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Home , Capital accumulation, Mainstream economics, Rate of profit

MARX’S ECONOMIC THEORY AND CONTEMPORARY

FRED MOSELEY 1

INDICE

I. MARX’S THEORY OF ...... 1 II. MARX’S THEORY OF THE FALLING ...... 3 III. POSTWAR UNITED STATES ...... 5 1. FALLING RATE OF PROFIT ...... 5 2. ATTEMPTS TO INCREASE THE RATE OF PROFIT ...... 6 3. UNPRECEDENTED DEBT ...... 7 IV. CONCLUSION...... 9 V. REFERENCES ...... 10

1. It is often said these days (especially by the rate of profit. The third section applies ) that Marx’s theory is “dead” or Marx’s theory to the postwar US economy. The “obsolete”. It is argued in this paper that this paper concludes with an assessment of the assertion is blatantly false. The dominant likelihood of another in the purpose of capitalist is profit, and US economy in the years ahead, based on therefore the explanation of profit should be the Marx’s theory. main goal of a theory of capitalism. Marx’s theory provides a logically coherent theory of I. MARX’S THEORY OF PROFIT profit, which has considerable explanatory power (to be discussed below). Marx’s theory 3. Marx’s theory provides the best theory by far also provides a logically coherent and of profit, the all—important dominant purpose empirically strong theory of the trend in the rate of capitalist production, and the main question of profit over time. In striking contrast, in a theory of capitalism. Mainstream economic mainstream economic theories provide no theories provide almost no theory of profit at coherent theory of profit, and no theory at all of all, and certainly no theory with comparable the trend in the rate of profit over time. explanatory power to Marx’s. Mainstream Therefore, far from being “dead”, if we want to macroeconomic theory has not theory of profit understand profit and the rate of profit, Marx’s at all; in other words mainstream theory is absolutely essential. There is simply attempts to provide a theory no other credible theory of profit and the rate of of capitalism without a theory of profit! It is profit available, besides Marx’s theory. like trying to have a theory of the Catholic 2. The first two sections of this paper briefly church without the Pope. Mainstream review Marx’s theory of profit and the trend in

1 Mount Holyoke College USA

MARX’S ECONOMIC THEORY AND CONTEMPORARY CAPITALISM 1 has attempted to provide a capitalists will continually attempt to increase theory of profit (or what it calls ), the the length of the working day in order to “marginal ” theory, according to increase surplus labor, or will resist attempts of which interest is determined by the marginal workers to reduce the length of the working productivity of . However, this theory day. Thus a conflict over the length of the has been shown to be logically contradictory (as working day is inevitable in capitalism. This a result of the “capital controversy”), and has conclusion is obviously supported by the little or not explanatory power. This theory is empirical evidence of actual conflict over the now in general disrepute and is being quietly length of the working day throughout the dropped (in hopes that no one will notice) from . microeconomics textbooks at both the graduate 7. A conflict over the working day cannot be and undergraduate levels. deduced from the neoclassical marginal 4. Marx’s theory, by striking contrast, provides productivity theory of interest. According to a logically robust theory of profit with very this theory, interest depends on the marginal impressive explanatory power. Marx’s theory productivity of capital and does not depend in of profit is of course that profit is produced by any way on the length of the working day. the surplus labor of workers. That is, it only 8. Furthermore, according to the neoclassical takes a part of the working day for workers to theory of the supply of labor, the working day produce equal to their (the is determined by the workers own preferences; “necessary labor” portion of the working day). i.e. workers choose by themselves the length of In the remainder of the working day, the value their working day! Thus, according to this produced by workers becomes the profit of theory, there should be no conflict between capitalists. Therefore, Marx’s theory concludes capitalists and workers over the length of the that the profit of capitalists is the result of the working day. This theory simply does not fit exploitation of workers, because the value the facts of a persistent conflict over the produced by workers is greater than the wages working day, whereas Marx’s theory of profit they are paid. provides a clear and coherent explanation of 5. It follows from this theory that capitalist is this pervasive conflict. inherently and unavoidably an unjust and 9. A related conclusion of Marx's theory of exploitative . Capitalism profit is the inherent conflict over the intensity cannot exist without profit, and profit cannot of labor effort. This prediction also follows exist without the exploitation of workers. No directly from Marx's surplus labor theory of amount of reforms within capitalism can alter profit, in the same way as the conflict over the this basic fundamental truth. If we want a just length of the working day just discussed. An and equitable economic system without increase in the intensity of labor is an exploitation, then Marx’s theory suggests that alternative way, besides an increase of the we must change the economic system from working day, of increasing the total labor and capitalism to . thus of increasing the surplus labor (an 6. Marx’s theory of profit has considerable “intensive” increase of labor rather than an explanatory power (see Moseley 1995 for a “extensive” increase). This conclusion is also comprehensive appraisal of the explanatory strongly supported by the empirical evidence of power of Marx’s theory). One important the pervasive, ever—present conflict over the conclusion that follows form Marx’s theory of intensity of labor within capitalist workplaces, profit is an inherent conflict over the length of as every worker knows. the working day. Since the amount of profit is 10. By contrast, the neoclassical marginal determined by the amount of surplus labor, productivity theories of interest provides no

