The debate among marxist economists has intensified once again. On the one side is the German economist, a marxist, Michael Heinrich. Once again Heinrich has raised questions about Marx’s notes in Vol. II, III of Capital assigning primary causation of capitalist crises to the variable of the falling rate of profit. Long an adherent to explaining the evolution and business cycle contractions to the falling rate of profit, Michael Roberts takes on Heinrich’s more ‘open view’ of Marx.
From time to time I have debated as well with Roberts, taking a position similar to Heinrich’s and urging Marxist economists to get off of Marx’s falling rate of profit theory as the primary explanation of crises and cycles. The reasons are Marx’s definition, similar to classical economics in general, is too narrow. More important, contemporary definitions and data collection of profit globally result in data on profit used to determine the rate of profit which are grossly different from Marx’s concept of profit. Furthermore, the profit data available are deeply corrupted for various reasons and therefore unreliable.
The following are some of my comments offered to both Heinrich and Roberts on the ‘Taking Sides’ blog in their debate:
“I have long disagreed publicly with Michael Roberts’ view on the rate of profit thesis. There is just no way to determine actual profits–levels or therefore rates. This is for various reasons. Here’s just a few: first, at the core of global capitalism is the multinational corporation. Numerous studies show that their profits are at least a third determined by financial asset investments, what’s called ‘portfolio’ investment. The MNCs have become, and are increasingly becoming, financial institutions. Marx’s theory of profit defines profit in production as the result of exploitation of productive labor only (or some labor necessary to the distribution and commerce of productive labor). In other words, only labor that produces discrete goods. It’s a narrow, classical economics definition going back to Smith and others. But global MNCs not only create profit from the production of goods (and not all of them either). They create profit from financial asset investment and speculation. That means if one were to keep to the definition of Marx on profit, that one would have to somehow subtract out portfolio investing profit from total profit. This would have to be done for all MNCs that do portfolio investing, in order to get some kind of average profit minus portfolio profits. Michael Roberts and other largely anglo-american Marxists don’t do this. Because they can’t. There is no data retrieving formula for this, or even access to MNC balance sheets to determine this.
Roberts and others rely on government provided data on profit that doesn’t distinguish between the aggregation of real productive profit and financial speculative profits. So his profit rate data is corrupted and cannot be used to determine the falling rate of profit.
There’s a further problem: To get even total profit data, it is necessary to adjust for accounting rules that differ country to country, that influence the level and therefore the rate of change of profit. There’s also the problem that in many countries the economic data is insufficient and distorted by collection processes. Definitions of profit are also different. This corrupts the profit data when trying to aggregate it across countries and economies.
Apart from all these data definition and collection issues that make determination of the real profit rate difficult, there’s the problem of taxation that render after tax profits as the variable even more problematic. For example, in the US alone, in 2018 Fortune 500 profits rose about 27%. But 22% of that 27% was attributed to Trump’s corporate tax windfall alone. This goes on at the US state level as well. And it differs in Europe and elsewhere as capitalist states ‘race to the bottom’ in granting tax cuts to business and investors. So forget after tax profit data altogether.
In short, data on profits are grossly unreliable for accuracy, and this is especially so globally and for multinational corporations, that typically adjust their internal pricing arbitrarily to lower or raise profits in different subsidiaries producing semi-finished goods between the subsidiaries. Roberts has no access to this internal pricing data manipulation, that makes profits artificially appear higher in one subsidiary and lower in the other. How much should nominal profits then be adjusted for real profits when the internal pricing effect is unknown and clearly would differ greatly across different corporations? Roberts doesn’t know because the data is proprietary and internal to the MNCs.
I agree with many of the critiques of Heinrich, as well as the view that Marx was not completely sure of the falling rate of profit tendency as a predictor of business cycle contractions. If he had been sure, he would not have left it just as unpublished notes.
Then there’s the related critique that even if he had been convinced, it is clear that Marx was not talking about short term business cycle contractions (which include recessions, great recessions and even depressions). Marx’s theory applies to the long run crisis and breakdown of capitalism. This is a focus very typical of classical economics, which lacked the detailed empirical data to develop a theory of business cycle contractions. Nevertheless, Roberts and friends try to ‘fit’ this long term crisis theory into an explanation of short term contractions when they argue the rate of profit determines the outcome of crises like 2008-09 or depressions.
Marxists should get off the fixation on rate of profit as the key determinative variable. Marx’s economics is about the accumulation of capital, a deeper and broader concept than profit rates. A Marxist theory of investment (aka capital accumulation) in the 21st century, which accounts for both destabilizing financial portfolio investment as well as real asset investment, is what the focus of analysis of capital in the 21sts century should be.
But Roberts & friends say wait a minute, it’s profits that determine capitalist investment and capital accumulation, so profits and profit rate are really the key. But here again, what might have been true of 1850s British economy is not the case in 21st century global capitalism. Numerous studies show that profits are responsible for less than one-third of business investment. Real asset investment is determined far more by what’s called equity and debt–i.e. business raising funding through stock issuing and corporate bonds and, increasingly now, by other financial instrument creation (now including Bitcoin and other digital currencies). So it’s not profits that drive investment; it’s financial asset creation. But Marxists like Roberts disregard this characteristic of 21st century capital and ignore it simply as irrelevant ‘fictitious’ capital. They don’t understand the nature of contemporary finance capital.
The fixation of mechanical Marxists on the rate of profit and the constant reference to Marx’s notes as proof this is the key variable is more an exercise in philology than it is an analysis of the character of contemporary capitalism.
Reblogged this on Taking Sides.
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