifies the crisis as one of the mechanisms for offsetting that tendency. That's what crisis is-- necessary, critical to capitalism.

All the disproportionality theories I've read revolve around the inherent disproportion between Depts 1 [production of the MOP] and 2 [production of the means of consumption]-- no matter how you cut it this is nothing other than the old "overproduction=underconsumption" argument which is also common to Rosa's argument. Again I think Grossmann has the best take on this, and the best critique of Rosa's Accumulation of Capital.

The first link I provided does indeed give evidence of Marx's theory of crisis as one of disproportional growth (go down to the bit subtitled "Marx's explanation" which deal with his arguments presented in Capital 11). While I agree that Marx did not develop fully worked out theory of crisis (and promised this for a later volume of Capital) I think the frequent references to such expressions as "anarchy of capitalist production" point to disproortionality theory playing a major role in his explanation of crisis. Ditto his critique of Says Law. In Capital Vol 3 there is a passage (chapter 15) which puts ir rather well:

If it is said that there is no general overproduction but simply a disproportion between the various branches of production, this again means nothing more than that, within capitalist production, the proportionality of the particular branches of production presents itself as a process of passing constantly out of and into disproportionality – since the interconnection of production as a whole here forces itself on the agents of production as a blind law, and not as a law which, being grasped and therefore mastered by their combined reason, brings the productive process under their common control

I dont think disproportionality theory boils down to a kind of underconsumption theory - if that is what you are saying - and I cant imagine how you think disproportionality theories "pretty much all derive from Luxemburg's Accumulation of Capital". Luxemburg advanced an underconsumptionist theory not a disproportionality theory. The mechanisms involved in each case are are quite different. For her, crises are the result of an in=built inability of workers and capitalists to buy back the full social product. This was based on a mistaken view of what constituted aggregate demand which is not just the consumption demands of workers and capitalists but also the investment dcemands of capitalists. Becuase of this supposed in-built deficiency of purchasing power , Luxemburg argued, capitalism relied upon external sources of demand to sustain itself e.g. in the third world. But once these had dried up as capitalism became globalised the system would collapse

Disproporttionality theory, by contrast, does not imply any collapsist notion of capitalism. Of course, a falling rate of profit and insufficient market demand are implicated in the process of crises but I think we have to be careful about separating out cause and effect. A change in the organic composition of capital which is supposed to bring about a fall in the rate of profit seems to me to be too slow to account for the nature of crises which can erupt suddenly and unexpectedly. As for the idea of it leading to the collapse of capitalism, Luxemburgs's comment in Anti-Critique that “there is still some time to come before capitalism collapses because of the falling rate of profit -- roughly until the sun burns out” seems pretty apt.

You mention Grossman but have you read Anton Pannekoek's stinging rebuttal of Grossman in an article called "The Theory of Capitalist Collapse" (published in Ratekorrespondenz no 1, June 1934) where he demonstrated that the mathematical tables the latter relied upon were unrealistic and contrived as well exhibiting certain crucial misunderstandings of marxian economics?

[ZeroNowhere]

Marx's "explanations" are scattered throughout the 3 volumes of Capital, but take their most congruent, connected, unitary explanation in volume 3 when Marx discusses the tendency of the rate of profit to fall and links precisely what overproduction really is. Not to mention the Grundrisse.
[On the falling rate of profit:] These contradictions lead to explosions, cataclysms, crises, in which by momentaneous suspension of labour and annihilation of a great portion of capital the latter is violently reduced to the point where it can go on. These contradictions, of course, lead to explosions, crises, in which momentary suspension of all labour and annihilation of a great part of the capital violently lead it back to the point where it is enabled [to go on] fully employing its productive powers without committing suicide. Yet, these regularly recurring catastrophes lead to their repetition on a higher scale, and finally to its violent overthrow.
You mention Grossman but have you read Anton Pannekoek's stinging rebuttal of Grossman in an article called "The Theory of Capitalist Collapse" (published in Ratekorrespondenz no 1, June 1934) where he demonstrated that the mathematical tables the latter relied upon were unrealistic and contrived as well exhibiting certain crucial misunderstandings of marxian economics? What it lacks in reading, it makes up for in stinging.

[S.Artesian]

The article you cited mentions but does not demonstrate Marx's "theory of disproportionality." There is no explanation as to how disproportionality triggers a crisis.

You produce a quote from Marx about generalized overproduction as somehow evidence of Marx's theory of disproportionality as the cause of crisis, when the quote is simply pointing out how disproportionately is an everyday occurrence under capitalism and is no more and no less important as a cause of capitalist crisis then the fact that prices need not and often do not correspond to values and in fact the lack of correspondence is the way the law of value operates through and within the markets.