MARX’S ECONOMIC THEORY AND CONTEMPORARY CAPITALISM 2 explanation of the conflict between capitalists hence the rate of profit, is not a variable at all. and workers over the intensity of labor. Instead, The microeconomic marginal productivity according to this theory, interest is independent theory of profit (or interest) is entirely static, of the intensity of labor. Therefore, these which means that the theory is limited to one theories cannot explain why there should be a period of analysis, in which there is no conflict over the intensity of labor. technological change. Therefore, aside from its 11. Another very important conclusion derived internal logical contradictions, marginal from Marx’s theory of profit is the inherent productivity theory does not even attempt a tendency toward technological change in theory of the trend in the rate of profit. capitalist . Marx’ theory of profit 15. I assume that participants in this conference argues that, since the amount of profit depends are familiar with Marx’s theory of the falling on the amount of surplus labor, the rate of profit. I will just review the highlights to development capitalism will be characterized remind us of the most important points. I will by continual attempts to increase the surplus express Marx’s theory in non—technical terms, labor portion of the working day. Once legal with occasional translation into technical terms limits to the length of the working day are (see Moseley 1991, Chapter 1, for a further established, the primary means by which discussion of Marx’s theory of the falling rate surplus labor can be increased is through of profit). technological change which increases the 16. Marx’s theory of the falling rate of profit productivity of labor and which thereby reduces focuses on the effects of technological change necessary labor. —an inherent, ever—present feature of 12. The historical evidence obviously strongly capitalist economies (although entirely ignored supports this definite prediction of Marx's by ), as we have seen. theory. Continual technological change which Marx’s theory argues that technological change increases the productivity of labor is one of the tends to replace workers with machines (i.e. is most prominent characteristics of capitalist “labor—”), and thus tends to reduce the economies. By contrast, neoclassical theory number of workers employed in relation to the provides no explanation of the necessity of total capital invested. However, since profit is technological change in capitalist economies. produced by workers, the reduction in the Instead, technology in number of workers employed also reduces the is generally treated as “exogenously given” and amount of profit produced, in relation to the constant. total capital invested. In other words, the rate of 13. The most important conclusion of all that is profit (the ratio of profit to the total capital derived from Marx’s theory of profit is the invested) will decline. Expressed inversely, tendency of the rate of profit to fall over time, technological change causes the total capital during periods of expansion. This all — invested to increase faster than the number of important conclusion will be discussed in the workers employed, or causes the average next section. capital invested per worker to increase, which in turn causes the rate of profit to fall. In II. MARX’S THEORY OF THE FALLING Marx’s terminology, technological change RATE OF PROFIT causes the composition of capital (the ratio of to variable capital) to increase, 14. Marx’s theory is the only economic theory and thus causes the rate of profit to fall. to provide a general theory of the rate of profit 17. Marx’s theory argues further that the and its trend over time. In mainstream negative effect on the rate of profit of macroeconomics, as we have seen, profit, and technological change that increases the capital

