Thursday, June 17, 2021

Michael Roberts – Profits call the tune

I have argued in many posts that ‘profits call the tune’ in capitalist accumulation. What I mean by that is that any change in business profits (and profitability) will lead to changes in business investment – and not vice versa over time.

Profits are key to capitalist investment, not ‘effective demand’ as Keynesians argue, or changes in interest rates or money supply as Monetarists and the Austrian school argue. I differ strongly from the post-Keynesian view that profits are a ‘residual’ generated by investment; or as Keynesian-Marxist Michal Kalecki put it: ‘capitalists earn what they invest, while workers spend what they earn’.

Yes, workers spend what they earn from wage labour ie (consume and save little); but capitalists do not ‘earn’ profits from their investment in capital (means of production and labour). This theory denies Marx’s law of value that only labour produces value and surplus value (profit) for the capitalist. It turns profit into the ‘gift of capital’; ie there is no profit without capitalists investing. Yet profits can be generated out of the exploitation of labour power and capitalists may not invest. Indeed, that is what we can see now in the expansion of ‘fictitious capital’ at the expense of productive investment.

And it’s not just the theory; the empirical evidence is overwhelming that profits lead investment. In several posts and papers, I have cited empirical work done by Marxist economists like Alan Freeman, Andrew Kliman, Peter Jones, Jose Tapia, Guglielmo Carchedi and others including myself that show this. Moreover, there are also many mainstream economic studies from prestigious sources that deliver the same story....

Brave New World
Michael Roberts – Profits call the tune


NeilW said...

Capitalists earn what they spend, workers spend what they earn.

Nothing about 'investment'. It's just a commentary on the way the flow works.

The usual problem with Marxists. Always desperately trying to make everything fit an ideology.

Calgacus said...

That phrase is Joan Robinson's wonderful summary of Kalecki, not Kalecki directly.

Agree with Neil. The obtusity of "Marxists" like Michael Roberts is horrifying. An occasion for laughter if the same crap from so many predecessors were not a good cause for tears. In too many countries in name to this day - all of Europe in the 30s, directly leading to the war - (Western) Marxists like Kalecki, Woytinsky, Sturmthal as well as the Swedes, who didn't or stopped arguing in this idiotic way were the rare exception.

The overall argument is circular and obsessively fixated on capitalism. This kind of "Marxism" is the stoutest bulwark of the crazed ruling classes. A lot of graphs and verbiage meaning very little. Oh well, the economics of failure has failed. We must make it succeed again!

Sure, profits lead private investment yada yada yada. Who cares, unless you are an Ayn Rand capitalist? If a country gets in a depression due to the lack of private investment, then the rational thing to do is government-led spending on consumption and investment, which doesn't have to worry about profits. It will lead to higher profits and higher investment later on. Of course the investment will follow the profits - people are in business to make money. But why should socialists give a damn when? Tax the profits and income and assets of the rich like mad if you want.

Such spending is socialism. But that's what broken records like Roberts, imbecilic anti-Keynesian or Anti-MMT "Marxists" abhor above all, because it would be a change from their nonsense refuted in theory and in practice long ago.

So why on earth should socialists worry if profits fall? They should celebrate it! If it is a real trend independent of government action- what it means is that rational economic administration will automatically and effortlessly make the country more and more socialist, quicker and quicker. (Vatter & Walker called this the ratchet effect of government spending, inevitably increasing.)

Matt Franko said...

“ Always desperately trying to make everything fit an ideology. ”

Not really …. what they are trained to do is start with their theory (ideology) first and then only look for evidence that supports that thesis… and ignore evidence that is not in support of that thesis.

Liberal Arts college 101… no testing… no adjustments…. No corrections…

Tom Hickey said...

@ Neil and Calgacus

I think that the problem arises for historical reasons. Marx was writing in response to the political economy of his time as well as contemporary conditions, that is, the push for either laissez faire coming out of an era of state control and on the other hand, anarchism. The economic conditions of the time were shaped by economic liberalism based on private property and the rise of industry. This came to be called "capitalism."

In other words, Marx was writing before the reaction to economic liberalism owing to the excesses with which many are familiar from the works of Charles Dickens. Most significantly, Marx was writing pre-Keynes. Marx did not consider the role of government largely owing to the economic conditions in England, which was the center of industrial capitalism, and to a lesser degree other countries of Europe where industry was developing too.

Marxists tend to forget this, along with the fact that Keynes changed everything when his ideas were adopted and implemented by FDR and were successful in addressing the effects of the Great Depression — versus the sound money and liquidation of unprofitable capital of the Treasury view espoused by Andrew Mellon.

