Inicio > Economía marxista > “The profit rate in the presence of financial markets: a necessary correction”: Alan Freeman

“The profit rate in the presence of financial markets: a necessary correction”: Alan Freeman

In the past two decades the number, variety, and monetary value of marketable financial instruments, particularly securitized instruments, has grown by orders of magnitude. This is the most significant development in what many writers, for the most part Marxist, term ‘financialisation’1. It brings to light, however, an anomaly in the way they calculate the profit rate. This calculation takes no account of the capital tied up in these instruments.

This article shows that when this omission is corrected, there is a consistent long-run fall in the UK and US rate of profit which, contrary to the figures widely used by Marxists, have both fallen almost monotonically since 1968.

Why does this matter? First, the profit rate figures prominently in Marx’s own theory, as is clear from his published works. It is the explicit subject of the first 15 chapters of Capital Volume III (Marx, 1981: 117-378) and dominates the remaining analysis. Second, the results shed light on current debates about the cause of the present extended crisis. A significant group of writers (see Choonara, 2011) argue that this is recent in origin, unconnected with the serious difficulties that beset Western economies in the 1970s, and follows a recovery from that crisis, brought about by neoliberalism, in the 1980s. Thus Husson:

“After the generalized recessions of 1974-5 and 1980-82, a new phase opened in the functioning of capitalism, one which one could for convenience call neo-liberal. The beginning of the 1980s was a real turning point. A fundamental tendency towards increasing the rate of exploitation was unleashed, and that has led to a continuous rise in the rate of profit” (2008).
The idea that the profit rate, in the US at least, recovered in the 1980s is central to this argument: ‘[T]he profit rate reached a low at the beginning of the 1980s and has since been increasing’ (Duménil and Lévy 2004:1, 28).

However, most other economic indicators (see, for example, Freeman, 2010; Kliman, 2011) contradict the idea of a post-1970s recovery. The US economy has, for the past 30-40 years, performed worse than at any time since the 1930s. Taking averages from trough to trough, the average growth from 1939 to 1970 was 4.61%; from 1970 until 2009 it was 2.8%.

For fifteen of the thirty years from 1939 to 1970, growth was higher than this 4.6% average; this was achieved in only six of the 39 years from 1970 to 2009. The profit rate plays a particularly critical role in the discussion, since it offers almost the only serious evidence of recovery. Thus, its accurate measurement is a matter of some concern. The contrast is even sharper in the UK, which fewer Marxists have studied. UK economic performance since the mid-1970s has been even worse than that of the USA. Yet the rate of profit, as traditionally measured by Marxists, has risen more or less continuously since the early 1970s, as I will show. It is thus the only unambiguously positive indicator of economic health. In both countries, we must therefore take very seriously the possibility that it has been measured wrongly.

The UK and the USA have one critical factor in common: they are home to the world’s two largest financial markets. I will argue that this calls for a correction to the traditional measure of the profit rate. This correction leads to the conclusion that the profit rate has declined in these two countries monotonically since the crisis of the 1970s.

Two prefatory remarks are called for. First, these results are significant for non-Marxist theories in which the rate of profit also figures (see Toporowski, 1999). However, I focus on Marx’s concept because of its central role in his theory, which leads him to develop it farther than others. Moreover, I make use of a differentia specifica of his theory: within it, magnitudes of value express hours of labour. For non-Marxists such as Kalecki (Toporowski, op. cit.) they are simply current money price magnitudes; for post-Sraffians (Pasinetti, 1979) they are ‘physical’ or use-value magnitudes. These differences affect both the measurement and interpretation of the results.

Secondly, I assume the reader is broadly familiar with the basics of the Marxist discussion, or willing to become so, if need be consulting standard sources like Howard and King (1989) or Kliman (2007). Wherever specific issues are referred to, I cite the relevant literature.

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