a presentation delivered at York University May 2011
A Critique of the Theories of Economic Crisis Put Forward by Leo Panitch and Sam Gindin, and Monthly Review magazine
Alan Nasser

I want to re-examine the notion of “crisis” through a comparative assessment of three important analyses of capitalist crisis: Leo Panitch and Sam Gindin’s (PG), Monthly Review’s (MR) and the Social Structure of Accumulation school (SSA).

PG and MR offer indispensable but severely limited analyses of the current crisis understood as a expression both of contradictions inherent in the accumulation crisis and of a distinct and sustained stage in the developmental trajectory of capital. If the task is to theorize in Marxian terms the present downturn, then we must foreground a feature of theory overlooked in most discussions. The historian and philosopher of science (and former Communist Party of Hungary official) Imre Lakatos has stressed the historical character of theory as an ongoing research tradition. Such traditions are, according to Lakatos, either progressive or degenerating. That is, they are either in increasingly illuminating development, or they are degenerating due to a persistent inability to solve new problems and integrate new developments into the tradition.

Marxism has been in development since its beginnings. Lenin’s theory of imperialism and Baran and Sweezy’s attempt at a distinct theory of capitalism in its oligopoly stage are examples of efforts to expand and refine the fundamental theses and methods of Marx to comprehend emergent developments thought to have been, for historically good reasons, untheorized or inadequately theorized in Marx’s original analysis.

That said, I shall argue as follows: PG’s analysis of the crisis is difficult to analyze in the foregoing terms if only because it is difficult to find a theoretical dimension in their thinking. Shrewd and incisive observations, elegantly organized, are in abundance, but what I see as an exaggerated empiricism, perhaps a form of Marxian positivism, appears to eschew theory. Moreover an exaggerated concern to repudiate the catastrophism of theories of inevitable breakdown of the kind that see crisis as automatically ushering in socialism -does anyone actually hold this view?- tends to motivate PG to attend insufficiently and sometimes misleadingly to attention-worthy accounts of crisis tendencies in the productive economy, tendencies in operation independent of finance. Thus, PG’s analysis drifts toward what can look a lot like -to coin a term- financial reductionism.

MR, in contrast, is awash in the overaccumulationist theory of secular stagnation put forward in 1966 in Monopoly Capital. The magazine has consistently refused to develop or advance that analysis in the light of developments peculiar to post-Golden-Age neoliberal capitalism, namely its rejection of Keynesian policy, the end of US hegemony unchallenged by international competition, and the emergence of financialized capitalism. Instead what we get is repetition upon repetition of the letter of Sweezy and Magdoff’s words. In the scathing words of James Devine in Science and Society, MR itself seems to be suffering from secular stagnation. This is regrettable because, I shall argue, secular stagnation theory is most enlightening as a general theory of crisis within whose contours historically specific crises may be understood.

Finally, SSA theory has to its benefit adhered to the Lakatosian imperative to revise and adapt its analysis to unforeseen developments. The theory has claimed that the history of capitalism is best understood as a succession of stages organized by social structures of accumulation, specific institutional environments conducive to accumulation. A given SSA eventually comes up against constraints to accumulation which that SSA is ill equiped to overcome. When this period is prolonged we are faced with a crisis, much as that term is used by Thomas Kuhn. Crisis then requires a restructuring of institutions in order to reinvigorate growth.

The neoliberal period presents a Kuhnian anomaly for SAA theory. Essential to that theory is the notion that a new SSA promotes strong economic growth. Yet neoliberalism as a new SSA has not promoted growth, while it has at the same time hugely benefited the very rich. Since elites have historically promoted the formation of new SSAs and have benefitted disproportionately from neoliberalism in spite of -I shall soon suggest because of- the sluggishness of growth, it is unreasonable to expect them to endorse a new SSA on the grounds that the current settlement features slow growth. Accordingly SSA theorists have suggested jettisoning the idea that new SSAs always restore strong growth. This is a clear indication of the constructively self-critical progression of a research tradition, a feather sadly missing from the analytical caps of PG and MR.

Let me return to PG. I want to focus on three issues: PG’s claim that the financial crisis was not due to burgeoning contradictions in the productive economy, their insistence that capitalism is not currently in debilitating crisis but is rather in the flush of some of its strongest dynamic tendencies and their characterization of alternative analyses of the place of finance in the capitalist system.

PG’s analyses are infused with the political imperative to build a movement both to delegitimate capitalism and to begin to build a democratic socialist alternative. One of the chief obstacles to this agenda is, as Sam has put it, “to think that we’re going to build a movement by always predicting that capitalism is going to decline or that it will… break down.” Antagonism to this kind of catastrophism animates much -a bit too much- of PG’s thinking. It undergirds both their rejection of the view that the current crisis stems from imbalances in the productive economy and their construal of the role of finance in the crisis.