As result, the developed countries of the US and Europe moved to economic policy based on a Keynesian model that recognized the role of government in macro and economic policy. In other words, the liberal developed world already has entered a period of at least proto-socialism that greatly modifies the model of economic liberalism still espoused by conservatives.

As an historicist rather than a naturalist, I suspect that Marx himself would recognize this and alter his analysis based on no longer existing historical conditions.

Si I think that Michael Roberts analysis applies to micro still but not to macro, owing to the greatly increased role of government.

China's model is now taking this to another level as it outcompetes other development models based on Western (neoliberal) economic analysis.


Unknown said...

The Chinese combinatory Marxist/Market Fundamentalist/Keynesian economic model doesn't appear to have recognised this would trigger the "Great Realignment" now taking place which aims to clamp down on global trade cheating.

Unknown said...

Economist and social philosopher Robert Heilbroner weighed in on the S=I debate 70 years ago:-

“Economists employing Keynesian terminology, who find that oversaving forces the economy to lower levels of national income, should make clear that they mean that designed saving exceeds designed investment; thereby reducing consumption expenditures and so income. In a formal sense the economy is suffering from overinvestment, but this takes the form of unsold stocks of goods, and is a residual undesigned component of investment. By unfavorably influencing expectations, such unwanted accumulations of inventory further the process of deflation.”

— Robert L. Heilbroner, “Saving and Investment: Dynamic Aspects,” The American Economic Review 32, no. 4 1942, p. 828.

Then there was Circuitist Claude Gnos clarifying Effective Demand the core theory of Keynes's "General Theory ..." 1936 book:-

Peter Pan said...

When ideology is stripped away, there is but one socio-economic system, described as a mixed economy. The balance of power between capital and labour, mediated by the state, determines policy, which determines where we are on the spectrum.

If you want to divide people, keep pushing a socialist versus capitalist canard.

Tom Hickey said...

If you want to divide people, keep pushing a socialist versus capitalist canard

It is not a exactly canard if one defines capitalism in terms of asymmetric power held by the ownership class and more symmetric power distributed in the entire society.

The issue comes down to where power to influence the system lies and how it is wielded.

It's power distribution issue that is matter of social and political arrangements that only secondarily manifests economically, chiefly with respect to distribution.

Peter Pan said...

US labour doesn't have the power to stand up to capital. That leaves government to strengthen the hand of workers. That won't happen without political organization by ordinary people.

The ownership class can be broken up (e.g. antitrust laws), and this periodically needs to happen for the benefit of all. Conversely, it can be lobbied out of existence.

Tom Hickey said...

@ Peter Pan

Yes, this is one basis of "Trump phenomenon" that is harnessing widespread grievances against the power elite whose "revealed preference" is to increase inequality by funneling distribution toward the top instead of more even distribution.

The Powell memo and aftermath shows that this was the plan to reverse the aftermath of the New Deal and recreate the Gilded Age. It has been largely successful resulting in social and political unrest.

Of course, this is not the only factor driving contemporary politics in the US, but it is a chief one. For example, identity politics distracts from interest politics to the degree that people submerge their economic interests in favor of other interests based on division.

Is a large segment of the public deluded about a Trumpist GOP upending Democratic corporate globalism aka Clintonism or will this result in an actual New New Deal that lifts all boats.

Will the Democratic establishment read the handwriting on the wall and reverse course by attempting to recapture the white working class they lost after abandoning the New Deal through a progressive policy shift.

I don't see either party genuinely interested in actual change of this sort. Both parties are committed to elite power and differ in the factions of the elite they represent.

It's likely to require another cataclysmic event like the Great Depression to catalyze change as a result of public dissatisfaction that threatens the system.

Peter Pan said...

What is it about Trumpism that signals a threat to the ruling class?
Not hawkish enough?

Trumpism is a movement with a dubious record with regard to ordinary people.
They are faux populists.

The Biden administration has yet to undo the trade spat with China. If they're okay with economic nationalism, the ruling class may be okay with it. Getting tough with China is Bannon's raison d'etre. Biden will reap few votes by taking up that mantle.

Identity politics is hurting the Democratic Party.
Conservatives dislike it. They detest BLM and related activism.
Progressives dislike liberals who only want to virtue signal.
What good is identity politics when progressive policies end up in the trash?

There's not enough substance in Trumpism to make me believe this isn't theater. If the Dems lose to GOP-Trump, the ruling class will be okay with it. Instead of bringing in economic reform, the Dems are branding their opponents, terrorists. They want the frightened liberal vote.

Ahmed Fares said...

