Don’t worship capital in any of its manifestations

Crisis, theory and politics

Nick Rogers interviews Andrew Kliman, New York-based Marxist economist and author of The failure of capitalist production1

It is four years since the financial crash of September 2008 and five years since the beginning of the credit crunch. Are you surprised at how long the economic crisis has lasted? Do you foresee it coming to an end any time soon?

I’m not surprised. It’s been apparent since the financial markets went into a panic in September 2008 that the Great Recession wouldn’t be your usual business-cycle downturn. Once capitalists become gripped with such fear, you have a qualitatively different situation. They look harder at the underlying conditions that affect the future, and they base their actions on these conditions much more than before. There are serious underlying economic problems that haven’t been resolved. They will hinder a sharp rebound as long as they persist. Above all, there’s a huge debt problem - debts of peripheral euro zone governments, home-mortgage debt, debt that banks need to be repaid in order to remain solvent, etc.

So what we have is a major debt crisis. I don’t think it’s very likely that we’ll have a sustained boom unless and until the debt problem and the deeper, underlying problem - the profitability problem - are resolved. We may have a long period of very weak growth, as Japan has had ever since bubbles in its real-estate and stock markets burst at the start of the 1990s, or we may have something worse. Given the magnitude of the bust in the US construction industry and the magnitude of the recession in general, it would have taken a long time for production and employment to return to pre-recession levels in any case. It’s likely that the persistent debt problems and pessimism about the future have slowed down the recovery, and that they’ll continue to do so. Real gross domestic product in the UK and most other major European countries is still lower than before the recession. And even in countries where that’s not the case, like the US and Germany, GDP growth is still quite slow.

How significant do you think it is that the crisis has coincided with a boom in the prices of lots of raw materials sustained, according to conventional economic wisdom, by high economic growth in China and other parts of Asia? Are we witnessing divergent trends in the global economy that will play out over the long-term?

There are always pockets of stagnation in the midst of expansion, or pockets of expansion in the midst of stagnation. By itself, such divergence doesn’t negate the fact that the economic crisis is system-wide. System-wide problems typically have uneven effects. During a recession, for instance, only the most vulnerable businesses go bankrupt. Some are hardly affected. Yet the recession is still a systemic problem. So the real question is whether the crisis is indeed system-wide. I think it definitely is.

In the decades preceding the crisis, economic growth was very rapid in China and India, but not in most of the rest of Asia or elsewhere. And the effects of the global recession on China were substantial. Between 2007 and 2009, the GDP growth rate fell by about as much in China as it did in the US and France. Recently, the continuing economic malaise has led to the renewed slowdown of China’s economy. In addition, there are persistent rumours that the country’s real-estate boom is a bubble about to burst. What will happen over the long term, insofar as divergent trends are concerned, depends a lot on whether those rumours, and speculation that China has now shifted into a long-run phase of slower growth, prove to be correct. It’s hard to know.

But the more important points, I think, are, first, that the whole capitalist class is in this crisis together; weak economic conditions affect them all. So do pessimism and uncertainty about the future. And, second, when pessimism and uncertainty reign, investors seek out safe havens and stability. The world’s safe haven is definitely not China: it’s the US. We saw this in 2008, after Lehman Brothers collapsed. The US financial system was in shambles, and you received almost no interest or even negative interest on US treasury bills, but investors the world over were scrambling to lend to the US treasury because it was the only real way to keep their money safe.

I expect that, for some time to come, the US will continue to be the main country that provides whatever stability and safety that can be provided. That’s because its ability to provide them has everything to do with its unrivalled military might, even when that might remains latent. I think this limits the extent to which the balance of economic power can shift. Also, inter-capitalist rivalries in the US aren’t as sharp as they are in Europe, where they take on a national form.

Your recent book, The failure of capitalist production,2 argues that the fundamental cause of the current crisis was a failure to restore profitability after the recessionary years of 1974-81. What are the main features of your thesis?

The Great Recession was waiting to happen. There were unresolved problems in the system of capitalist production that had been building up over a third of a century. As you note, I argue that US corporations’ rate of profit fell and never recovered in a sustained manner. This led to persistently sluggish investment, which in turn led to weaker growth of output and income. And weak income growth led to rising debt burdens - the same dollar amount of debt is a bigger burden when income growth is slower. In addition, governments, especially the US government, tried to solve this complex of problems, or at least paper them over, with policies that made the debt build-up even bigger.

