I would like to add a bit to Freds report on Mattick (1969) and Freds own thoughts on the issue (see Freds posting of 25may07 below) namely, by mentioning the long-term restructuring of the national economy and of the global economy.
The aggregate rate of profit of an economy can be studied as a composite of the various profit rates in the main sectors of the economy. In recent decades, the U.S. and some other economies experienced drastic restructuring from manufacturing to services (both in terms of jobs and contribution to GDP). There are now fewer jobs in the U.S. in manufacturing and more jobs in services than four decades ago (when Mattick wrote his book). On a global scale, manufacturing activities emerged in, or migrated or were exported to, low-wage countries. The capital-intensity (organic composition of capital) differs between manufacturing and services. Profit rates of these sectors seem to differ as well. These processes of national and global restructuring may explain the recovery of the aggregate profit rate in the U.S. in the recent past, as observed by Fred. If my speculation holds any water, then I would have to concur with Fred that fiscal policy may have had no _direct_ effect on the long-term development of the aggregate profit rate in the U.S., since fiscal policy seems to have little effect on the long-term restructuring of the national and global economies. (However, other public policies may have an effect on that.) Gernot xxxxxxxxxxxxxxxxxxxxxxxxxxxx Fred Moseley wrote on 25 May 2007 Re: What is Marx's view of fiscal policy ? . . . I would say that the classic reference on this question is Paul Mattick?s *Marx and Keynes: The Limits of the Mixed Economy* (1969). Listmember David Yaffe also made important contributions on this question in the 1970s, following along the lines of Mattick?s analysis. Mattick argued that expansionary fiscal policy does not provide a long-run solution to capitalism?s tendency toward crises, because it does not affect (much) the fundamental cause of crises ? the falling rate of profit. If crises are caused by a falling rate of profit, then this implies that a solution to crises must increase the rate or profit. Mattick argued, on the basis of Marx?s theory, that although expansionary fiscal policy may lead to a short-run increase of profit, it does not solve the fundamental problem of a decline in the long-run rate of profit, which caused the problem in the first place. (By "long-run", I mean not affected by cyclical variations.) According to Marx?s theory, an increase in the long-run rate of profit requires some combination of: (1) a reduction in the composition of capital, which requires the "devaluation of capital" brought on by widespread bankruptcies of capitalist firms; and (2) an increase in the rate of surplus-value, which requires a reduction of real wages, or real wages increasing slower than productivity increases. Expansionary fiscal policy by itself and directly has little or no effect on these determinants of the long-run rate of profit, and thus has little or no effect on the long-run rate of profit itself, and therefore does not provide a permanent solution to capitalist crises. Indeed, by preventing bankruptcies from happening, expansionary fiscal policy postpones and inhibits the necessary adjustments that must be made in order to restore the rate of profit. Mattick?s key contribution was to focus the analysis of the effects of fiscal policy on the rate of profit. Mainstream macro has been analyzing the effects of fiscal policy for almost a century, but never once (so far as I know) has mainstream macro asked the question: what is the effect of expansionary fiscal policy on the rate of profit? Indeed, the rate of profit is not even a variable in mainstream macro, so it has no way to ask this question. (Can you believe that? A theory of capitalism, which claims to explain capitalism?s cycles and trends, and profit is not even a variable in the theory!) Mattick argued, on the basis of Marx?s theory, that the effect of expansionary fiscal policy on the rate of profit should be the main question. I think he was right. However, I also think that things are somewhat more complicated than Mattick thought (or at least what he wrote). The following is an excerpt from a paper I am working on about this subject. Comments, criticisms, etc. would be appreciated. Although expansionary fiscal policy does not directly increase the long-run rate of profit, it may do so indirectly over many years in the following way: the expansionary fiscal policy would presumably stabilize the economy and put a "floor" under the economy. The economy could then remain in such a state of "contained crisis" or stagnation for many years, perhaps even decades, with slower growth and higher unemployment. The higher unemployment would put continual downward pressure on wages. In addition, inflation might also increase, as another way for firms to restore their rate of profit, especially if the expansionary fiscal policy is accompanied by expansionary monetary policy. The net result would be constant or declining real wages, so that any increase in productivity during these years would increase the long-run rate of surplus-value, thereby also increase the long-run rate of profit. Something like this seems to have happened in the past several decades in the US economy. Expansionary fiscal policies have prevented a major depression from happening and have put a "floor" under the economy, but they have also resulted in a long period of "stagflation". Three decades of slower growth and higher unemployment have resulted in little or no increase in real wages over this entire period, while productivity increases have been continual, first at slow rates through the mid-1990s, and then at faster rates since then. This combination has produced a very significant increase in the rate of surplus-value over this period (it has roughly doubled from approximately 1.5 to approximately 3.0). Indeed, the rate of surplus-value has increased so much over these decades that as of today (2007), the rate of profit seems to have almost fully recovered from its decline and restored to its early postwar levels. Therefore, although the expansionary fiscal policy of this period did not directly increase the long-run rate of profit, these policies were successful in stabilizing the economy at slower rates of growth and higher rates of unemployment than normal, which provided the conditions for a slow increase of the rate of surplus-value over many years, which eventually restored the long-run rate of profit. This almost complete recovery of the long-run rate of profit without a serious depression and devaluation of capital might seem to contradict Marx?s theory of the falling rate of profit. It is certainly not what Marx expected, but it can be explained on the basis of Marx?s theory. Even though the decline of the rate of profit was not caused by a decline in the rate of surplus-value, but instead was caused by increases in the composition of capital (and increases of unproductive labor), thirty years of stagnant real wages and increasing rate of surplus-value have finally been enough to offset these causes of the prior decline of the rate of profit. Therefore, thirty years of stagnant real wages appears to be a viable alternative to bankruptcies and deep depression as a means of restoring the rate of profit, at least in this case. And to the extent that expansionary fiscal policy makes such a "stagflation" alternative possible, these policies are "successful" in avoiding a depression as the only way to restore the rate of profit. But this alternative takes a long time (as of ten years ago, the rate of profit was still approximately 25% below its early postwar peak). Marx?s theory provides an explanation of why the restoration of the rate of profit has taken so long ? because the rate of surplus-value had to overcome these prior increases in the composition of capital and unproductive labor. At the very least, the decline of the rate of profit and its slow recovery can be explained much better by Marx?s theory than by mainstream theory, which provides no explanation at all of these all-important trends. Comradely, Fred _________________________________________________________________ Windows Live Hotmail is the next generation of MSN Hotmail. Its fast, simple, and safer than ever and best of all its still free. Try it today! www.newhotmail.ca?icid=WLHMENCA146
