anwar shaikh, crisis: the punchline of the story (lecture 15 – 12/14)
each of the economists that we've studied have stressed the centrality of profit to the reproduction of the capitalist system.
if you eliminate profitability, then the system contracts sharply. this can happen for various reasons – bad weather events, etc.
that's why we begin, always, with the question—where does profit come from?
the aggregate profit (surplus)
the rate of profit – all three authors make a distinction between the expectation that profit will be rising absolutely (surplus), and the idea that the rate of profit will be falling. in other words, there is a distinction between 'growth' of the surplus product, and the question of the rate of profit.
Marx, like Smith and Ricardo, argues that the rate of profit falls. he roots his claim in the argument that accumulation undermines itself—the pursuit of profitability itself sets in motion dynamics that undermine profitability. in Smith and Ricardo, this is viewed as a secular trend; there's a debate in the Marxist tradition, about whether this ought to be understood as a secular trend (which Shaikh believes), or more a long-wave type dynamic.
recall that one (conceptual) limit to the growth rate is the profit rate (you can't re-invest more than your profits). this is just a counting identity. at a more concrete level, it obviously also depends on the interest rate – the growth rate will be limited by the difference between the profit rate and the interest rate (the 'risk-free' rate)
Adam Smith says that there's a stable relationship between the interest rate and the profit rate ('in the market, a rule that the interest rate be half the profit rate'). in that case, you would expect that the interest rate follows the profit rate. there's a long discussion that follows, here – Shaikh is alluding to his answer to this question.
wants to put together a concrete history of accumulation, based on the argument that capitalism is driven by the profit rate on enterprise. that's the link to the material that we've done, thus far.
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first, a distinction between 'cause' and 'trigger'
a cause is something underlying—something fudamental that predisposes an outcome (for instance, if you have a particular health problem, a weak heart—then it's not very surprising that you get a heart attack. this might be, however, an immediate result of winning the lottery, or something. so the trigger is not the same as the cause).
there's a strong tendency to suggest that the shock is the cause. it might be (asteroids hitting the dinasour), but it could very well not be. in accounts that aren't systemic, of course, they focus on the shocks/triggers.
mortgage crisis as the trigger; immediate cause is the huge credit bubble which preceded it by decades.
deregulation, however, was going on since the 1970s because banks and busineses were pushing it for reasons of profitability (inevitably, the pressure on banks is to make profits, take risks – the trouble is that, you're not telling banks to throw around your gold, that's for investment firms. if they're limited by the State, then they chafe under those limits. some countries resisted this pressure (Canada and India)).
so was it just deregulation? no. it is silly to say had deregulation not happened, the crisis not have happened (we're going to substantiate this, now)
thus, there is a deeper question that needs to be asked here: why was there a huge credit bubble, in the first place?
was the credit bubble just Greenspan's folly, an atmosphere, etc.?
no – what we are experiencing is a structural crisis, part of a recurrent pattern (and what's surprising is that we're remarkably 'on pattern')
Great Depression of 1840s, 1880s, 1930's, and 1970's
some of these were sharp collapses in the real economy (late 1840s and 1930s)
others were protracted declines (1840s and 1970s)
again, profitability is the driver of growth – not by 'sales'
the point where profit stagnates in more than a temporary way is a point of absolute overaccumulation (when the mass of real profit of an enterprise stagnates or falls). individual capitalists may gain, and others may lose – but the capitalist class as a whole is losing.
this triggers a 'phase-change' in the behavior of the system. those that are doing badly start pulling back, etc.
the key point Shaikh is making, is that the phase-change triggers a change in the system's dynamics. the tide that was moving in begins to move out (remember, the future just evaporated – a lot of financial profits are booked on future expectations)
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let's begin the story from the last Great Depression (the 1970s)
accumulation is driven by profitability
accumulation undermines profitability –> rate of profit falls
the stagflation crisis of the 1970s and 1980s across the capitalist world was a Great Depression with widespread failures (a lot of this was covered up by inflation – the stock market collapsed in real terms, if you account for this). of course the death-knell for Keynesian theory (loosening labour markets and inflation)
it didn't lead to the enormous collapse, recovery was driven by three extraordinary developments
an extraordinary fall in the global interest rate, which raised the profit rate
an historical attack on the welfare state, destroying the standard of living
an extraordinary recourse to debt to fuel the global expansion of capital, and to cover up the declining living standards of workers
in short, Shaikh painting a picture of a crisis postponed.