Peter Pan,

US labour doesn't have the power to stand up to capital. That leaves government to strengthen the hand of workers.

Tell me how you do that.

Unions? That raises the real wage of union workers, which leads to price rises, which lowers the real wage of non-union workers. Basically a redistribution of the labor share.

Or how about in Europe, where its almost impossible to fire workers. But that means businesses are reluctant to hire them in the first place, pushing overtime work onto their existing workers. This is why Europe has always had a higher unemployment rate than the US.

Or how about the recent push to help Amazon workers. Amazon responds by using more robots, which of course means more work for robot manufacturers and those who service the robots, and less work for unskilled labor, which increases inequality. You end up hurting the very people you're trying to help.

All these schemes to help workers end up helping one group of workers at the expense of another group of workers.

Tom Hickey said...

What is it about Trumpism that signals a threat to the ruling class?
Not hawkish enough?

I would not say not hawkish enough. It was mostly a disagreement over strategy, e.g, economic pressure in favor of military pressure. The shift in emphasis threatened existing power bases.DJT framed it in a way that had popular appeal to his base, but turned off the establishments of both parties. In the end, the GOP establishment largely caved politically after realizing they could not win elections without the populist base, but that was and is a matter of party politics. DJT was able to molify them with something to chew on, too, e.g, more military spending and regressive tax

When ideology is stripped away, there is but one socio-economic system, described as a mixed economy.

Once economic liberals realized this, they jettisoned classical economic liberalism for neoliberalism, which is about state capture and use of the state to further the aims of combined elites. The major action involves jockeying among elite factions. "Poltics" is largely about keeping the rest of the electorate distracted in order for the ruling class to maintain control. Part of that is controlling the narrative. The narrative is not monolithic, however, and the elite factions use it to "compete" with each other. But they are largely in agreement over distribution toward the top.

Peter Pan said...

Tell me how you do that.

Through government policy. Since this is an MMT blog, a job guarantee is at the top of the list.

You imagine Trumpers are in favor of a JG?

Matt Franko said...

“ economic pressure in favor of military pressure. ”

BS it was dialog vs warfare,,, you have a f-ing PhD in dialog and you still can’t recognize it.. you need to get your munnie back from the Jesuits preferably with interest..,

The “economic pressure”was a dialog of negotiation ... Trump is trying to convert the US policy from a multi decade soft power initiative of the US intelligence community into an economic negotiation (dialog) between equals...

You’re so in the f-ng tank for the DNC you’re blind.,,,

Peter Pan said...

@ Tom

To see the American electorate go for another round of Trump, would be politics as farce. But that's what you get when there's zero organization at the national level.

As if the Dems are a tough act to beat.

Peter Pan said...

With regard to China, the US has increasingly limited economic and military options in its 'toolkit'.

NeilW said...


My thoughts are that Modern Marxists are fundamentally obsessed with confiscating from the rich because they are largely sold on the "equality of outcome" belief rather than "equality of opportunity". They have an almost rabid desire to ram everything into that straitjacket.

MMT and Keynesianism in general annoys them because it destroys that narrative - providing as it does an "accommodate the excess savings" narrative that destroys the need to confiscate, and also provides an answer to the "accumulation paradox" they are so fond of.

Once you have elastic money and money accumulation as the goal of capitalism, then the capital accumulation crisis goes away - since at base it relies on a fixed amount of something you run out of.

NeilW said...

I also agree that if Marx or Keynes were around today they'd be saying different things to what they have written in their previous books. Keynes late 1930s views are very different from his early monetary treatise the New Keynesians and Safe Asset crowd are so fond of quoting.

This tendency for acolytes to treat everything written as gospel is of course why an unwritten constitution is superior to a written constitution. A constant conversation can adapt to current circumstance rather than being fixed at some point in the past. Arguably it is the floating rate vs the fixed rate argument in a different form.

Humans like certainty. But the only certainty is change.

Unknown said...

"Humans like certainty. But the only certainty is change."

Indeed and Neo-Liberalism is the adoption of a totalitarian Neo-Classical economic ideology which pretends that Market Fundamentalism (Invisible Hand) always optimally deals with uncertainty for all! In practice there's currently built-in unevenness giving greater certainty to those few who control capital.

The British economist G.L.S. Shackle spotted this as being the central underlying theme of Keynes's work.

Ahmed Fares said...

Peter Pan,

Since this is an MMT blog, a job guarantee is at the top of the list.

Yes, I agree. This is one of those things that help all workers. That and breaking up companies where possible to ensure more competition. If not possible due to natural monopolies, then turn them into public services, with regulated returns, like we do with utilities.