Last night I finished Michael Roberts’s new book The Long Depression, an epic defense of Marx’s law of political economy that the tendency of the average rate of profit of capital was to fall and an argument that the world is in a long depression, the third economic depression since the rise of capitalism. Readers may recognize the author as I have often cited to the prolific work he has done on his blog, as well as recommending him to all of those who want a solidly Marxist perspective on economics. The book provides an exhaustive computation of the effect of Marx’s law, as well as refutations of a number of alternative explanations (Keynesian, neoclassical, Austrian school, monetarist, Ricardian, etc.) for the economic history of the world from 1873 until the present day. It is a fantastic book not only for Marxists eager to learn more about economics but for Marxists to share with STEM-oriented friends who are more receptive to Roberts’s quantitative focus than to the more sociological arguments for Marxism.
I knew I had to write something promoting this book but I’m at best an amateur economist, so my judgment of Roberts’s argument is not particularly useful. However, I can highlight the arguments of the book by putting forth my own supplement on how the U.S. law correlates to the economic phenomenons that Roberts describes. As the proposal to reinstate the Glass-Steagall Act emerges from the shadows it has lingered in for over a decade, it is crucial to understand how a capitalist economy works and what effect the laws have on them.
Let’s start with some economic fundamentals. Marx’s law is actually very simple to express: R=S/C + V. “R” is the rate of profit. “S” is surplus value, the value created by production that is greater than the costs of production (as Roberts states, “the cost of employing a workforce; the cost of investing in and using equipment, plant, and technology; and the cost of raw materials.”). “C” is the constant capital, the value of that often talked about and often misunderstood socialist holy grail, the means of production. “V” is the variable capital, the value of the labor power being employed because of Marx’s key recognition that labor employed can produce more value than it consumes in the goods and services the workers need to live.
So why does the rate of profit or “R” have a tendency to fall? Because the ratio of C/V, or the “organic composition of capital,” rises over time. This is not really a controversial proposition, you’re probably just more familiar with it being called automation. However, what is a bit more controversial is Roberts’s assertion that surplus value can only ever temporarily counter-act this tendency. The automation utopianists usually believe that new technology’s boost to productivity will inevitably create more value: while Roberts recognizes that new technology can make surplus value rise, he argues that it will never be enough to counter the tendency of the organic composition of capital to rise, meaning that the rate of profit will inevitably decrease over time.
Cannibals Of Capital
So if the tendency of the rate of profit is to fall, how is it that we have cycles of growth and recession rather than just one long fall? Roberts writes that “as the rate of profit falls, at a certain point this causes a fall in total profit, engendering a slump in investment and the economy as a whole. The slump eventually reduces the cost of constant capital of the means of production (through bankruptcies and write-offs of equipment) and variable capital (through unemployment, migration, etc.).” In the conclusion to the book, Roberts writes
That does not mean capitalism will march on forever in a series of booms and slumps…[but] Capitalism will not just collapse of its own accord. Crises and even a breakdown are endogenous because of the main contradiction within the capitalist mode of production, of accumulation for profit and not need. But also it is possible for capitalism to recover and soldier on “endogenously” when sufficient old capital is destroyed in value (and sometimes physically) to allow a new period of rising profitability.
A lot has been written by Marxists about the economic effects of unemployment and migration (variable capital), and war (constant capital), so I want to focus on the less-talked about bankruptcy.
For now I will focus on the U.S. Bankruptcy Act of 1898. The Bankruptcy Act of 1898 has a deceiving date: though it became law in that year it had been in the works for far longer. The law was in response to the repeal of the Bankruptcy Act of 1867, which had failed to serve its purpose during the long depression that started with the Panic of 1873. The US legal world scrambled to get a new bankruptcy law as the rate of profit plummeted.
This 31-year gap was significant because it left the country with no federal bankruptcy law and very limited state law solutions. Article 1, § 8 of the U.S. Constitution expressly provides that Congress is tasked with creating uniform laws on bankruptcy. While the Supreme Court in Sturges v. Crowninshield held that states were allowed to fill the gap, they were constitutionally restricted by Article 1, § 10 of the U.S. Constitution from discharging preexisting debts. And what would be the purpose, especially for a company, to declare bankruptcy if not to discharge their debts, particularly the ones incurred during the Panic when the 1867 Act was still in effect? Which is why experts like Professor Charles Jordan Tabb note that it was creditors, not debtors, who pushed forward the passage of the law. SYMPOSIUM:A Century of Regress or Progress? A Political History of Bankruptcy Legislation in 1898 and 1998, 15 Bank. Dev. J. 343, 357.
