Academic journal article World Review of Political Economy

The Long Roots of the Present Crisis: Keynesians, Austerians, and Marx's Law

Academic journal article World Review of Political Economy

The Long Roots of the Present Crisis: Keynesians, Austerians, and Marx's Law

Article excerpt

Abstract: The ultimate cause of crises in capitalism is lack of profitability. The Keynesian and Austerians (the supporters of austerity measures), deny this. So their solutions to crises do not work. Keynesian state-induced stimulus programs (redistributive, monetary, and fiscal) cannot overcome the underlying tendency for profitability to fall. The same holds for the policies of "austerity," which are designed to reduce debt and raise profitability. These conclusions are particularly relevant for the weaker Eurozone economies in the midst of the euro crisis, in a case study of Argentina, we argue that it was not competitive devaluation that restored growth after the 2001 crisis, but default on state debt caused by the previous destruction of productive capital.

Keywords: long roots; Keynesians; Austerians; Marx's Law

1. Profit Calls the Tune

Capitalism does not develop in a straight line upwards. Its movement is subject to recurrent cycles of "booms and slumps" that destroy and waste much of the value previously created. For example, the 1880s and 1890s saw a massive destruction of US value and wealth; and the Great Depression of the 1930s also. Now we have suffered the first Great Recession and are in the Long Depression of the 21st century. We hold that the key to understanding the sequence of booms and busts is the movement of the profit rate.1

Individual capitalist businesses compete with each other to sustain and increase not only the mass of profits but also their profits relative to the capital invested. To do so, they increasingly use new technology to boost the productivity of labor. But tliis is capitalism's Achilles' heel. The accumulated cost of investing in new plant, equipment etc. inexorably rises compared to the size and cost of the labor force. As only labor can create value (a point to be empirically substantiated below), the value and surplus value generated by the capitals investing in new methods of production begins to fall. On the other hand, these capitals are more efficient and produce a greater output. By selling it at the same price as the lower output of the technologically backwards capitalists, they appropriate a share of the surplus value produced by the latter. Their rate of profit rises but that of the technologically less efficient capitals and of the economy as a whole falls.2 If other capitalists modernize as well, profitability falls consistently. Eventually it will cause a fall in the mass of profit. Then capitalists stop investing and "go on strike." A crisis ensues.

Capitalists try to avoid the crisis in various ways: by trying to exploit workers more; by looking for yet more efficient technologies; and by speculating in unproductive areas of the economy, e.g. the stock market and banking and finance, where they gamble for gain. National capitalist economies look for new sources of labor supply to exploit abroad and new foreign markets from which to appropriate (surplus) value. These are some of the counteracting factors to the main law of profitability, the "law as such." But these counteracting factors can only work for a while. Eventually, the law of falling profitability will operate.

Empirical evidence confirms this. We shall focus on the US since the Second World War.3 Figure 1 shows that the rate of profit lias been falling since the mid-1950s and is well below where it was in 1947.4 There has been a secular decline. But the rate of profit has not moved in a straight line. After the war, it was high but decreasing in the so-called Golden Age from 1948 to 1965. This was also the fastest period of economic growth in American history. Profitability kept falling also from 1965 to 1982. GDP growth was much slower and American capitalism (like elsewhere) suffered severe slumps in 1974-75 and 1980-82.

Then, as Figure 2 shows, in the era of what is called "neo-liberalism" from 1982 to 1997, profitability rose. Capitalism managed to get the counteracting factors to falling profitability into play, i. …

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