A key indication of the intensity of PG’s aversion to alternative accounts of the crisis is the inaccuracy of their characterization of those analyses. PG aggregate Sweezy and Magdoff, Robert Brenner, Giovanni Arrighi and Andrew Glyn as adherents to the crude old Marxian base-superstructure distinction, which conceptualizes finance as a parasite on the productive economy. PG claim that these theorists take the financial “superstructure” to be entirely dependent on the productive “base”, and not at all implicated in it. On this account, finance is merely a parasite on the productive economy, an expression of the “decline” of the real economy. Thus PG see the notion that the financial crisis stems from contradictions in production as yet another version/indication of the bugaboo of catastrophism, of the inevitable breakdown that will usher in socialism.

These claims are conspicuously false. The above-mentioned theorists are not usefully clumped together, nor do they adhere to the base-superstructure construal of finance PG attribute to them. Consider Sweezy and Magdoff’s analysis in the essay “Production and Finance”. Mainstream theory is criticized for adhering to the very position PG attribute to MR and others. Mainstream theory is alleged by MR to hold that money used to buy existing assets is not capital – it’s merely a means of circulation that does not impinge on production. MR claims that this error stems from the erroneous division of the economy into two realms, the real and the monetary, the latter a mere veil hiding the underlying reality. MR claimed, in opposition to this view, that there is no separation between the real and the monetary since almost all transactions are expressed in monetary terms and require the mediation of actual amounts of either cash or credit money. Indeed MR has seen the emergence of monopoly or organized capitalism in the late 19th and early 20th centuries as an embryonic inkling of a tendency toward financialization inherent in the maturation process of industrial capital. Maturing industrial capital introduced the issuance of many kinds and quantities of new corporate securities, and the development of organized stock and bond markets, brokerage houses and new forms of banking. What was happening was that a large and growing portion of money capital -money invested in order to make more money- was not directly transformed into productive capital. We see here the beginnings of the potential realization of the capitalist dream of eliminating the (in Marx’s words) “nuisance” and “necessary evil” of actual production and instead using money to purchase interest-bearing and dividend-yielding financial instruments. The path from M to M’ is direct, neatly circumventing that risky, messy C. In sum, MR has long held a position in direct opposition to the view attributed to them by PG.

To be sure, PG have provided more up-to-date examples of the manner in which finance is implicated in post-Golden-Age productive accumulation. While Leo has misleadingly charged his antagonists with seeing derivatives as “simply speculation”, he has been one of very few to have provided contemporary examples of the use of derivatives in productive accumulation. PG has consistently focused on risk-reduction as the principal function of finance in production. An example: “Wal-Mart contracts with a supplier in China to produce something that will be on Wal-Mart shelves in the United states next winter.” But both parties know that the difference between current and future dollar-renminbi exchange rates, transportation costs, and interest rates could turn out to disadvantage one of them. They thus have an interest in hedging these differences. “So these derivatives are means of buying insurance in relation to fulfilling a contract for the delivery of things that are produced.” [emphasis added]

This point is well taken and indicates an awareness, not evident in MR, of evolving forms of finance commensurate with new imperatives implicit in evolved organizations of production associated with intensified globalization. But it is a mistake to charge the antagonists with denying non-speculative uses of derivatives. For surely the claim of Brenner, MR and Arrighi is simply that it is the speculative uses of new and baroque financial instruments that has been the immediate precipitant of the financial meltdown of late 2008. Contrary to PG, nothing about this claim implies a rejection of the crucial non-speculative functions of exotic financial instruments, nor of the workings of finance in then productive economy.

The issue is this: PG are correct in claiming that production and finance cannot be separated in the accumulation process, but from this it does not follow that they cannot be distinguished. (In fact, PG’s own case rests on that very distinction.) Their distinction entails that each can exhibit distinguishable dynamics of its own. Those who hold that the financial crisis has roots in contradictions in the productive economy simply claim that developments in the distinctively productive process have generated the increasingly likely formation of a financial crisis. The distinction I refer to can be identified in the form it takes in then operations of non-financial corporations. For example, the revenues of NFCs derive from two sources, financial investments, from which come portfolio income, and from productive investments, which generates cash flow. Portfolio income comprises total earnings of NFCs from interest, dividends and (realized) capital gains on investments. Cash flow consists of profits plus depreciation allowances. The ratio of the former to the latter mirrors the relationship, for NFCs, of returns generated from from financial activities to returns generated from productive activities. That this ratio has increased dramatically in recent decades is just what it is for an economy to become financialized and is what we should expect if surplus that could have made its way to productive activities instead was directed to financial outlets. I shall in due course outline a familiar productive-economy tendency that has brought about two major crises since the 1920s. An example of a financial tendency which works itself out independent of production is the tendency of bubbles, once formed, both to grow and to burst.