And yet the bill gave considerable deference to a more liberal take on bankruptcy, slashing the number of reasons to prevent discharge to two and limiting criminal charges to outright fraud by the debtor. Prof. Tabb attributes this to the legislative process not being hijacked by special interests, though he seems to contradict himself by acknowledging this was a law created by and for the capitalists. I would argue instead that capitalists were more keenly aware of the mechanization of the depression that they were in than our current capitalists are, and understood the need to push forward bankruptcy proceedings in a way that would recycle the dead capital, even if at a loss to them.
Discipline and Deregulation
The 21st century welcomed a turning point in the U.S. economy for the composition of the rate of profit and consequently how recessions functioned. “Against net worth,” writes Michael Roberts, “US corporate profitability was nearly cut in half between 1997 and 200. After 2000, the rate of profit based on net worth remained under the rate against tangible assets for the first time on record, suggesting that the ‘financial’ part of the assets of the capitalist sector became a significant obstacle to the recovery in capitalist accumulation.”
What had changed? Many of you have probably already guessed where I was going with this:
Actually no, a little bit further back:
That is President Ronald Reagan signing into law Garn-St. Germain Depository Institutions Act, which deregulated savings and loans institutions and helped to cause the only double-dip recession in the country’s history.
Generally the law is just looked at as President Reagan botching a response to the savings and loans crisis, as well as providing his wealthy buddies with a new means of keeping their wealth in the family (read: away from poor people and people of color). But it did so much more. It deregulated the savings and loans institutions, which, once commercial banks were freed from their segregation by President Bill Clinton, provided the perfect vehicles for vast profits with the now-legal adjustable rate mortgages.
Just like capitalism requires the destruction of its constant capital during the cyclical depressions and recessions in order to revitalize the rate of profit, similarly finance laws have gone through their own corresponding cycles of deregulation and discipline. As the rate of profit falls, corporations and especially finance encourage the government to deregulate in order to increase their surplus value to stay above the organic composition of capital. Once a crisis is triggered, the inflamed class struggle and support by institutions that require more market stability allow for the passage of reform legislation. That reform is then chipped away at in the proceeding years until a new deregulation law is passed. Thus there is almost always a deregulation law that corresponds to a discipline law that corresponds to a deregulation law.
But much like Marx’s famous M – C – M’, this is a process of accumulation. While the quantity of regulations has increased progressively over US History (and consequently constant capital, not so much to meet the regulations as to understand them through an army of lawyers), regulations over time have become weaker. Dodd-Frank was no Glass-Steagall, and Glass-Steagall itself was not as strong as the Federal Reserve Act (while the Federal Reserve has a deservedly bad reputation when it comes to finance regulation, one must remember that is from their own action: to this day the powers originally granted to the Federal Reserve and just the inherent institution of the Federal Reserve remain the most powerful regulation on finance). Finance has slowly but surely winning the war of deregulation, meaning that as the cycles of capitalism progress the government’s ability to mitigate the damage through anything except outright corporate welfare (as seen with the bailouts and quantitative easing) will be possible.
My Own Predictions and Suggestions for the Future
Michael Roberts ends his book with a few predictions: (1) that another slump will be necessary to get out of this long depression and it will occur within the next year; (2) that the next depression will happen during the inevitable convergence of the downturns of the Roberts’s profit cycle and the Kitchin, Juglar, Kuznets, and Kondratiev cycles which chart out inventory, business, construction, and price.
I have my own predictions. I agree that another slump will be necessary, and that such a slump will bring about another government disciplining of the markets. What that disciplining is will depend on the political landscape following the elections this year (which are increasingly unsure). If the Democrats gain control, I would guess that rather than pass a new law they will use the infamous weapon provided by Dodd-Frank, orderly liquidation. This new measure will at best be used one or two times and will sufficiently destroy constant capital to restart the Roberts’s cycle. I assume the Green Party (if Dr. Jill Stein can take dissatisfaction with the current choices to a yet unseen level) would also take such action, as well as coupling it with more extreme actions though limited to the power of the executive as Congress will be either Democrat or Republican.
If the Republicans gain control, I would guess that they would pass new laws, specifically protectionist trade laws and immigration laws. The resulting trade war and frightening future for immigrants in the US likely leaving by choice or force will result in the destruction of constant capital. However, given how important finance has become to the US economy, this destruction of constant capital would prompt a far less restorative upcycle. The Republicans have stated that they would reinstate Glass-Steagall – I do not have any faith that they would actually do so. Thus under the Republicans we will be closer to the long stagnation, the Roberts’s profit cycle becoming so tight that constant crises are a reality.
One thing is for certain: neither the Democrats nor Republicans will be able to construct a lasting solution to the approaching slump or to any of those after it. The need for political alternatives is becoming greater as capitalism heads towards stagnation, global climate change increases, and police violence against Black, Latinx, and Native people becomes worse to confront the increasingly necessary underground economy as well as political dissent.