I also argue that changes in economic policy help explain why, on the one hand, this complex of problems didn’t result in another Great Depression, and why, on the other hand, there has been relative stagnation for such a long time - much longer than that decade-long depression. For obvious reasons, and because it triggered a significant radicalisation of working people, policymakers have tried to avoid another depression. So they’ve consistently steered clear of laissez-faire policies. They intervene with policies that throw debt at the problems and ‘kick the can down the road’. So we don’t get a slump that’s anything like the depression. But we also don’t get a new boom like the one that followed the depression and World War II. The debt build-up prevents a recurrence of the massive destruction of capital value that occurred then - bankruptcies, falling asset prices, and so on. But the destruction of capital value helped to restore the system’s profitability, by allowing new owners to take over companies cheaply and without having to assume the old owners’ debts. We haven’t had that, so the fall in profitability has persisted.

Policymakers in different countries have responded to the economic crisis in significantly different ways, but the US government’s response has been almost unbelievably activist, or ‘Keynesian’ if you will. In the four years since Lehman Brothers collapsed, the treasury’s total debt has shot up by $6.4 trillion - an increase of almost two-thirds. Once again, they’ve been papering over bad debt with more debt, but this time on an unprecedented scale.

The devaluation of capital plays a big role in your understanding of the economic history of the last 80 years and more. When I reviewed3 The failure of capitalist production I questioned whether the capital devaluation that undoubtedly took place in the 1930s was a strong enough explanation by itself of the vigour and length of the post-war economic boom. My reservations were that (a) the volume of investments made with the devalued capital inputs at the beginning of the upturn could not by themselves have sustained profit rates for 20 years or more; and (b) the effect of World War II was to cause shortages of investment goods and so counteract the devaluation that occurred in the slump. How do you respond?

I agree that the destruction of capital value wasn’t the only cause of the post-war boom. I don’t even think it was the only cause of the spike in the rate of profit. I stressed the role played by the destruction of capital value because I think it is too often disregarded and because I think it’s an important part of the story - but not the only part. I was arguing against accounts of the post-war boom that try to explain it solely in terms of demand. I don’t think they succeed.

In the US case - I really don’t know about other countries because the rate-of-profit data for them aren’t very good - the post-war boom lasted much longer than the high rate of profit did. Corporations’ rate of profit began to decline from the mid-1950s onward. So we don’t have to account for 20 years or more of high rates of profit, but only about 10 years. US GDP growth remained strong for a long time thereafter, but that’s largely because productive investment didn’t immediately slow down in response to the fall in profitability.

I doubt that even a 10-year-long spike in the rate of profit can be explained in terms of the devaluation of capital inputs: ie, falling prices of means of production. However, as I indicated above, I mean something much broader when I refer to the destruction of capital value. I use the term ‘destruction of capital’ in the way Marx used it. He meant not only destruction of the value of means of production, but also destruction of financial wealth by means of bankruptcies, bank failures, falling prices of stocks and bonds, etc. I think the financial side of the destruction was probably the more important side in helping to restore the rate of profit, though it’s hard to measure, partly because of insufficient data.

But, insofar as means of production are concerned, the destruction of capital value wasn’t only a matter of falling prices. US corporations’ physical stock of fixed capital fell during the depression and didn’t rebound thereafter, even during the war. It was smaller at the end of 1945 than at the end of 1929. But right after the war ended, corporations were producing roughly twice as much output, in physical (inflation-adjusted) terms, as they did right before the depression. This means that physical capital investment per unit of output fell by about one-half. This helped raise the rate of profit tremendously.

Your measurement of profit rates in the US economy since 1981 diverges dramatically from that of many other Marxist economists. Can you explain how that comes to be?

It’s not a measurement issue. It’s a conceptual issue - what is a rate of profit? And it’s an ethical issue - why do they call their measures ‘rates of profit’ when they’re not rates of return on investment, even though the public thinks that the Marxist economists are indeed referring to rates of return on investment when they claim that the ‘rate of profit’ rose?

What they compute is today’s profit as a percentage of the amount of money that would be needed today to replace all of their fixed capital assets at once. That might be a useful measure of something, but no-one has ever successfully explained what it’s useful for, other than that it would be the expected rate of profit of a capitalist who was so oblivious that he failed to realise that future changes in prices will affect profits. And their measure certainly isn’t a rate of profit. A rate of profit is a rate of return on investment - today’s profit as a percentage of the amount of money that was actually invested in order to acquire the capital assets (minus depreciation). That’s what I compute.