It is relevant to introduce at this point the notion of risk as a meta-feature of production which directly links real accumulation to credit, and thereby to finance. It is PG’s acute awareness of this which results both in the Jekyll of their sophisticated account of contemporary finance’s implication in production and the Hyde of their inattention to credit/debt functioning to bolster real-economy consumption as a growing potential source of crisis since the early postwar period. Here is an indication of the latter:

In response to MR’s claim that rising debt as a percentage of household income portends crisis, PG rejoined that demographic changes in the labor force, namely the participation of multiple household members in the labor force, might well enable households to carry higher levels of debt. Rosier still, PG claim, is the rising assets of homeowners. Indeed, haven’t households binge-borrowed precisely in order to increase asset values in an environment of low interest rates and ballooning housing prices? So, PG conclude, “families (sic) net worth is still not in dangerous territory.”

Oh my goodness – where to begin? In 2002, when these words were written, it was clear to most radicals that the median wage had been in flatline since the mid-1970s, even as medical, child care and education costs had been rising unusually rapidly. Of course more household members were driven to bolster household income by entering the labor force. In spite of household members working in record numbers, household income was barely affected. As for rising asset, i.e. home, values, this was in large part due to burgeoning demand fueled by the “wealth effect” generated by the Nasdaq bubble of the 1990s. Historically, home prices tracked inflation. In the mid-‘90s home prices began conspicuously to outpace inflation. Inflating home prices was clearly a continuation of the hi-tech bubble by other means, and a clear indicator of crisis conditions. I have suggested that PG’s otherwise incomprehensible inattention to these dark developments, indeed their construal of them as positive counterindications of crisis, requires special explanation, namely a determination to ignore facts that the bad guys might use to support a case for crisis conditions in the productive economy. Thus, in the 2002 article PG associate concern about the remarkable growth of private debt with forecasts of “inevitable economic collapse” and “a major depression”. I should think that at this point MR will be forgiven for suggesting that ballooning debt under conditions of slow growth might well portend a major depression. But this is by no means the same as “inevitable economic collapse”.

So much for what I’ve called PG’s Mr. Hyde. Jekyll has a keen appreciation both of finance’s implication in production and of credit’s indispensability to accumulation from capitalism’s very beginning. The key to credit finance’s embeddedness in accumulation as such lies in capitalism’s unique mode of distributing the surplus. In feudalism, the surplus was distributed after production was done and the harvest was in. But when capitalism turns land and labor into commodities, this process is reversed. Distribution increasingly precedes production. Early agricultural tenant capitalists borrowed from moneylenders to pay rent to landlords, to purchase seeds and to dispense wages. By virtue of capitalism’s unique mode of surplus disposition, much of primitive capital (so to speak) was borrowed capital. Because both the fact of the harvest and its realization were inherently uncertain, the capitalists’ ability to service these loans was always at risk. The possibility of financial crisis is present ab initio. Now if the development of capital exhibits a diachronic increase in the system’s proneness to crisis, and if this tendency is paradigmatically evidenced in mounting contradictions in the process of expanded reproduction, we should expect profits to shift over time from production to finance. And if MR is correct that secular stagnation is mature capitalism’s normal state, then there is inherent in the system a tendency toward financialization. I shall argue shortly that this is indeed the case.

PG has argued that what they call capitalism’s essential “dynamism” undermines the theory of secular stagnation. PG contend that the undisputed dynamism of the Golden Age has been sustained through the post-Golden-Age neoliberal period, which MR has described as exhibiting, in its markedly slower growth rates, a reassertion of stagnationist proclivities. The resolution of this issue foregrounds some of the most vexing questions surrounding the concept of ‘crisis’. What exactly are the criteria of crisis? How many of capitalism’s defining features must be in jeopardy for the system to be in crisis? And which features of capitalism count as defining? Growth is the most discussed feature. But ‘growth’ is highly ambiguous. Do we mean GDP growth? Rising productivity? Revenue growth? Earnings growth? Profit growth, wage growth, or both? The growth or extension of capitalist socioeconomic relations?

