Jack Rasmus

Watch my 90 minute April 3, 2023 YouTube Interview on the current state of the Banking Crisis presentation to the audience of the Niebyl Proctor Marxist Library in California.

To watch go to https://www.youtube.com/watch?v=ObHVDkkZ-84

AN ADDENDUM

In the Q&A session following my above presentation, a discussion among the attendees after I had to leave addressed the topic of the ‘falling rate of profit tendency’ by Marx. During my presentation I too briefly commented on this important topic. Basically, while I do not support the falling rate of profit idea as the cause of capitalist business cycle instability (or the idea that financial instability derives from real economic conditions created by the falling rate of profit, I do agree strongly with Marx’s assessment of how labor exploitation occurs by means of absolute and relative surplus value extraction.

I followed up my presentation a day later with the following letter to the audience that attended my presentation, which explains why I don’t adhere to the falling rate of profit tendency. That letter and explanation is as follows:

Hello Gene,

Thanks for the invitation to address your group on the banking crisis this past Sunday, April 2. My apologies for having to leave early and not stay for all the Q&A. I just watched the discussion after I left and have a few clarifications for Mehmet, Raj and others on what I said about AI, exploitation, and the falling rate of profit hypothesis that I’d like to offer by way of clarification to what I said on those topics. Please share these comments with others who may be interested.

1. On the falling rate of profit: what I’m saying is that Marx makes its clear (in Vol 1) that profit is created by the exploitation of ‘productive labor only’. That is, from workers who create commodities and from those workers in services whose work is necessary to realize the creation of money values from the distribution and sale of those commodities. That leaves a great many workers who do not produce any value. They are ‘unproductive’. If they do not create value for the capitalist, then there are no profits realizable from their labor. But profits derive only from productive labor in Marx. And therefore the tendency of the rate of prfit to fall is only where productive labor is involved.
2. A problem in those who advocate the falling rate of profit (hereafter FRP for short) is that they use capitalist state data and statistics to show the rate of profit declines before a crisis (or is doing so secularly long term regardless of business cycles). But capitalist profit data is not limited to profits from production employing productive labor. Capitalist stats on profits include portfolio profits, that is profits from financial asset investing.  One cannot therefore ‘prove’ the FRP by using capitalist data. It includes profits from creating financial securities (or what Marx would call fetish capital, and what Marx represented by the equation M-M’, as opposed to M-C-M’ that describes capitalist commodity production. My first point is therefore that the FRP is unmeasurable using capitalist state data
3. The problem of measuring the FRP is complicated further because what the US state data calls corporate profits excludes other capitalists production from non-corporate businesses. That is called ‘Business Income’ in the US data. Advocates of FRP ignore this other source of capitalist surplus value/profits.
4. The problem is still further complicated because capitalism is a global system. Therefore profits estimation must be global as well. That requires mixing capitalist profits in Europe, in China, and elsewhere. Problem is different countries define profits differently. No where has ‘profits’ been aggregated globally that I know of. A still further problem: ‘profits’ in China state companies virtually don’t exist. State companies sell their products at a low fixed price and the state does not tax state company profits. That is, China government does not earn profits from its state enterprises.
5. Finally, there’s the problem of price. The price of the sale of commodities contributes to the profit total as well. But prices cannot be compared across economies very well for reasons I won’t go into. The use of the concept of Purchasing Parity by capitalist economists to average out prices across economies is very inexact. It is more ‘art’ than science.

For all the above reasons one cannot quantify capitalist profits in order to determine if its ‘rate’ is falling or not.

Which raises another technical issue. What does one mean by ‘rate’? A rate is the change in percent terms in a period compared to its base period. (example: inflation is the rate of price change over time, current compared to a base year). So when Marxist advocates of FRP say the ‘rate’ of profits is falling, what is the base year to which they are referring? They mostly never indicate one, which is another FRP computational issue.

One might add: why is the rate of profit important? Why is the level or magnitude of profit a better variable?

Marxists who support the FRP thesis (who, by the way, tend to be mostly anglo-american Marxists), argue that the financialization of the capitalist mode of production in the 21^st century is all derived from the real, or productive, sector of the economy. Somehow the decline of profits in the real, productive labor economy is what is causing the financialization. But if so, what is the causal mechanism by which this is occurring. Describe it. They don’t.

Those who advocate the causal relationship between the real economy and the financial economy is one way, from the former to the latter, ignore the more likely relationship that is dialectical not mechanical causation that is one way.

FRP Marxists also don’t understand very well that profits of any kind are price variables as well as value variables. Price fluctuates around the core of value. Labor time is the concept marx ‘invented’ in order to quantify value so it could be measured. Labor time is thus the functional proxy concept for the labor theory of value.  But there is no ‘time’ variable in the creation of financial asset securities. For example, tell me how much labor time went into creating the various financial derivatives? For example, in creating credit default swaps? Can’t be done. But, CDS are a financial market that produces immense financial profits for capitalists. Profits that get mixed into quantitative estimates of profits from production in most multinational corporations. That’s just one example.

Capitalists have been turning to creating financial asset profits increasingly in recent decades, especially since 2000.  I’m saying this creation is destabilizing the capitalist system with bubbles and financial crises that in turn often cause a deep contraction of the real economy (which reduces the creation of commodities and profits from productive labor). Capitalists are turning toward this ‘fetish’ capital creation (to use Marx’s term) because the profits are realized faster, safer (it’s easier to exit a market than to sell a failing manufacturing company for instance), and greater. Put another way, fetish capital can create profits faster than capital can create commodities and realize profit from the sale of those commodities. So financialization expands exponentially almost, while traditional commodity creation and sales expand more slowly. The greater potential profitability from financial asset creation also ‘crowds’ out money capital flowing into real investment and production of commodities. Thus we get the trends toward greater wealth accumulation by capitalists from financial investment than we get from capitalists investing in real assets (that make things, require natural resources, human labor, etc.)