We’re talking about two entirely different things, not two different measures of the same thing. So it’s not surprising that what they call the ‘rate of profit’ rose, even though US corporations’ rate of return on investment fell.

In The failure of capitalist production you explain why you are not able to measure the exact rate of profit that Marx discussed. In effect you are measuring rates of return on fixed capital - leaving out of your calculations circulating constant capital and variable capital. Do you think the trends in the profit rate you uncover might be different if you were able to incorporate circulating capital into your measurements?

I found that when we use an inclusive definition of profit rather like what Marx meant by surplus value, US corporations’ rate of profit trended downward sharply from the early 1980s until the crisis. Including circulating constant and variable capital couldn’t possibly reverse such a sharp decline. The capital advanced in order to buy raw materials and hire workers is far too small to have such an effect. Only a small amount of the money that’s spent to buy raw materials and hire workers is a fresh advance of capital; the rest represents multiple ‘turnovers’ of the same advances.

On the other hand, measures of the rate of profit based on before-tax and after-tax profits were basically trendless between the early 1980s and 2007, so it’s conceivable that inclusion of circulating constant and variable capital could make them trend modestly upward or downward. That really wouldn’t affect my account of the underlying causes of the Great Recession, which doesn’t have much to do with trends in the rate of profit in this technical sense of ‘trend’. My account relies much more on the fact that all of the rates of profit remained low.

Turning to a very technical issue, Arthur Bough raised a question about the measurement of the rate of profit in response to my review of your book. He quoted a famous passage from volume 3 of Capital about an upward revaluation of constant capital - cotton as a result of a bad harvest - and its effect on the value of previously accumulated stocks. Arthur Bough asked what happens if the capitalist producing (say yarn) spent 1,000 on cotton (prior to the rise in its value to 2,000), and 1,000 on workers’ wages, given a rate of surplus value of 100%. Would the value of the output commodities (the yarn) incorporate a value of 1,000 or 2,000 for the constant capital (the raw cotton)?

I made a case that if all the capitalists had bought their cotton inputs prior to the price rise, it would be the historical cost - ie, the 1,000 - that would transfer to the output value (and that competition would prevent the capitalists from cashing in a capital gain). Now, I know you are an advocate of pre-production reproduction costs - the costs of inputs at the time they entered the production process. What would be your take on the above scenario, assuming the rise in the price of cotton took place before the production process began?

If the capitalist bought means of production for 1,000, but they’re worth 2,000 when they enter into production, this means that a capital gain of 1,000 accrues to the capitalist - before production begins. The means of production are worth 2,000 at the start of production, whether or not they’re used in production, so it’s clear that no additional surplus value arises between the start of production and the sale of the products as a result of the increase in their value. The capitalist sells the products for 4,000, but pays workers only 1,000, and the used-up means of production are worth 2,000, so the surplus value is 4,000-1,000-2,000=1,000. Equivalently, at the start of production, the capitalist had means of production worth 2,000 and 1,000 in money to pay wages, while he has 4,000 in money after selling the products. So the surplus value is 1,000.

I think you were trying to reconcile real-world phenomena with Marx’s claim that surplus value arises only in production, by means of extraction of surplus labour. Since you construed capital gains as additional surplus value, and you didn’t want to say that additional surplus value arose outside production, you ignored Marx’s numerous statements that what determines the value of a commodity, including a means of production, isn’t the amount of labour it actually took to produce it, but the amount of labour needed to reproduce it now.

I think your interpretive method was exactly right - making the text make sense - but the problem is that passages which state that commodities’ values are determined by the amounts of labour needed to reproduce them are also parts of the text. So what we have to reconcile are real-world phenomena, Marx’s claim that surplus value arises only in production, and these passages. This can be done, and I think it can only be done, by distinguishing between capital gains and surplus value. And we also have to distinguish between capital gains and increases in value that arise in exchange. Note that the capital gain in this example didn’t arise in exchange. The value of the means of production increased, even though they weren’t exchanged.

But don’t you measure the rate of profit using historical costs? In that case, how do you account for the capital gains without ending up measuring a rate of profit of 1,000 surplus value plus 1,000 capital gains over 1,000 constant capital (the historical cost) plus 1,000 variable capital - ie, 2,000/2,000, a rate of profit of 100%?

Yes, I measure the rate of profit using the historical cost of the fixed capital, because a rate of profit is a rate of return on investment, and the money that’s been invested in the fixed capital is its original, or historical, cost. How commodities’ values are determined and how capitalists assess the rate at which their capital expands are just different matters. To update a comment of Marx’s, if a capitalist has a penchant for computer keyboards made of gold instead of plastic, the extra money he spends for them doesn’t increase the value of his firm’s products. But it does lower his rate of profit.