MARX’S ECONOMIC THEORY AND CONTEMPORARY CAPITALISM 3 per worker is partially offset by increasing the true barrier to capital is capital itself” (Marx, profit produced by each worker, which also 1981, p. 358). tends to increase as a result of the same 20. Marx argued further that a decline in the technological change. As we have seen above, rate of profit would eventually cause the rate of technological change increases the productivity slow down, which in turn of labor, which reduces necessary labor and would bring on a general or thereby increases surplus labor; i.e. increases depression. Another important element in the the profit produced per worker. This positive development of crises and depressions, which effect of technological change and higher Marx discussed, but did not fully develop, is the productivity on the profit produced per worker increasing debt of capitalist firms during a is also reinforced by other ways to increase the period of expansion. Capitalist enterprises can profit per worker, such as wages cuts and temporarily overcome the limits of a declining increases in the intensity of labor. In Marx’s rate of profit by increased borrowing, but this terminology, an increase in the composition of temporary expedient increases their capital is offset by an increase in the rate of vulnerability to downturns and thereby surplus—value (the ratio of surplus—value or intensifies the severity of the eventual profit to variable capital only; where variable depression when it comes (see Crotty 1992). capital is the wages of workers). 21. Marx’s theory is the only economic theory 18. However, Marx’s theory argues that there to predict that capitalism has a tendency toward are inherent limits to the increase in the profit period crises and depressions. According to produced by each worker. The main limit is that Marx’s theory, crises and depressions are not there are only so many hours in the working accidents, or due to “exogenous shocks”, but day, and so it becomes harder and harder to are instead inherent and inevitable due to the increase the profit produced by each worker in nature and internal dynamics of capitalism a given working day. Another limit is the itself. This history of the “boom—bust” cycle resistance of workers, who usually fight against throughout the 19th and 20th centuries strongly cuts and fight for higher wages and a supports this all—important conclusion of share of the benefits of the higher productivity. Marx’s theory. As a result of these limits, Marx’s theory 22. Marx’s theory of the falling rate of profit concludes that “labor—saving” technological and depressions also implies definite “pre— change will eventually cause the rate of profit conditions for recovery” from depressions. to decline. According to Marx’s theory, the rate Since the main cause of depressions is a decline of profit falls, not because workers are in the rate of profit, the main precondition for exploited less, but in spite of the fact that recovery is an increase in the rate of profit. workers are exploited more, because fewer According to Marx's theory, there are two ways workers are employed, in relation to the total to increase the rate of profit: increase the profit capital invested. produced per worker or reduce the capital 19. It is important to emphasize that, according invested per worker. Marx argued that, to Marx’s theory, the decline of the rate of although increasing the profit per worker profit is not an accident or due to “external (through wage cuts, speed—up, etc.) would causes”. Rather, the decline of the rate of profit help raise the rate of profit, such an increase by is the result of capitalism’s own internal itself would usually not increase the rate of dynamics, characterized by continual “labor— profit enough to end a depression. Since the saving” technological change which replaces prior decline in the rate of profit was caused by workers with machines. As Marx put it, “the an increase in the capital per worker (not a declining profit per worker), restoring the rate