MR has focused, as have most analysts, on GDP growth, which is claimed to have been unprecedentedly high during the Golden Age, and uncommonly low thereafter. PG emphasize that the determination of crisis must be approached from a capitalist perspective: “…the last quarter of a century.… looks like one of the most dynamic periods from a capitalist perspective – not from a worker perspective, but from a capitalist perspective.” The exclusive focus on the capitalist perspective is also in evidence in PG’s claim that the Golden Age cannot be used as a benchmark of capitalist health. Even by standards of health-as-growth, PG insist that while post-Golden-Age growth rates are a bit lower than Golden Age rates, they are above the average during 1820-1945. This comparison is odd, since the latter period featured at least 3 major depressions. What surely distinguishes the Golden Age from any other period is the combination of high growth rates and general prosperity, by which I mean that a good portion of the working class had never experienced, nor has it since experienced, the degree of material security and relatively high living standards it enjoyed from 1949 to 1973. This is of course due to these having been the best years ever for organized labor. That this fact seems to count for nothing in PG’s assessment of the status of the Golden Age is especially odd, given their predominant emphasis on working-class organization and agency in analyzing capitalism’s dynamics.

Is capitalism’s ability to deliver the goods to the working majority essential to its thriving? PG say No. Their case for the neoliberal period as a display of capitalist dynamism is that since the Golden Age capitalist socioeconomic relations have penetrated the former Soviet Union, the rest of Eastern Europe, India and China. But for the most part this has resulted in the imposition of harsh austerity for most. PG claim that this is a moral, not a political-economic feature of the extension of capitalist social relations. But isn’t this an economic phenomenon too, since declining wages in the US and Europe, and austerity for most workers subject to newly-arrived capitalism, depresses the largest component of aggregate demand and thus dampens growth? PG reply that the new middle classes in India, China, and the Soviet Union are huge luxury spenders, which might well offset the drag on demand generated by the penury of the majority. This latter point is speculative and supported by no empirical work. Still, this may not matter if the entire debate is trading on an unresolved ambiguity in the notion of ‘growth’. I want to pursue this line of reasoning after I attempt to deliver on the promised outline of a familiar productive-economy tendency that has brought about two major crises since the 1920s.

The entire foregoing discussion has proceded from a consideration of whether the financial meltdown and its devastations on the productive economy are rooted in longstanding contradictions in the productive economy. Consider first the Great Depression. The 1920s set the stage for financial debacle of 1929 and for the Depression itself. The story is familiar: manufacturing, transportation, construction and mining had been responsible for most job growth during the 100 years preceding the roaring ‘20s. But the size of that same labor force actually declined over the course of the 1920s. At the same time output in those sectors increased by as much as sixty percent. This was of course due to a spectacular range of innovations in electrification, increasingly productive capital goods and automation. Industrial productivity skyrocketed, in auto production by more than 400 percent. Organized labor was virtually non-existent in this period, and wages barely moved during the decade. Disposable income in 1929 (for ninety percent of taxpayers) was lower than it had been in 1922. Nor did productivity increases generate lower prices, as the wave of oligopolization and centralization of capital characteristic of the period worked against price deflation. Under these conditions it is mathematically necessary that a huge portion of increased revenues were distributed to profits. In fact, 1928 saw the greatest inequality of the century.

How then, in the face of stagnating income, were working-class households able to afford to purchase the stream of consumer goods, especially durable goods like autos, fridges, sewing machines, toasters and the like, that were newly available on a large scale to consumers? By increasing their debt burden. The 1920s saw an increasing portion of the disposable income of most households commited to debt payment, and at very high interest rates. By 1926 the ability of most households to purchase additional goods at prices profitable to sellers began to approach its limits.

The last four years of the decade saw a notable slowdown in the growth rate of key industries as the twins of overinvestment and underconsumption reared their heads. These developments underlie what Keynes referred to, in the Treatise On Money, as “the great expansion of corporate savings” in the 1920s. A “profit inflation”, as Keynes put it, coexisted with a “deficiency of investment”. Keynes was pointing to the unusually great increase in corporate retained earnings that were neither reinvested in production nor distributed to shareholders as dividends. These large liquid reserves with no remunerative outlet in production made their way into financial markets, finally triggering the crash of 1929. This analysis was considered a no-brainer at the time by the Keynesians and socialists associated with the New Deal.

Thus, we see the way in which the stagnant wages, booming production, productivity and profits, and historic inequality naturally tends to shift income shares away from wages and consumption and towards profits. Keep in mind that the 1920s was the first decade in which wage demand for newly available consumer durables (autos, fridges, toasters, radios, vacuums, washing machines) was the principal propellant of economic growth. Inequality helped make the 1920s also the first decade when “buy now, pay later” became necessary and hence normal. More than 80 percent of consumer durables were bought on installment credit. But the most significant feature of that decade was its having been the first in which remarkable increases in nonfarm labor productivity (about 40 percent) and industrial output (about 60 percent) coincided with an actual decline in net investment (more on this momentarily). The 1920s, then, represented a unique and I would argue benchmark moment in US economic history: just when higher wages and increased consumption had become the new and only driver of sustained growth, that is, just when net investment or capital formation was no longer necessary to generate increased productivity and investment, at the same time income shares were distributed away from wages and toward profits, one of whose principal functions, remember, is to enable additional investment. This raises a key question, the answer to which is a familiar story. The question is: If both productivity and output can be increased without net additions to capital stock, how do you deploy rising profits? Well, you could do what CEOs actually did between 1926 and 1929, you place these superflous surpluses in the hands of bankers who are expected to find profitable markets for you in for example new securities. Or, more specifically to the 1920s, you could issue paper in the call loan market that fuels an orgy of trading in exotic securities.