Rosa's theory works extensively with the disproportionality between Dept 1 and Dept 2. You can say that isn't a disproportion between production and consumption, but she, to her credit in her brilliantly mistaken analysis, recognizes that it is. I don't how anyone can ignore the fact that disproportionality between production of the means of production as and the means of consumption as the cause and limit to capitalist reproduction is a) derivative of production always being greater than consumption b) misses the point that both Depts 1 and 2 are produced as capital.

The disproportionality between production of the MOP and production of the means of consumption is organized in, dictated by the need to accumulate surplus value; it exists precisely because consumption of surplus value is restricted by class relations where the surplus product that is extracted exists in value-form, as capital, and as such must always renew itself in exchange with living labor.

Marx explores this in vol 3, and in his Economic Manuscripts-- and in vol 3, where it is clear that he regards overproduction as the "critical moment" in the capitalist mode of production, explaining that overproduction is always the overproduction of the means of production as capital--where the accumulated capital cannot exploit labor intensely, sufficiently enough to offset the decline in the rate of profit.

Nope haven't read Pannekoek on Grossmann but thanks for the reference. Take a look at Maksakovsky if you get a chance-- a really great book.

[robbo203]

The article you cited mentions but does not demonstrate Marx's "theory of disproportionality." There is no explanation as to how disproportionality triggers a crisis.

You produce a quote from Marx about generalized overproduction as somehow evidence of Marx's theory of disproportionality as the cause of crisis, when the quote is simply pointing out how disproportionately is an everyday occurrence under capitalism and is no more and no less important as a cause of capitalist crisis then the fact that prices need not and often do not correspond to values and in fact the lack of correspondence is the way the law of value operates through and within the markets. .

I think you are completely missing the significance of this. You say disproportionality is just an everyday occurence under capitalism but that is precisely why the possibility of crisis is immanant in capitalism. Since capitalists are competing against each other in the market there is always the possibility of overshoot - of overproduction in relation to demand - since capitalists do not align their produyction schedules with one another. This is precisely what is meant by Marx's reference to "anarchy of production under capitalism". Overproduction in relation to particular markets then has ripple effects that spread out and engulf other markets. That is the trigger for crises - when the severity of disproportional growth reaches a certain critical threshold that it makes the system vulnerable to crisis. As Marx put it in Theories of Surplus Value "For a crisis (and therefore also over production) to be general it is sufficient for it to grip the principle articles of trade"

Interpreting overproduction to mean a shortfall in effective demand, as underconsumptionists are wont to do, is a bit tautological. Yes, workers lack the means to buy back all that is produced in a crisis but is that a cause of the said crisis or a consequence? Crises, as Marx noted, are anticipated by a rise in wages, not a fall. Its the same with the falling rate of profit which I cannot see as being the trigger for crises even if crises entail falling profits obviously. There is no law which says that capitalism can only function properly at or above a given rate of profit. And in any case, as I said, changes in the organic composition of capital are too slow to account for the sudden nature of crises and there are counteracting tendencies bearing on the falling rate of profit

There is a good quote from Marx which i remember but Im dammed if I can find, which says something that bears out the above. It might be in relation to something he said about Says Law. Ill try a hunt it down for you...



Rosa's theory works extensively with the disproportionality between Dept 1 and Dept 2. You can say that isn't a disproportion between production and consumption, but she, to her credit in her brilliantly mistaken analysis, recognizes that it is. I don't how anyone can ignore the fact that disproportionality between production of the means of production as and the means of consumption as the cause and limit to capitalist reproduction is a) derivative of production always being greater than consumption b) misses the point that both Depts 1 and 2 are produced as capital.

The disproportionality between production of the MOP and production of the means of consumption is organized in, dictated by the need to accumulate surplus value; it exists precisely because consumption of surplus value is restricted by class relations where the surplus product that is extracted exists in value-form, as capital, and as such must always renew itself in exchange with living labor.

Marx explores this in vol 3, and in his Economic Manuscripts-- and in vol 3, where it is clear that he regards overproduction as the "critical moment" in the capitalist mode of production, explaining that overproduction is always the overproduction of the means of production as capital--where the accumulated capital cannot exploit labor intensely, sufficiently enough to offset the decline in the rate of profit.

Nope haven't read Pannekoek on Grossmann but thanks for the reference. Take a look at Maksakovsky if you get a chance-- a really great book.


