Posts Tagged ‘economic theory’


Tony Cliff and capitalist crisis

January 5, 2014

A bit more on this. Tony Cliff, in chapter seven of his classic State Capitalism in Russia, offers a brief, analytical description of capitalist crisis, based on Marx, that differs (I think) fairly substantially from what has become the orthodoxy. Cliff describes the central contradiction owners of capital face between the need to both generate profits, via the creation of surplus value, and the need to realise those profits in monetary form, by selling the output produced. It is this contradiction that drives the whole process of the business cycle, but, critically, Cliff does not here attempt to make the claim (central to Chris Harman’s version of the theory) that the falling rate of profit ultimately determines the entire system:

Unlike all pre-capitalist forms of production, capitalism is forced to accumulate more and more capital. But this process is hampered by two complementary, and yet contradictory, factors, both arising out of the system itself. One is the decline in the rate of profit, which means the shrinking of the sources of further accumulation. The other is the increase in production beyond the absorptive capacity of the market. If it were not for the first contradiction, the “underconsumptionist” solution of the crisis – to raise the wages of the workers – would be a simple and excellent answer. If it were not for the second contradiction, fascism could, by continuously cutting wages, have staves off the crisis for a long period at least…

…the rate of profit determines the rate of accumulation, the rate of accumulation determines the extent of employment, the extent of employment determines the level of wages, the level of wages determines the rate of profit, and so on in a vicious circle. A high rate of profit means a quick accumulation, hence an increase in employment and a rise in wages. This process continues to a point where the rise in wage rates so adversely affects the rate of profit that accumulation either declines catastrophically or ceases altogether…

This theory explains why, in spite of the antagonistic mode of distribution and the tendency of the rate of profit to decline, there is not a permanent crisis of overproduction, but a cyclical movement of the economy.

This is, to my mind, a much more satisfactory description of the actual history of capitalist development than the prediction of ever-worsening crises over time, ameliorated only by “countervailing factors”.


Chris Harman, economic dynamics, simultaneous equations

March 16, 2013

It’s ten years ago this month that the Marxist economist Michael Kidron died. Kidron’s work today is woefully and unfairly neglected, but his concerns – around the fusion of state and capital, and environmental destruction especially – now look far ahead of their time.

It was in the course of writing an appreciation of Kidron that I was ended up rereading Chris Harman’s Explaining the Crisis, and noticed a glaring theoretical flaw I’d failed to spot in the past (pp.24 et seq.). Harman, in seeking to defend an orthodox interpretation of Marx’s Capital with the falling rate of profit as the principle theory of crisis, attacks those making use of simultaneous equations solutions to the transformation problem.  (It’s around about here that things are going to get obscure – apologies.) In particular, he – correctly – indicates that input prices for commodities used in production will vary from output prices, but then claims that the use of simultaneous equations solutions to the price system enforce an equation between the two. His preferred “solution” to the transformation problem involves taking a set of input prices for the production process, and then allowing them to be transformed (through the production process) into a different set of prices. The prices change because of the application of labour to the input commodities; the new output necessarily reflects a different labour content. Simultaneous equations solutions, Harman claims, collapse this dynamic process of production.

But this won’t do. As Ajit Sinha notes of Andrew Kilman’s Reclaiming Capital, in his devastating review, it involves a fundamental misunderstanding of the procedure of simultaneous equations. The problem is that once the outputs have been produced by the economy, they then re-enter a further round of production, forming another new set of input prices. This process is continuous under capitalism: the system does not just produce (say) one year’s worth of output, and then stop. In other words, we can’t just calculate one round of production – we have to keep running the system forward until we arrive at a stable set of prices for the economy, so that every year’s worth of output forms the following year’s input, and so on.

This is precisely what the simultaneous equations method attempts to do: they attempt to show how the system, on the basis of Marx’s assumptions about the labour theory of value, produces a stable set of prices for all commodities produced. All Harman has done here is to (in effect) follow the first step in finding  a solution to simultaneous equation solution, and then declare that the entire system is thereby solved. It isn’t.

So Harman got the working substantially wrong – echoing, it would seem, the same error made by Marx. His defence, in Explaining the Crisis, of the falling rate of profit, collapses as a result of it. But he got the *intuition*  correct. It is absolutely true that capitalism is a dynamic system because it depends on the production of commodities, not just “by commodities” (in Sraffa’s phrase) but over time by labour. Simultaneous equations solutions to the price system assume away too much, collapsing that dynamic production process into a problem of the exchange of produced commodities only. To grasp that dynamic, however, requires to specify it properly – the “commonsense” solution provided by Harman, and its scholastic elaboration by Kliman, is not adequate to the task. The approach of Duncan Foley (1982), specifying formally the dynamic systems of prices and values, looks much more promising – and has been used fruitfully in recent work by Paulo dos Santos and Giorgos Galanis, for instance. As far as I can tell, Harman never referred to it, which is a great shame: his basically correct insight might not have lead, then, to a basically incorrect theory.