MARX’S ECONOMIC THEORY AND CONTEMPORARY CAPITALISM 4 of profit requires a lower capital invested per 24. According to Marxian theory, this very worker, or what Marx called the “devaluation significant decline in the rate of profit was the of capital”. The main way this devaluation of main cause of both of the “twin evils” of higher capital is accomplished during depressions is and higher , and hence the widespread bankruptcies of capitalist firms, also of the lower real wages, of recent decades. which are caused by the combination of falling As in periods of depression of the past, the profits and rising debts. As a result of decline in the rate of profit reduced the rate of bankruptcies, surviving firms are able to capital accumulation, which in turn has resulted purchase the productive assets of the bankrupt in slower growth and higher rates of firms at a very low , thereby reducing the unemployment. One important new factor in amount of capital invested per worker and the postwar period is that many governments in raising their rate of profit. This process of the 1970s responded to the higher bankruptcies, etc. continues until the capital per unemployment by adopting expansionary worker has been reduced enough and the rate of Keynesian policies (more government profit increased enough in the economy as a spending, lower , lower interest rates) in whole for capital accumulation to resume and attempts to reduce unemployment. However, eventually for a period of recovery and these government policies to reduce expansion to begin (unless of course workers unemployment generally resulted in higher have succeeded in overthrowing capitalism rates of inflation, as capitalist firms responded during the depression, which is what Marx to the government stimulation of by hoped for). Of course, widespread bankruptcies raising their at a faster rate in order to also worsen the economy in the short run, and restore the rate of profit, rather than by many times in the past have turned a recession increasing and . into a depression. 25. In the 1980s, financial capitalists revolted against these higher rates of inflation, and have III. POSTWAR UNITED STATES generally forced government to adopt restrictive ECONOMY policies (less spending, higher interest rates). The result was less inflation, but also higher unemployment. Therefore, government policies 1. FALLING RATE OF PROFIT have affected the particular combination of 23. Marx’s theory of the falling rate of profit is unemployment and inflation at a particular strongly supported by the facts of the postwar time, but the fundamental cause of both of these US economy. During the period of expansion “twin evils” has been the decline in the rate of and relative prosperity from the end of World profit. War II to the mid —1970s, the rate of profit in 26. It is striking that mainstream explanations the US economy declined almost 50%, from of the of recent decades has around 22% to around 12% (see Figure 1; see completely ignored the very significant decline Moseley 1991 for a description of the sources in the rate of profit. These mainstream and methods used to derive these estimates.) explanations emphasize “exogenous shocks” This significant decline in the rate of profit (i.e. accidents), such as government policy appears to have been part of a general world— mistakes, the OPEC oil price increase, a wide trend during this period, in all major mysterious slowdown in productivity growth, capitalist economies. etc. According to Marx’s theory, all these Figure 1 should be inserted about here factors are not “exogenous shocks”, but are instead themselves caused by the decline in the rate of profit. By ignoring the rate of profit,

MARX’S ECONOMIC THEORY AND CONTEMPORARY CAPITALISM 5 mainstream explanations miss this fundamental increasing, but profit is not, for the economy as cause and remain on the level of superficial a whole. This is what happened in the postwar appearances. US economy: the ratio of unproductive labor to 27. The significant decline in the rate of profit productive labor almost doubled from 1950 to in the postwar US economy was due mainly to 1975, and this very significant increase the cause predicted by Marx’s theory — contributed to the decline in the rate of profit. technological change, which increased the This increase in the ratio of unproductive labor capital invested per worker faster than the profit to productive labor also seems to have been due produced per worker. In Marx’s terms, in large part to technological change, which technological change caused the composition of increased the productivity of production capital to increase faster than the rate of surplus workers more rapidly than that of non — —value. From 1950 to 1975, the rate of surplus production workers, and which therefore —value increase approximately 20%, and the required more and more sales workers to sell composition of capital increased approximately the more rapidly increasing output of 50%, thereby causing the rate of profit to fall production workers (see Moseley 1991, Chapter (see Moseley 1991, Chapter 3, for a full 5, for a further discussion of the causes of the discussion of these estimates). relative increase of unproductive labor). 28. Another important cause of the decline of 30. Therefore, according to Marx’s theory, the rate of profit in the postwar US economy, there were two main causes of the decline of the which Marx did not emphasize, but which rate of profit in the postwar US economy from follows from his theory, was a very significant the late 1940s to the mid —1970s: an increase increase in the ratio of unproductive labor to in the capital invested per worker, and an productive labor during this period. According increase in the ratio of unproductive labor to to Marx’s theory, profit is not produced by all productive labor. Both of these causes were employees in capitalist firms, but only by themselves the result of technological change, workers engaged directly or indirectly in an inherent feature of capitalist economies. production activities (actually making or Therefore, the decline of the rate of profit in the designing or transporting something), which postwar US economy was not due to accidental, Marx called “productive labor”. There are two external causes (“exogenous shocks”), but was other main groups of employees who are not instead due to the inherent dynamic of engaged in production activities, which Marx technological change. called “unproductive labor”: “sales” employees (sales and purchasing, , advertising, 2. ATTEMPTS TO INCREASE THE RATE OF PROFIT , etc.) and “supervisory” employees 31. Capitalists have responded to the decline in (managers, supervisors, “bosses” in general). the rate of profit by attempting to restore the These two groups of unproductive labor, rate of profit in a variety of ways. We have although entirely necessary within capitalist already mentioned the strategy of inflation, i.e. firms, nonetheless do not themselves produce of increasing prices at a faster rate. Capitalists value and profit (see Moseley 1991, Chapter 2, have also attempted to slow down wage for a further discussion of Marx’s concepts of increases, and in some cases even to cut wages. productive and unproductive labor). Another strategy has been to make workers 29. According to Marx’s theory, if work harder and faster; i.e. “speed —up”. Such unproductive labor (which does not produce a “speed —up” in the intensity of labor profit) increases faster than productive labor increases the value produced by workers and (which does produce profit), this will also cause therefore increases profit and the rate of profit. the rate of profit to fall, because costs are The higher unemployment of this period