It is a hop and a skip -no jump required- from there to crash and Depression. That is how productive-economy dynamics can set the stage for crisis. Attention PG. In the ‘20s the incentive to create new financial instruments was provided by the magnitude of surpluses needing to seek big returns outside of production. More attention, PG. Notice that nothing in this analysis implies that finance is a mere appendage to production, but neither does it require us to see finance as a key factor in generating the crisis. In order further to explore that issue, let me turn to the present crisis.

I want to underscore the tremendous similarity of the crisis-generating conditions of the 1920s to the neoliberal post-Golden-Age period preparing the meltdown of 2008. Like the 1920s, the period 1975 to the present featured stagnant wages lagging behind rising productivity, great inequality -2007 and 1928 were the 2 years of the century’s greatest inequality, and each was followed one year later by a financial crash- an explosion of household (and this time corporate) debt sustaining demand in the face of flat wages, and a weak labor movement. These conditions, stretching over decades, are sufficient to explain both an overaccumulation crisis and the formation of historic credit bubbles, with no required reference to new developments in finance.

(The neoliberal period, however, did not feature the explosion of industrial profits characteristic of the ‘20s. In fact, the rate of growth of revenues on the whole declined during this period, exercising, ceteris paribus, downward pressure on profits. Happily for capital, ceteris were not paribus. Neoliberalism saw a new wholesale assault on wage costs. The relatively greater importance of cost cutting over revenue growth is revealed in the shift in the language of growth during this period from talk of revenue growth to talk of earnings growth. Emphasis on earnings is emphasis on cost cutting, as an offset to stagnant or declining revenues, as the most reliable road to profit. (profit=revenues – costs). Corporations of course did not give up on revenues; they sought to offset revenues’ declining growth rates by enhancing consumption demand via promoting household debt. And very importantly, the manipulation of share prices by means of takeovers/private-equity acquisitions generated profits independent of sales revenues.)

The neoliberal period is distinguished from the 1920s by the extraordinary growth of finance and new financial instruments. In fact, throughout the 20th century finance had grown absolutely and as a share of total economic activity. But under neoliberalism we see two symbiotically related phenomena: an unusually extended period of sluggish growth in the productive sector and a fundamental change in the pattern of profitability at the macro level. Increasingly baroque activities, dealing in providing or transfering liquid capital with an eye toward future dividends, interest or capital gains, have generated an ever-growing share of total profits. Since the abiding imperative to accumulate, accumulate cannot be satisfied in the sluggish productive sector, the pressure to accumulate is taken up by finance, where growing profits is inseparable from growing risk. Hence the tendency to create ever more complex instruments.

MR’s approach could run with the foregoing analysis, but it doesn’t. Recall the approach: depression tendencies did not re-assert themselves after the end of the war effort because of a number of historically unique and temporary developments counteracted the tendency to stagnation and stimulated production for about a quarter of a century. These were automobilization, suburbanization, setting in place the basic infrastructure of the MIC and capital exports to functionally reindustrialize Europe. Each of these was both a monumental stimulus to production, the first three of these also constituting what I call a “national project”, a grand endeavor mobilizing labor and non-labour resources across the nation, and by its nature temporary. (It is noteworthy that the two principal counter-Depressive developments we are familiar with, the New Deal and the Second World War, were also grand national projects.) MR notoriously omits the postwar strength of the labor movement as a force for growth. I might add that the strength of organized labor was also a temporary phenomenon. According to MR, the fizzling of these stimulants permitted stagnation to reassert itself as a prolonged period of sluggish growth.

The dogmatic and parochial nature of MR’s line over the years has disallowed the magazine to integrate into its analysis the effects of the emergence of European and Japanese competition on US profit rates in manufacturing, as for example Brenner has in his account of the flight of capital to financial activity. MR points out that Monopoly Capital (1966) rejects falling profit rate theory in favor of rising surplus theory, and also tells us that competition is alien to the workings of monopoly capital. So we shall have no talk of profit rates or competition. That MC was written when the US dominated global markets and faced no serious international competitors, and that its treatment of competition was meant to apply to rivalry among intranational firms, does not persuade MR that its position needs to be adapted to new historical circumstances. We are not to take the same kind of liberties with MC that Baran and Sweezy took with Capital. Hence, the magazine endlessly repeats the letter of Magdoff and Sweezy’s articles. MR represents what Lakatos called a “degenerating research tradition”.