In any case, you raise an important issue. I think the 100% rate of profit you just computed - the total return as a percentage of the amount of money invested - is a legitimate rate of profit, and it’s the relevant one in some contexts. In other contexts, we might want to focus just on profits from current production as a percentage of the amount of money invested. At the level of the world economy, profits from current production are the same thing as surplus value.

In practice we really don’t have a choice. Governments’ national accounts, which are our only source of information on economy-wide profit, count only profits from current production; capital gains and losses, write-downs of assets, unpayable debt and loan-loss set-asides are disregarded. This isn’t actually a defect, but one needs to refrain from interpreting this rate of profit as the total return on the money invested. For instance, it declined during the Great Recession, but, since it doesn’t reflect any of the financial losses I just mentioned, it didn’t decline by as much as one would expect if one didn’t know what it excludes. So you have to refrain from using it as the sole gauge of how well corporations have been doing recently.

Readers of the Weekly Worker are familiar with some of the ideas of Moshé Machover, including those on political economy. Moshé collaborated with Emmanuel Farjoun in writing the 1983 book Laws of chaos,4 which claims to “dissolve” the ‘transformation problem’. I notice that you make a number of favourable references to this book in your writings. How do you evaluate the contribution of Laws of chaos?

I think it was an important book, but I also think the attempt to “dissolve” the alleged ‘transformation problem’ evades the important theoretical issues at stake. And there are other problems with Laws of chaos, especially the fact that it also accepted critics’ allegation that Marx’s law of the tendential fall in the rate of profit is logically invalid.

What was good about Laws of chaos was that it forcefully challenged what was and still is a standard assumption in Sraffian and mainstream Marxian economics: namely the notion that all firms and all industries receive the same rate of profit. Farjoun and Machover showed that this is not a harmless approximation; one simply can’t deduce conclusions about real-world capitalism from models that make this assumption.

I think they made the case quite convincingly. But the point was subsumed under the project of evading the alleged ‘transformation problem’. The ‘problem’ is a supposed logical inconsistency in Marx’s value theory that makes it untenable. Marx argued that workers’ labour is what creates all new value and that their surplus labour is the sole source of profit. And in his account of the ‘transformation’, or conversion, of values into prices of production, he showed that this law holds true at the economy-wide level, even though the prices and profits that particular industries receive differ from the values of their products and the surplus values they produce. If there’s a logical inconsistency in this account, as was long alleged, Marx’s value theory and much else - everything else in Capital that is based on the value theory, including the all-important law of the tendential fall in the rate of profit - goes out the window. It must all be rejected or corrected.

The way to dispose of the allegation of inconsistency is to show that the alleged logical error doesn’t exist. That’s what the temporal single-system interpretation (TSSI) of Marx’s value theory, which you discussed in your review of my book, does. The TSSI shows that the logical error isn’t in Marx’s own text; it was created by particular interpretations of that text and it just vanishes when Marx is interpreted as the TSSI interprets him. But Laws of chaos took a different tack. It conceded that the logical error does exist in the case in which firms in all industries receive the same rate of profit, but argued that this is unimportant, since the equal-rate-of-profit assumption is completely unrealistic.

There are two main problems with this argument. One is that this assumption wasn’t smuggled in by critics who tried to prove that Marx’s value theory is logically untenable. It is what Marx himself assumed in his account of the ‘transformation’. Even more importantly, what sense can we make of a theory which says that labour creates all new value and that surplus labour is the sole source of profit - but only because rates of profit aren’t equal?! If labour and surplus labour are the sole sources, how could a different distribution of the profit among industries - one that results in an equal rate of profit - change that fact? It doesn’t make sense.

I am interested in how an economic school such as that formed by those Marxist economists who hold to the TSSI works. In Reclaiming Marx’s ‘Capital’5 you explain something of the history of the TSSI, going back to a few scattered papers in the 1980s. To what extent do you coordinate your research efforts, participation in conferences and so on or even just share your ideas with other adherents of the TSSI?

I’ve worked rather closely on some things with a few other people such as Alan Freeman and Nick Potts. But, unfortunately, the ‘school’ in question hasn’t ever really functioned as such, despite concerted efforts to change this. The TSSI was almost unknown for decades. In recent years, it’s gained a lot of adherents, but few of them work in academic jobs that give them time to do research, and some who do have such jobs don’t do research along these lines. A lot of people are happy to learn that Marx’s theory isn’t guilty of the logical errors with which it’s long been charged, and then they move on.