MARX’S ECONOMIC THEORY AND CONTEMPORARY CAPITALISM 6 contributed to this “speed —up”, as workers increases in the rate of profit, especially in the have been forced to compete with each other 1990s, but most of these increases have been for the fewer jobs available by working harder. wiped out in the subsequent downturn, so that One common strategy has been “down overall the rate of profit has recovered only —sizing”, i.e. layoff 10 —20% of a firm’s about a third of its previous decline. The rate of employees and then require the remaining profit today (2003) remains about 30% below employees to do the work of the laid —off the early postwar peaks. This absence of a full employees. This method also generally recovery in the rate of profit is the main reason increases the intensity of labor even before the why the US economy has not returned in recent workers are laid off, as all workers work harder decades to the faster growth and more so that they will not be among those who are prosperous conditions of the early postwar laid off. period. 32. We can see that the strategies of capitalist 35. According to Marx’s theory, the reasons enterprises to increase their rate of profit in why the rate of profit has not increased very recent decades have in general caused suffering much, in spite a significant increase in the profit for workers — higher unemployment and produced per worker (by means of wage —cuts, higher inflation, lower living standards, and speed —ups, etc.), is that the two main causes increased stress and exhaustion on the job. of the prior decline in the rate of profit have not Marx’s “general law of capitalist accumulation” yet been reversed — the increases in the capital — that the accumulation of by invested per worker and in the ratio of capitalists is accompanied by the accumulation unproductive labor to productive labor. The of misery for workers — has been all too true capital invested per worker has continued to in recent decades. increase since the 1970s, although at a much 33. Another strategy to reduce wage costs has slower rate. There have not yet been the been to move their production operations to low widespread bankruptcies which would devalue —wage areas of the world. This has been the capital and significantly reduce the capital per main cause behind the so —called worker. The ratio of unproductive labor to “” of recent decades — a world — productive labor has also continued to increase, wide search for lower wages in order to at roughly half the rate as in the early postwar increase the rate of profit. NAFTA has been period. These are the main reasons why the another strategy by US capitalists to increase increase in the rate of profit since the 1970s has their rate of profit, by giving them free access been so small. to Mexican markets and cheaper Mexican labor. However, this increased from US 3. UNPRECEDENTED DEBT will also have a negative effect on 36. In spite of the fact that the recovery of the Mexican companies and will force many of rate of profit has been so weak and incomplete, them into bankruptcy (especially small and the rate of growth of the US economy since the medium —sized ), as we have mid —1970s has not been too bad. The already seen. In this way, the most harmful recession of 1980 —82 was the worst of the effects of the crisis of profitability are shifted postwar period, but there has been no serious from US companies to Mexican companies. recession since then. The main reason for this 34. However, the startling fact is that, despite not —too —bad rate of growth over this period the decline in real wages and the “speed —up” has been an unprecedented expansion of debt of of workers’ labor, the rate of profit in the US all kinds — business debt and debt has not increased very much since the 1970s! and foreign debt. This debt has enabled (see Figure 1). There have been cyclical businesses to continue to invest and