This is a terrible pity, as MR is especially equipped to develop the thesis, discussed briefly above, of the atrophy of net investment in mature capitalism. MR has seen the central contradiction of capital, the manner in which, as Marx put it, the greatest obstacle to capitalist development is capital itself, as residing in the tendency to overaccumulation.

Let’s not forget that Adam Smith understood the tendency of enterprises to price-compete themselves into bankruptcy. His account of capitalism’s long-run prospects is grim indeed. The neoclassical textbook theory of competition also entails, with realistic assumptions, that competition results in insolvency. Astonishingly, Marxists have made little of this. Briefly: price theory tells us that market price equals marginal cost, the cost of producing the last unit of output. Now assume a firm that produces 3 widgets. The cost of producing the first widget is $3.00, of producing the second is $2.00 and of producing the third is $1.00. (Costs of production decline with economies of scale.) Marginal cost, and therefore the market price=$1.00. Profit requires that price exceed average costs. Problem: average cost=$3.00, so the firm can neither cover its fixed costs, nor can it pay interest or dividends to investors.

Economists avoid this conclusion by introducing an unrealistic, false assumption, one that is an adventitious accretion to the theory, not an essential feature of it, namely that costs of production rise with scale. (Also required is the equally false assumption that capital moves freely from declining to ascending industries.)

[Note that the view that the continuous accumulation of capital is both essential to the normal development of capitalist societies, but essentially self-limiting, was held by virtually all of the major modern political economists, in the form of one version or another of the doctrine of the falling rate of profit. Adam Smith explained the secular decline of the profit rate by the increasing abundance of capital in a developing capitalist society. Ricardo and Mill believed that the rate of profit would be depressed by the diminishing productivity of the land which would drive up the price of wage goods and therefore of the wages of labor, and so drive down the profits of capital. Marx pointed to the increasing capital-intensity of industry and the paucity of working-class purchasing power relative to the productive capacity of the economy, as the principal threat to the profit rate. And Keynes held that in mature capitalist economies the “marginal efficiency of capital”, i.e. the expected rate of return (over cost) on an additional unit of a given capital asset, would tend to decline. All these thinkers had an at least intuitive appreciation of the fact that the growth of capital tends to be terminally self-limiting.]

Point: the tendency to overaccumulation/stagnation is built into mainstream microtheory!

Reality has conformed to neoclassical theory (with realistic assumptions). During 19th century US capitalism, when price competition a la neoclassical theory was actually in practice, steel and railroads saw a long stretch of serial business failures, as enterprises price-competed themselves into bankruptcy or receivership.

MR’s is the theoretical orientation best equipped to develop overaccumulation/tendency-to-stagnation analysis in the context of post-Golden-Age (i.e. post-Monopoly Capital) capitalism. Here is why I think so. MC highlighted the special role of Marx’s Department I, which produces means of production for itself and the rest of the economy. MC stressed the requirement that because capitalists are under constant pressure to reduce input costs, Department I must continually make available more efficient means of production, as increased productivity reduces unit costs. This is of course true enough. But Department I is also under pressure to make cheaper means of production, and indeed it has. Machinery is like computers: over time it is both more efficient and cheaper. There is a structurally-rooted tendency for Department I to produce means of production that are both more productive and cost less. The latter has received little attention in the relevant literature.

Over time we should expect, on Marxian grounds, that adding more efficient and cheaper capital to capital stock would reach the point at which this can be done cheaper than it would cost to maintain and replace existing equipment. In fact, Marxists have something of a heads up on the timing of this outcome of industrialization. You know the standard and accurate story: during industrialization the surplus is disproportionately (relative to consumption) directed to building up the means of production. Consumption is held down in order that accumulation proceed apace.

That capital formation was the overriding priority with respect to the distribution of the surplus was reflected in the workings of the business cycle. Up until about 1920, recoveries out of downturns were driven by investment, financed out of profits, in new plant and equipment. We should expect this to be the case, as the economy was at that time undertaking the process of industrialization. But by 1920 the economy was basically industrialized. Accordingly, as predicted by the classical political economists, the lion’s share of the surplus was now redirected to consumption. Capital formation was no longer the engine of rapid economic growth. The surplus that had been directed to purchasing the output of Department I was withheld from consumption in the form of profit seeking investment outlets, which were in ample supply during industrialization.