Yes but essentially Rosa Luxemburgs theory is an underconsumptionist theory not a disproportionality theory . Though she explores as you say, the argument concerning disportional growth between the capital goods sector and the consumer goods sector her primary concern is with final consumer demand. In her view aggregate demand in capitalism reflected the combined available consumption fund of workers and capitalists. So when part of the available surplus value was diverted into investment this reduced aggregate demand to a level short of what was produced - overall output. This "deficiency of purchasing power" argument is based on a fallacy which is also to be found in other underconsumptionist theories such as Major Douglas' Social Credit idea and Keynesian economic theory. It overlooks the significance of the fact that part of the demand of the capitalists is precisely for capital goods. So for Luxemburg the additional demand needed to sustain capitalism had to come from outside the system - from remote parts of the world not yet integrated into the system. When this was no longer available, when capitalism had become a fully globalised economy, it would of necessity grind to a halt . History has demonstrated that this is simply not the case

Ill try to get hold of Maksakovsky's book - though living in Spain there aint that many good radical bookshops around that sell political books in english. Is there a link that you can perhaps direct me to?

[S.Artesian]

ts the same with the falling rate of profit which I cannot see as being the trigger for crises even if crises entail falling profits obviously. Marx sees it, explains it. The articles you cite simply confuse the individual rates of growth and investment of individual capitalist enterprises with disproportionality. The "anarchy of capitalist production" is not disproportinality. The disproportion supposedly so damaging to capital is between Depts. 1 & 2.

Pannekoek's article really doesn't come to grips with either disproportionality or Grossmann's explication of the inability of capital to, essentially, continuously re-capitalize its mode of production.

As for there not being a rate of profit below which capital cannot function...........look around comrade, look around at the actions of the petroleum industry when its rate of return declined. Look around at the 1980s and the asset stripping, leveraged buy outs, liquidating of fixed assets that went on.

Look at the history of the railroads in the US, both during the "long deflation" which supports the disproportionality theory [but if you examine it a bit more closely supports the FROP analysis] and in the post WW2-1980 era, when depressed rates of return essentially gutted the industry-- and then look at what the railroads did after deregulation.

Maksakovsky's book is not online, but you might be able to get it through the Haymarket Books website.

[Travis Bickle]

That geoism post proves nothing. Its pure bunk to propose because you find some correlations that seem regular that proves any causal mechanism.

I am not going to go into great detail with you because such a post does not deserve an answer. Marx with all his theories predicted a recession that actually turned out to be a huge economic boom. Thats pure bunk.

[Travis Bickle]

Can you give a more detailed reference to this Georgist crisis theory.

Dear Paul Cockshott

Thanks for asking. Thats genuine display of interest. I have put together a 35 page guide with 3 other skilled economists.

I cannot post the link because people think I am a georgist.

[Per Levy]

Dear Paul Cockshott

Thanks for asking. Thats genuine display of interest. I have put together a 35 page guide with 3 other skilled economists.

I cannot post the link because people think I am a georgist.

you cant post links because you havnt posted at least 25 posts on this forum, everyone has to go through this, so stop making yourself a victim.

[S.Artesian]

Dear Paul Cockshott

Thanks for asking. Thats genuine display of interest. I have put together a 35 page guide with 3 other skilled economists.

I cannot post the link because people think I am a georgist.

But you can send him a PM with the links..........

[Travis Bickle]

you cant post links because you havnt posted at least 25 posts on this forum, everyone has to go through this, so stop making yourself a victim.
Sure.

However, the global moderator, khad, threatens me in person. On 6th October 2011 22:34 he wrote on the
yes, I am a racist. a racist against capitalists like you

This is simply too much Kafka.

@S.Artesian
Sure thats a possibility and yet it is not. You can thank the mob for that. The paper bears my name on it. It's going to be published in the free press. I am not giving away any personal information to any members of this board since I've recieved a number of threats.

[S.Artesian]

Sure.

However, the global moderator, khad, threatens me in person. On 6th October 2011 22:34 he wrote on the

This is simply too much Kafka.

@S.Artesian
Sure thats a possibility and yet it is not. You can thank the mob for that. The paper bears my name on it. It's going to be published in the free press. I am not giving away any personal information to any members of this board since I've recieved a number of threats.


1. That doesn't sound like a threat delivered in person. Actually doesn't sound like a threat at all.

2. Thank the mob? I'm a big partisan of revolutionary mobs...see James Connolly.

3. You give away no personal information in a PM; it's all done with the same anonymity as posting in a thread.

[Travis Bickle]

1. That doesn't sound like a threat delivered in person. Actually doesn't sound like a threat at all.

2. Thank the mob? I'm a big partisan of revolutionary mobs...see James Connolly.

3. You give away no personal information in a PM; it's all done with the same anonymity as posting in a thread.

You dont seem to understand.

Let me clarify. Its an official paper with my name on it and other people as well. Its not an safety issue with the PM.

Socialists fight capitalists. Socialists hang and imprison capitalists. He labeled me capitalist. This is a declaration of war. There can be no doubt about that.

[S.Artesian]

OK enough of this. Back to the topic.....