MARX’S ECONOMIC THEORY AND CONTEMPORARY CAPITALISM 7 to continue to spend, but now their much higher households has come from foreign . debt levels leaves them with a much higher risk From the early 1980s (when the US became a of defaults, bankruptcies, etc. “debtor nation” for the first time since before 37. For nonfinancial corporate businesses, the I) to 1994, the average annual ratio of debt to profit is shown in Figure 2. We inflow of foreign capital was just under $100 can see that the current level of debt is about billion, for a total of over $1 trillion (see Figure five times higher than it was in 1950 and twice 4). This increasing dependence on foreign as high as it was in 1980. Furthermore, the capital by the richest nation in the world is bankruptcies of Enron and WorldCom and unprecedented in , and is sharp other companies have revealed that much debt contrast both to the US economy during the can be kept “off the books” by questionable long post World War II boom and also to the accounting practices, which became UK economy in the 19th century, in which increasingly prevalent in the 1990s. Therefore, these leading nations were net exporters of Figure 2 understates the real debt burden of capital, not net importers; i.e. were net creditors nonfinancial , who are therefore to the rest of the world, rather than net even much more vulnerable to defaults, borrowers. bankruptcies, etc. The dip in the 1990s was Figure 4 should be inserted about here probably due to the increasing transfer of debt 40. However, what is even more striking is the from the books of nonfinancial corporate sharp increase in the inflow of foreign capital businesses to “special purpose vehicles”. And from 1995 to 2000, which adds up to an then the use of these “vehicles” accelerated in additional $1.5 trillion in these years alone. the late 1990s. This amount was equal to approximately 20% Figure 2 should be inserted about here of gross private in the US during 38. The ratio of household debt to disposable these years. This is a tremendous infusion of is shown in Figure 3. We can see that foreign capital, even by callosal US standards. this ratio has approximately tripled since 1950, Much has been said in recent years about the with most of the increase coming since 1980, foreign debt problem of developing countries and is now over 100% for the first time in US around the world. The current deep . The rapid increase of household debt and social crisis in Argentina is due in large during the late 1990s made possible the part to a foreign debt of about $140 billion. In extraordinary “spending spree” of US recent years, the US has borrowed more than households during these years. And this rapid $140 billion or more every year! The US increase of debt and strong consumer spending foreign debt is now greater than the total has continued even during the recession in 2001 foreign debt of all the developing countries of and the weak recovery in 2002, as capitalist the world combined! firms who are desperate to sell their 41. This huge inflow of foreign capital offered customers more and more in contributed significantly to the “boom” in the order to be able to sell them (e.g. the “zero US economy in the late 1990s, in a number of percent” loans of the automobile companies). ways: by reducing interest rates, which in turn However, as a result of this “borrow and spend” increased investment spending and also lowered spree, US households are in more danger than the debt burdens of US corporations and ever before of defaults and bankruptcies, etc. households; by keeping the dollar strong in Figure 3 should be inserted about here spite of record US balance of deficits; by 39. Another very important fact is that much of increasing stock prices which stimulated the borrowed by US businesses and consumer spending; and by increasing government revenue and budget surpluses as a

MARX’S ECONOMIC THEORY AND CONTEMPORARY CAPITALISM 8 result of the faster growth. Without this huge , but it would also be at the inflow of foreign capital, the US economic expense of the US economy, further depressing “boom” of the late 1990s never would have investment spending and also increasing the happened. Of course, these beneficial effects already heavy debt burden of US corporations for the US economy were counterbalanced by and households, thereby increasing the the opposite harmful effects on the countries likelihood of more defaults and bankruptcies. which suffered an outflow of capital to the US. 44. In sum, the US economy has been able to 42. However, this huge inflow of foreign avoid the usual worst effects of a decline in the capital also will have its disadvantages for the rate of profit because of an unprecedented US economy in the future. In the first place, expansion of debt for both capitalist firms and interest and dividends, etc. will have to be paid for households, which has maintained capital on this foreign capital in future years; that is, a accumulation and consumer spending, in spite part of the income produced in the US economy of the decline of the rate of profit and stagnant every year will have to be used to pay interest real wages. And much of this debt has been and dividends to foreign investors, thereby financed by an enormous, unprecedented inflow draining income from the US economy. of foreign capital to the US. However, this Furthermore, these payments to foreigners will increasing dependence of the US economy on increase the already record US current account foreign capital raises the very real risk that in deficit, which in turn will require even more the not —too —distant future foreign investors inflows of foreign capital in order to avoid a will no longer be willing to lend money to the devaluation of the dollar. It could become a US. If that happens, then the US economy vicious circle, in which increasing inflows of would be in serious trouble. capital require increasing future payments, which in turn require increasing inflows of IV. CONCLUSION capital. Obviously, this escalating spiral of payments and loss of income cannot go on 45. Therefore we can see that Marx’s economic forever. theory is indispensable for an understanding of 43. This increasing dependence on foreign contemporary capitalism, and especially the capital also makes the US economy limits and contradictions of contemporary increasingly vulnerable to an eventual outflow capitalism. Marx’s theory provides the only of this foreign capital, or even to a reduction in theory of profit, the most important the rate of inflow. If the rate of inflow slows characteristic of capitalist economies, and the down, for whatever reason (see below), then only theory of the trend in the rate of profit, the interest rates in the US are likely to rise, which most important factor in determining the boom would have a negative effect on investment —bust cycle of capitalism. Marx’s theory of spending and on the rate of growth of the US profit and the rate of profit also enables us to economy. In the worst case of a withdrawal of understand the stagflation of the US economy foreign capital, then these negative effects in recent decades, as the result of the significant would be greatly magnified. Such a “capital decline in the rate of profit in the early postwar flight” from the US would also put downward period. pressure on the dollar, which could further 46. Marx’s theory of the falling rate of profit intensity the capital outflow. In these also enables us to understand much of what has circumstances, the Board happened in the US and since would probably increase interest rates further in the 1970s —inflation, wage —cuts, speed—up, order to stop the outflow of capital. Such higher globalization, NAFTA, etc. —as attempts by interest rates might succeed in stopping the capitalists to restore the rate of profit back up to