In fact, since 1920, an increasing share of national income has gone toward consumption. And this is reflected in the fact that, for the first time in American history, since 1920 recoveries out of recessions and depressions were driven by consumption, not by private investment in pursuit of profit. Remarkably, the explosion of new technologies, new products and industrial output seen in the 1920s was accomplished with no increase in net investment. And the 1930s saw increases in productivity with negative investment. When this point has been reached, we may call an industrial economy mature. Thus, Baran and Sweezy’s “rising surplus” has simply marked the increase of surplus capital no longer necessary to expand output or increase productivity. During the Golden Age this surplus went into unproductive activities like corporate law and advertising, insightfully discussed in MC. For reasons presented in detail in Tom Osenton’s The Death of Demand, there are strict limits on this kind of production-related surplus absorber. The decline in corporate revenues over the last 30 years has thus brought about 2 major developments: an assault on labor to reduce labor costs, and a torrent of surplus flowing into financial investment.

If the foregoing is correct, a revolution in economic theory, mainstream and heterodox, is in order. If there is indeed a tendency for net investment to atrophy, what is the point of profit? Please keep in mind that for economic theory it does not suffice that profit is used to maintain or replace existing equipment, since output-expanding and more efficient new equipment can now be purchased for less than the cost of maintaining, repairing or replacing existing equipment. If economic recoveries are fuelled by consumption, what becomes of the Marxian M-C-M’ schematism? If it is consumption that is now the principal engine of capitalist growth, is there now an even more pressing reason than we already imagine to redistribute income on a massive scale to both private and public consumption, and away from the investor class? Isn’t Obama’s mantra that we must provide capital with more attractive incentives to invest even more preposterous than we know it to be? And finally, what does it now mean to “accumulate capital”?

I do not mean these as rhetorical questions.


Karl – What’s below are some of the notes I compiled to write this paper. I may well incorporate some of it into the above, and I will surely condense this for presentation in Toronto. I was originally intending to discuss comparatively 1) Panitch and Gindin, 2) Monthly Review, and 3) Social Structure of Accumulation theory, with respect to their analyses of crisis. I think I must now omit discussion of SSA – unless I can condense to the point where discussing SSA is realistic.


The following issues are treated: the relation between the real and the financial economies, finance’s effects upon accumulation, the claim that neoliberalism marks the advance, not a failure, of capitalism, the place of class agency in crisis analysis, the precise meaning of ‘stagnation’, whether accumulation requires growth as commonly understood, the roles of general and more concrete theories of crisis, and whether capitalism’s successful functioning should be conceptualized to include the popular acceptance of its legitimating ideology.

Among the theses defended are: that MR’s analysis as a general account of capitalist instability can function as a Framework Theory within which analyses such as PG’s and SSA’s can be formulated. PG correctly stress the independent role of finance in generating the current crisis, but mistakenly assert that finance has offset overaccumulation. The most pressing current task of SSA theory is to account for the possibility of a new SSA which does not set the stage for a resumption of robust accumulation, i.e., to accomodate SSA theory to persistent slow growth under neoliberalism. SSA addresses this issue by reconceptualizing an SSA as “(temporarily) stabilizing class contradictions,” reflecting SSA’s work on the wage-push profit-squeeze analysis of Golden-Age contractions. This addresses a deficiency of MR’s analysis, its inattention to class antagonism, while giving substance to PG’s insistence that agency be central to crisis theory.

The secular stagnation hypothesis recieves support from James Livingston’s empirical work revealing the downward trend of net investment over the past 100 years.

SSA is the most evolving of these three approaches to crisis. SSA theorists regularly re-examine and re-formulate the theory with an eye toward developing it further by addressing (Kuhnian) anomalies. The most pressing current task of SSA theory is to account for the possibility of a new SSA which attempts to overcome the contradictions of the preceding SSA but which does not set the stage for a resumption of robust accumulation. I.e., how to reformulate SSA theory to account for the possibility of persistent slow growth under neoliberalism? A key element in the evolving effort to address this issue is to replace the notion of new SSAs as restoring the possibility of reinvigorated accumulation with the notion of SSAs as “(temporarily) stabilizing class contradictions.” This emphasis on class struggles is continuous with the central place of profit-squeeze analysis in the classical SSA account of what made Golden-Age expansions turn into contractions. This addresses a key deficiency of MR analysis, its inattention to class antagonism in its account of crisis, while putting flesh on PG’s insistence that agency be central to crisis theory. MR can be helpful as a Framework Tool in orienting SSA theory to the realities of protracted neoliberalism.

– SSA theorists have produced careful empirical analyses of Golden-Age cycles, demonstrating the central place of worker resistance and wage victories during the latter half of the expansion, generating the counter-strike of capital and the ensuing downturn. I discuss the way in which sec stag theory as a framework tool can be helpful in constructively orienting SSA theory to the realities of protracted neoliberalism.