looking at a graph of the general rate of profit – suggesting that if we get rid of the 'noise' (impact of war, etc), you have a declining rate of profit trend.
the 1982-2005 'boom', moreover, saw more-or-less constant profit rates. how did we get a boom? how did we get accumulation.
key: you have to look at the interest rate. something extraordinary happened to the interest rate.
(question of where the inflation in the 1970s comes – Shaikh referring us to his paper on inflation. if profitability is falling, then even the same rate of accumulation can be inflationary. remember, the difference between the growth rate and the profit rate is a throughput measure, how 'tight'/'loose' the system is)
we tend to think of the interest rate as a 'riskiness' measure, etc. but there's another way to think of it. the interest rate is the 'price' of the money you borrow/lend. if you put it that way, you can think of the 'interest rate' as a natural price – something that gives banks normal profits. if that's the case, then the interest rate will rise with the 'cost of banking'.
so you would expect the interest rate to follow the price level, all else being equal; this is important, because orthodox theory disagrees. they think of this as Gibson's paradox, which is the observation that interest rates rise with the price level (empirically this holds until around the early 1980s, Volcker shock, after which deviation begins); they can't explain this, because of their theoretical apparatus).
you can have two explanations for this: (1) policy; (2) the costs of banking decrease, meaning that the interest rate declines (Shaikh's position)
Shaikh also noting that global interest rates match US interest rates. whatever the explanation, the fact that lower and lower interest rates explain the great credit bubble.
the reason we got out of the Great Depression of the 1970s was not because of a recovery of profit rates, but because of a fall in interest rates.
obviously, though, this has limits. you couldn't offset the profitability problem forever; and we arrive at the 'recovery's' limits.
what happens to labour, in all of this? real wages and productivity are linked until the early 1980s (thanks to the balance of class forces, in short). but after, you have a rise in the rate of exploitation, and workers pile on household debt (from 30% in early 50s to 140% in 2007/2008). about 15% of annual income went to dept repayments, at the peak.
remember, despite this, the profit rate was still constant in this period – despite the fact that the rate of exploitation is rising.
General Implications:
occurrence of Great Depressions is an intrinsic outcome, even if it's modified in its path/expression by conjunctural factors
Great Depressions have built-in recovery mechanisms: lowering of real wages relative to productivity, global reserve arem of labour, concentration and centralization, etc.
shift in hegemonic balance of powers will not alter this intrinsic dynami
what can you do, in periods like this?
well, we have the example of Japan – Japan didn't let the kind of forest fire that the US and England (sort of) let happen. they just let interest rates fall.
what is quite striking is that we've got a quasi-boom, now – the 'recession' is allegedly over.
in 1933 the NBER would have declared the recession over, don't forget. there was a recovery, after the jobs programs, etc. (emphasis that this is a very different kind of stimulus—offering employment, rather than shoring up the liquidity of investment banks, or less stimulatory 'Star-war' wars).
the deficit is only 1% in the early 30s (it'll be 12% in WWII, of course, which tells us something about how class interest and wars) –but this is largely a result of the fact that natural recovery mechanisms were allowed to express themselves (massive unemployment, enormous business failures, etc.)
an important point about stimulus – the contemporary model is the preferred one for capital (shoring up banks, etc.); the second, of course, makes the profit motive subordinate to social goals which is correctly seen as a threat to capitalism (giving to the reserve army).
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question: 'natural recovery mechanisms' mean austerity and unemployment, etc. but presumably Shaikh would agree (a) that this doesn't include the kind of austerity that is being discussed, today, given the fact that we're not letting banks collapse, etc. (in other words, is mass unemployment more important, or bank failures, business failures, etc.); (b) are there alternative ways of unleashing 'natural recovery mechanisms,' by sponsoring alternative centers of accumulation, etc. (and/or stimulating job growth?).
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