MARX’S ECONOMIC THEORY AND CONTEMPORARY CAPITALISM 9 its early postwar levels. Marx’s theory also lower living standards or actively resisting explains why the rate of profit has not increased these hardships and striving to defend their significantly over this period, in spite of all economic livelihood. It is possible that, as these aggressive attempts to increase it— economic conditions deteriorate, these struggles because the capital invested per worker has not by workers to maintain their living standards yet been reduced through bankruptcies, etc., within a capitalism in crisis will lead more and and the ratio of unproductive labor to more of them to call into question capitalism productive labor continues to increase. itself, and the adequacy of capitalism to meet 47. Finally, Marx’s theory also suggests that their basic economic needs. If capitalism sooner or later, and very likely within the next requires these attacks on our economic decade, the US economy will suffer another livelihood, then perhaps there is a better serious depression—and perhaps even on the economic system that does not require such scale of the Great Depression of the 1930s. The attacks and which could better satisfy our combination of a low rate of profit and economic needs and wants. We should all direct unprecedented levels of debt will eventually our efforts toward that end. cause widespread bankruptcies of both businesses and households, which in turn would V. REFERENCES probably cause the flight of foreign capital, and an even worse depression. Such a depression Crotty, James 1992. “A Marxian—Keynesian might be avoided for another few years, by Theory of Investment Demand: Empirical even further increases of debt, both domestic Evidence,” and foreign, but such a further debt expansion in F. Moseley and E. Wolff (eds.), International would also make the eventual depression even Perspectives on Profitability and worse. Accumulation, Aldershot, UK: Edward Elgar. 48. A deepening depression in the US economy Moseley, Fred 1991. The Falling Rate of Profit would obviously have devastating effects on the in the Postwar United States Economy, economies of the rest of the world, including London: Macmillan. Latin America. Many of these economies are 1995. “Marx’s Economic Theory: True or already in or close to a depression. The major False? A Marxian Response to Blaug’s hope for recovery for many of these economies Appraisal,” in Moseley (ed.), Heterodox is to increase exports to the US. If this hope Economic Theories: True or False? disappears, then these economies could remain Aldershot UK: Edward Elgar. in a serious depression for years to come, which 1997. “The Rate of Profit and the Future of in turn would have further Capitalism,” Review of Radical effects on the US economy. Political Economics 29:4: 23—41. 49. Such a worsening crisis of global capitalism 1999. “The US Economy at the Turn of the would inflict great suffering—loss of jobs, Century: Entering a New Era of Prosperity?” lower , greater hunger and poverty, Capital and Class, no. 67: 25—45. greater anxiety and desperation, etc. —on the world’s working population, especially in developing countries. How would workers in the US and around the world respond to this widespread and increasing misery? In seems likely that in the next few years workers all over the world will be forced to choose between passively accepting higher unemployment and

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