Book Review from the December 2014 issue of the Socialist Standard
‘The Failure of Capitalist Production: Underlying Causes of the Great Recession’. By Andrew Kliman. Pluto Press. 2012.
What happened to the rate of profit in the decades leading up to the crash of 2008 and the slump that followed? Some say it went up. Others say it didn’t.
Those who say that it went up say it did so as a result of the ‘neo-liberal’ policies implemented from the 1980s onwards as typified by Reagan and Thatcher but continued by their successors. They argue that this reduced consumer demand and would have led to a slump earlier had demand not been sustained by workers borrowing to spend. Eventually the burden of debt proved too much and the bubble burst in 2008. This, essentially, is an underconsumptionist theory of the crisis.
Kliman denies that there was a rise in the rate of profit or that there was a fall in workers’ standard of living in this period. His explanation of what happened is that when the post-war boom came to an end in the 1970s governments were afraid to let the economic laws of capitalism take their course and devalue existing capital as a way of restoring the rate of profit and capital accumulation. Instead, they resorted to borrowing. The result was that the rate of profit did not recover enough. Eventually, as in the other explanation, the debt-fuelled bubble burst. This is a falling (or not rising) rate of profit explanation of the crisis.
How come that theorists using the same data (US government statistics) can reach different conclusions as to how the rate of profit moved?
Most of Kliman’s book is taken up with defending his method of calculating the rate of profit. The rate of profit is profit as a percentage of capital invested. The two sides more or less agree on how to calculate profit. The disagreement is over how to calculate capital. Kliman argues for using the original value (‘historic cost’) rather than the current replacement cost used by the others. As the latter is generally less than the former it gives a higher rate of profit.
The same argument has gone on between capitalist accountants and it’s a highly technical argument that won’t be easy to follow for those not interested in this sort of thing.
The book’s last two chapters, on the other hand – on the implications of the rising rate of profit theory – are clear. Kliman writes as someone who favours a ‘communal economy’ oriented to the satisfaction of people’s needs which, he says, means that ‘finance, money, exchange, and value would have to be eliminated’, i.e. as a socialist. He points out that the rival theory leads to the view that capitalism can be reformed to work in the interests of the workers.
As its proponents blame ‘neo-liberalism’ rather than capitalism as such the implication is that if this policy was abandoned and state intervention resorted to on a wide scale again then things would get better for workers. And if working class underconsumption caused the problem this can be rectified by increasing wages and benefits. This in fact is what they do advocate on the ground in their reformist campaigns (one of those Kliman criticises is the French Trotskyist Michel Husson).
But let Kliman put it in his own words:
‘ … the notion of state-controlled capital is an oxymoron, like jumbo shrimp. As long as there is capital, what are actually in control are the economic laws of capitalism. Individual capitalists, including individual state capitals and worker-run enterprises, must submit to these laws.’
‘When all is said and done, accumulation and economic growth under capitalism depend upon the extraction of ever-greater amounts of unpaid labor, not reforms that limit that extraction.’
In fact, such reforms could make things worse:
‘… under capitalism, a new economic boom requires the restoration of profitability, but downward redistribution of income will reduce profitability … [B]y causing investment to fall, downward redistribution could lead to a deep recession, even a depression.’
Nothing to add.
Adam Buick
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