Sunday, 28 July 2013
The long term view of capitalist development or degeneration
There is much talk in the financial press and among economists of the risk that the major capitalist economies could be slipping back into recession. Economic data for the US and Europe are indicating a significant slowdown in economic growth and a weak recovery in employment and investment. Is this just a temporary blip or does it represent a significant downturn? I would like to answer that by returning to the long view. The long view I’d describe is Karl Marx’s law of the tendancy of the rate of profit to fall which I believe is the underlying cause of the capitalist crisis and indeed is the cause of most if not all crisis’s and is Marx’s 3rd law of capialistmotion which we must look at to understand the changes in capitalism and how we stand today. Just taking the post-war period, there was a Golden Age of profitability from 1946 to 1965 when the rate of profit (ROP) was high and even rising. During this period, economic recessions were few and relatively shallow. Then there was a period of crisis when profitability fell steadily until it reached a nadir in 1982. During this period, economic recessions were more frequent, violent and deep i.e. 1969-70, 1974-5 (the first simultaneous post-war economic recession) and 1980-2 (the deepest recession since the 1930s). After 1982 there was a recovery in profitability right up to 1997. This was the period of so-called neoliberalism that many have argued constitutes a completely new structure of capitalism based on ‘financialisation’ and neoliberal policies of privatisation and weakening of the labour movement (see my comrade Steve Dobson’s excellent post “neo liberalism a new stage of capitalism” a http://socialismiscrucial.wordpress.com/2013/07/25/neoliberalism-a-new-stage-of-capitalism/ There was only one significant economic slump in 1990-1. What next? Once the ROP starts falling, it takes a few years before an economy moves into recession. The ROP has usually been falling for three to four years before that happens. On that basis, the US economy will not drop into a new recession until about 2014 onwards. The debate continues among Marxist economists, but if the underlying cause of capitalist crisis is a falling ROP, then a new slump is unlikely to develop until 2014. But it confirms that even the Great Recession of 2008-9 was not big enough to restore a sustained rise in the ROP. That is because it has not destroyed enough value in accumulated capital or in the excessive build-up of debt (fictitious capital) before 2007. More destruction of value is necessary to do that. That there is still much fictitious capital in the system is revealed by the value of the stock market relative to a measure of the real value of the companies the stock prices represent. James Tobin, the leftist economist, developed a measure to tell if the stock market was overvalued or not and whether it would be heading down. It is called Tobin’s Q, measuring the stock market’s value against the replacement value of all the assets of the companies in a stock market index –for the US S&P-500 stock index (the top 500 companies It is difficult to fully predict how the economies of the world will develop by focusing on Marx’s works in volume 3 of capital and especially the chapters on the law of the tendency of the rate of profit to fall are crucial to understanding crisis I feel. I am studying all sorts of facts and figures trying to get to grips with crisis and Marx understands there are many views out there with lots of figures which prove something different. We must be careful to pay attention to all sides of the debate and be sure to uphold the law of Marx who was sure of the cause of capitalist crisis’s despite not finishing volume 3 all his work was there if not published it was in draft form ready for Engel’s to publish and edit and place in order the content was always there. Marx didn’t call this law the most important in political economy for no reason at all. Let’s get with the programme and take up Marx’s ideas again and apply them to 2013.