This is related to what I call the ‘every man his own Marxist’ problem. The myth that Marx’s theory was logically inconsistent helped to create this problem; the alleged inconsistencies were a licence to ‘correct’ Marx in this way, that way, whatever way one wants. But unfortunately, the ‘every man his own Marxist’ vice also affects the ‘school’ in question. It has to do with the intellectual culture of our times, and especially with the fact that there’s no funding of, or benefits from, TSSI-related research. I suspect that the thousands of scientists who work together at Cern, the European Organisation for Nuclear Research, and the intellectuals who work together in all of the think-tanks would be off doing their own things if there were no financial incentives to induce them to act in a cooperative manner.

The solution is what I call ‘intellectual autonomous zones’ that obtain resources from groups and people outside of academia and use them for collaborative research. Something like this existed in the pre-World War I German Social Democratic Party. Of course, it was no panacea; the party capitulated to the imperialist war. But my point is simply that intellectual autonomous zones are a real possibility, if there are resources to sustain them.

You are a Marxist humanist. Can you tell us something about your political history? How does your political perspective inform your scholarly work on political economy?

I’m part of the 1960s generation of radicals, even though I’m about 10 years younger than most of them. I was a radical in high school in the early 1970s. The anti-Vietnam war, black and women’s liberation movements, and the new left, were major influences on me. But they were fraught with contradictions, which caused them to collapse or retrogress, and this also had a profound effect on me. Hegel said that contradiction is the root of all movement. That’s absolutely true of those of us who can’t tolerate contradictions and do what we must in order to try to resolve them. This is what kept me moving, so to speak, when some of the left was giving up and others remained satisfied with self-contradictory sets of ideas that had failed and blamed the failures on the external enemy - the power of capitalism, imperialism and so on.

Eventually, in the early and mid-1980s, I studied Capital, and then discovered Marxist-Hhumanism. I’ve been an active Marxist-Humanist ever since. The organisation created by Raya Dunayevskaya, who founded the philosophy of Marxist-Humanism, stagnated after her death, retrogressed, and ultimately came apart a few years ago. Since 2009, I’ve been working with a new organisation, Marxist-Humanist Initiative. Drawing on Dunayevskaya’s idea that Marx’s philosophy of revolution is crucial to the success of the revolutionary project, and especially her idea that the organisation of thought is essential, Marxist-Humanist Initiative is trying to rebuild an organisation that can continue to develop Marx’s Marxism and Marxistm-humanism, and make them concrete for our time.

The works of Marx and Dunayevskaya totally transformed my understanding of the world and how it can be changed. So much of my understanding of Marx is influenced by Dunayevskaya’s interpretation that I can’t separate them. So let me just say that one key thing I learned from both of them is that capitalists aren’t to blame: they’re just functionaries for the system, personifications of capital. And another key thing I learned from Dunayevskaya is the importance of internal contradiction, especially internal contradictions within the left. Once you start thinking this way, you no longer regard the opponent’s might as an adequate explanation of our own failures and you stop thinking that replacing the opponent with a different set of personifications of capital is any kind of solution.

These and many other ideas of theirs inform all of my work and they are what motivate all of it. In some cases, such as the last chapter of The failure of capitalist production, I think this comes out clearly in the content of what I say. In other cases, such as my effort to set the record straight regarding the alleged inconsistencies in Marx’s value theory, what reflects my philosophy and politics is this effort itself. But I can see how it might be hard at times to see the relationship between my work and theirs. On the one hand, I don’t spend a lot of time repeating what they said. They said it well enough the first time, and I can’t stand appeals to authority - I think that popularisations of Marx’s works have been downright detrimental. And I certainly don’t package my own views as theirs in the way that Marxist intellectuals often do to Marx. On the other hand, I’m not a good enough thinker to further develop their work in the foundational sense in which they developed it. So I do what I’m capable of doing, and avoid doing what I consider useless or harmful.


1. The interview was conducted by email.

2. A Kliman The failure of capitalist production: underlying causes of the Great Recession London 2012.

3. N Rogers, ‘Value, profit and crisisWeekly Worker July 5 2012.

4. E Farjoun and M Machover Laws of chaos: a probabilistic approach to political economy London 1983.

5. A Kliman Reclaiming Marx’s ‘Capital’: a refutation of the myth of inconsistency Lanham MD, 2007.