Of the three approaches under discussion, SSA

Empirical investigation belies the claim that finance does not impede accumulation. Exactly how financialization’s obstruction to accumulates works, and its relevance to understanding the reciprocal effects of finance on accumulation/accumulation on finance, is discussed in some detail. That discussion includes a description of important changes in the management of big real-economy firms, changes which are not fully explained by developments in finance. Re 3., PG provide no empirical evidence in support of their claim that finance offsets the tendency to overaccumulation. In fact, their assertion that financial pressure works to shift funds from unprofitable firms to profitable ones resembles in important respects the Efficient Markets Hypothesis. In any case, the work of Crotty and others associated with the SSA school provides ample empirical evidence that excess capacity has accumulated apace during financialization. The PG rejoinder that overaccumulation would have been worse absent financialization is rejected on the grounds that it is unfalsifiable. Finally, re 4., whether slow growth indicates crisis for capitalism depends on what is included in the concept of crisis. Should capitalism’s failure to deliver the goods count as a crisis of capitalism? Should capitalism’s legitimating ideology, which includes the promise that present sacrifice is rewarded with higher living standards over time, at least for one’s children, be included in our concept of what is essential to capitalism? If our conception of capitalism as a system of social superordination and subordination includes the requirement of a legitimating and therefore resistance-suppressing ideology, such that legitimation is internal to the system and not a mere adventitious accretion to our concept of capitalism, then persistent austerity could undermine the legitimacy of the system in the eyes of the exploited, thereby fueling resistance. Should this be counted as a crisis situation? This is not for me a rhetorical question.

The virtues of PG’s analysis is a) to provide a case for the view that the role of finance in the current crisis is not explained ( - is not exclusively explained?) by developmental contradictions in the productive economy, b) to suggest an important reconceptualization of the relation between the “real” (productive) and the financial axes of the (entire) economy, such that a sharp distinction between real and financial obscures more than it illuminates, c) to undermine purely structural breakdown theories, and d) to implicitly and perhaps unwittingly redirect our attention to the possibilities of “accumulation by redistribution” in contrast to accumulation by growth (of the incomes of both capital and labor).

MR sees the current crisis as sufficiently explained by monopoly’s generation of a huge surplus which is chronically unable to find correspondingly profitable investment opportunities in real production. The combined analyses of the writers mentioned above provide a powerful case against this theoretically monochromatic approach. The MR approach is too general and insufficiently grainy to shed light on the historical specificity of the current crisis. But this does not render MR’s version of secular stagnation theory useless. The MR approach can be opened up, developed, moved forward by the magazine paying greater attention to more recent developments in radical analysis outside the MR ambit. Most relevant to situating secular stagnation theory in the context of both crisis theory and the history of capitalism is the impressive demonstration by the radical historian James Livingston of a secular decline in net investment (net capital formation) since..... 1911! Livingston and Steve Roth provide extensive empirical evidence in support of this claim in the 18-page appendix to Livingston’s new book Against Thrift. The 1920s are a paradigm case of this development: between 1922 and 1929 labor productivity, productive capacity and output increased dramatically, but with no net increase in investment. Merely maintaining and replacing the existing capital stock (funded out of retained earnings and depreciation funds) was sufficient to enlarge capacity, raise productivity and increase output. The trend for the past 100 years has been for new technologies to be both labor- and capital-saving. During the 1920s, the value of fixed capital in two of the decade’s most “dynamic” industries, steel and autos, fell. On the whole, technological innovations have been more efficient than the machines they replace and less expensive. Capital-saving innovations thus reduce both the capital/output ratio and the industrial labor force. An impressive array of economists -Alvin Hansen, H.T. Oshima, Wassily Leontief, Robert Solow, Moses Abramovitz, Harold Vatter- have pointed to capital formation as a declining fraction of growth for most of the twentieth century.

It is open to the MR school to highlight this long-term atrophy of net investment as a secular undertow constituting a post-industrialization drag on investment-driven growth in the age of monopoly capital. To be developed in this connection: cyclical recoveries before the 1920s were typically driven by productive Investment. The 1920s witnessed, for the first time, the prominence of consumption-demand-driven recovery/growth. I argue that since the Great Depression net capital formation has been a declining, and wage- and debt-driven consumption an increasing, source of economic growth. I suggest that the MR school would do best to employ this enriched version of secular stagnation theory as a framework tool within which to situate the fruits of both PG and SSA analysis. The historical obsolescence of capital formation could underscore the increasingly otiose character of profit and its correlative, the increasing superfluity of surplus labor. That would be one of the singular fruits of sec stag theory as a general theory of crisis.There is much to plumb here.


Alan Nasser is Professor emeritus of Political Economy and Philosophy at The Evergreen State College. His book, The “New Normal”: Persistent Austerity, Declining Democracy and the Globalization of Resistance will be published by Pluto Press in 2013. If you would like to be notified when the book is released, please send a request to nassera@evergreen.edu

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