But the financialization of the capitalist mode in the 21^st century is not adequately accounted for in Marx, who observed a world of mostly industrial capitalism.  The idea that financial capital derives from industrial capital is mostly Lenin’s notion, although he correctly understood finance capital comes to dominant industrial capital. But what does ‘dominate’ mean?

If profits are a price variable, not just a value variable then we are mixing productive labor and exploitation with labor that is not productive and therefore no exploitation occurs. This raises questions of the labor theory of value as Marx created it.  If we adhere to Marx’s concept of profits only created by productive labor and further assume financial wealth is in the end only the result of productive labor—then that means the 20 million of US workers employed in productive labor (manufacturing and construction and maybe some transport and communications) create all the wealth acceleration going on since 2000 and before that has been accumulating in the hands of the 1%. That seems illogical to me.

My comments on Artificial Intelligence suggested that traditional forms of labor exploitation in production, based on marx’s ideas of Absolute and Relative surplus value, are intensifying. Marx’s chapters on Relative and absolute value creation in Vol. 1 are his best chapters in my opinion. Every worker knows both are true.  But AI, I argue elsewhere, raises important questions in the 21^st century as to the argument by Marx that machinery simply represent labor time and labor value embodied in the machine; and that that embodied or ‘dead’ labor in the machine is ‘used up’ as the machine depreciates as it makes its contribution to transferring value into the commodity.  My point re. AI, however, is does that ‘embodiment’ of labor time and its depreciation in the course of production apply the AI which is essentially software machinery?  If AI is able to rewrite its own software code without human labor intervention, in order to make itself more efficient and productive, and even self-maintain itself (which it can), then there is no ‘using up’ of labor time involved.  ChatGPT is what’s called ‘generative AI’. It can make itself more efficient and productive over time by upgrading its own software coding.  And when the evolution of AI gets to what’s called ‘general AI’, then AI software machines will be able to rewrite its own coding in order to decide on attempting to solve new problems that were never programed into the machine initially by human labor.

In short, AI raised issues for the labor theory of value via Marx’s concept of the Organic Composition of Capital (OCC), which is the key concept for estimating the falling rate of profit tendency.

What I’m saying in summary is this: Marx’s traditional explanation of labor exploitation via the creation of Absolute and Relative surplus value is correct.  New forms of both can be described and measured in the 21^st century. Labor exploitation from productive labor is growing. (So is what Marx called ‘secondary exploitation’, whereby wages paid for labor time is clawed back by capitalists for productive and non-productive labor. So too is socially necessary labor time being manipulated by capitalists to expand surplus value.  So you see I support Marx’s analysis in this fundamental way.

Marx is correct. But only half way so. Exploitation today must account for financialization and the rapid evolving of that key Force of Production called technology, the leading edge of which is now Artificial Intelligence.

Marxists should be focusing on understanding these developments of late capitalism and not keep trying to ‘prove’ the FRP based on capitalist state profits data that is corrupted and defined differently than Marx. They should stop trying to claim financialization and fetish capital is just a derivative of profits from productive labor, whether falling or rising. That’s ‘mechanical Marxism’ in my view.

Nor should Marxists insist that what Marx wrote in his unpublished notes is his own final view on the FRP or any other theory. Marx was just beginning in Vols 2 and 3 to explore how the capitalist banking and financial system worked (in the 19^th century). He had not worked out all his views. And how could he see what finance capital would become 150 years later? (To answer Raj on this point: Marx did not publish Vols 2,3. Engels did and he selected from Marx’s total work to produce 2,3.  There are many more volumes of Marx’s work that Engels never ‘selected’ that exist unpublished and untranslated in the Marx library in Amsterdam.

I am not very impressed with analyses that treat Marx’s Capital and other works as if they were inviolable canon. It seems a lot like how Christians treat the bible. Or Jews the Torah. Or Muslims the Koran. You can’t find answers to everything that is capitalism today in the ‘book’. Besides, Marx planned 8 volumes of Capital. He only published one plus 3 of notes. Like the approach to analysis by German thinkers of his day, he planned to proceed from the general to the particular, from the abstract to the more concrete. His work is largely unfinished. After Vol 1 he was too busy actually trying to create a party and a revolution to sit for more years once again in the British Museum doing research. We can’t fault him for that. But let’s not believe everything that could be said about capitalism he already said. And let’s not advocate theories like the FRP that can’t be tested or quantified even if we like the idea within it. (Btw, the FRP was never intended to explain capitalist cycles and crashes, as many Marxists try to assume it does. Marx’s ideas of crises were long run analyses not short run).

Let me finalize by saying to Raj that I don’t make up these views. They are the result of teaching a class every year for six years at St. Marys college in which the students and I read every page of Marx’s vol 1, along with every page of Keynes General Theory and Smith’s Wealth of Nations (abridged). However, I did not come to read Marx in the abstract, but only after having worked a dozen years in the union movement at the grass roots level as organizer, contract negotiator, strike coordinator and local union president. After that I read Marx and it therefore made much more sense to me, especially the chapters on how exploitation works.

I hope this foregoing explanation clarifies some of the all too brief passing comments I made during the Q&A on the implications of financialization and AI in late 21^st century capitalism for the FRP hypothesis that Raj raised.

I would refer your audience if they want more of my views and analyses on these issues to listen to my last Friday, April 1, 2023 Alternative Visions radio show, the topic of which was “Artificial Intelligence vs. the Working Class” (accessible from my blog at http://jackrasmus.com) I also have a forthcoming print article by the same title which I’ll share if you like once it is published.

Yours,

Jack Rasmus

April 4, 2023