‘The Failure of Capitalist Production: Underlying Causes of the Great Recession’ reviewed by Matthew Wood

Reviewed by Matthew Wood

About the reviewer

Matthew Wood is a philosophy postgraduate with an interest in Marxism. He finished his MA at …

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The Failure of Capitalist Production is an attempt by the American Marxist economist Andrew Kliman to trace the cause(s) of the ‘great recession’ that has gripped the world economy since the collapse of Lehman Brothers in 2008. For Kliman, it is with reference to Marx’s Law of the Tendential Fall in the Rate of Profit (LTFRP) that the current crisis is explicable.

The LTFRP is developed by Marx in volume three of Capital. The law comes out of the Labour Theory of Value and labour’s unique position (as opposed to capital) of being productive of value. As industry develops, and machines constitute a rising proportion relative to human labour in the total capital, ‘the rate of surplus-value, with the level of exploitation of labour remaining the same or even rising, is expressed in a steadily falling rate of profit’ (Marx, Capital Vol. III, Chapter 14). Part Three of the book is dedicated to the Law, and it is important to note that Marx devotes a lot of space to enumerating the ‘countervailing factors’ to the full expression of the Law. Nevertheless, the Law is an important part of Marx’s analysis of capitalism.

Kliman sees his view as controversial because it flies in the face of the received wisdom of the ‘neoliberal’ school of Marxist economists, who, Kliman says, argue that capitalism restored its profitability through economic and political reforms in the 1980s. For these thinkers, Kliman says, the crisis is ‘irreducibly financial’ (6), and is therefore not a crisis of capitalism at all, but instead one of a specific kind of deregulated or ‘irresponsible’ capitalism. Such a critique, Kliman is correct to point out, does not amount to a critique of capitalism at all and is very similar to calls for a more ‘humane’ or ‘responsible’ capitalism.

The Failure of Capitalist Production is, in Kliman’s words, an ‘empirical analysis, not a theoretical work’ (9). This means that the author is purporting to offer an objective argument which only looks at the relevant statistical data. Of course, the question of what is relevant is something that Kliman’s opponents take issue with.

There are a number of limitations to this book, some of which Kliman is aware of. Firstly, even if we accept Kliman’s central contention – that the rate of profit has fallen and that this is the main cause of the current crisis – Kliman’s data is only for the USA and at best, similar conclusions may be correct for parts of Western Europe. Here we come across one of the weaknesses of the book – its ignorance of real developments in human society and between societies in the period in question. For example, there is no discussion of globalisation, and Kliman argues for excluding China from the global growth rate because it is an anomaly (53). Furthermore there is no analysis of the collapse of the USSR, which is dismissed as just another form of capitalism anyway, or of how the opening of that market may have acted as a countertendency to the fall in the rate of profit, or how the restoration of capitalism in the USSR precipitated a massive contraction in the Soviet economy.

Kliman states that `U.S. workers are not being paid less in real terms than they were paid decades ago. Their real pay has risen. And their share of the nation’s income has not fallen. It is higher now than it was in 1960, and it has been stable since 1970.’ (6)

We also learn that wages have been replaced by non-wage benefits such as healthcare, education and perhaps credit cards. Kliman maintains this in the face of even mainstream economists’ acceptance of the growth of inequality, the language of the 99%, and the decline in things like trade union membership, labour rights, the growth of underemployment and casualization. Again, even if we accept the extremely dubious claim that American workers had, until the crash of 2007, never had it so good, we should, as Marxists, understand that the economy is global, and that the vast majority of the global proletariat do not have access to such luxuries as welfare, consumer credit, hire purchase or ‘sub-prime’ mortgages.

A quick internet search for ‘labour share of income USA’ also pulls up a lot of articles from mainstream economists who recognise the existence of this trend. In a recent New York Times article, Paul Krugman has even belatedly become aware of it. I bring this up just to show that it is not just the ‘conventional left’ who are aware of labour’s worsening position relative to capital in the past thirty years.

Kliman’s measure of profit is also somewhat dubious. Kliman calls it the ‘property-income’ rate of profit and says it is:

much closer to what Marx meant by “surplus value”. It counts as profit all of the output (net value added) of corporations that their employees do not receive. In addition to the before-tax profits of corporations, it includes the moneys spent to make interest payments and transfer payments (fines, court settlements, gift contributions, and so on), to pay sales and property taxes, and other minor items (75-6).

But the problem with this measure is that it includes Kliman’s aforementioned ‘social wage’ that the state pays to the worker under the heading ‘profit’. The cost of doing business, tax, court fees, patent applications and so on, all come under profit. It is highly unlikely that the capitalist class sees it this way. In Britain, the incessant bleating of the employers’ federation, the CBI, suggests that anything that does not show up as a credit in a business’s bank account must instead be a debit.

Of course, Marxists have a theory of the capitalist state – that it is ‘the executive committee of the bourgeoisie’ – but the fact that the state under capitalism acts to support the bourgeoisie does not mean that it is identical with it. To be sure, capitalists can be a short-sighted bunch, and it is often in their own interests that the state administers their business – if it wasn’t for the state, they would produce their own gravediggers in a much shorter period of time. However the state also provides things for workers that have been won through class struggle. There is no mention of class struggle, or the changing political power of the working class throughout Kliman’s book.

The biggest problem with Kliman’s work is what he sees as its strength – its ‘empirical’ non-theoretical nature. The LTFRP seems to be a good account of the development of capitalism. Although it is debateable whether or not the rate of profit continued to fall or recovered after the 1970s (and Kliman has made an interesting contribution to the argument here), the fact that post-war capitalism is in a slow decline is unarguable. The cause of the current crisis being the exhaustion of all suitable markets and availability for capitalism to turn a profit, even at a rate relatively meagre when compared to the halcyon days of the nineteenth century. If a new opportunity opened up for world capitalism would capital turn its nose up if the rate of profit was too low? One suspects that instead capitalists would jump at the chance of a new avenue for expansion: a new market, the chance to accumulate more capital, to develop new technologies, perhaps a new territory to alleviate the pressure cooker of class struggle spreading through the world – these would all represent a new lease of life for capital, even at a relatively low rate of profit.

Throughout history, there have been cases like this. Did the Robber Barons sniff at the railroad? Why did British textiles capitalists bother to reinvest in greater productive capacity? Of course there was the imperative pressure of competition, but it is still noteworthy that capitalism expanded with all its productive might when it could, when new opportunities presented themselves, or were conceded at the barrel of a gun.

When Marx propounds the LTFRP in volume three of Capital, he also points out that ‘the more productiveness develops, the more it finds itself at variance with the narrow basis on which the conditions of consumption rest’ (Marx, Capital Vol. III, Chapter 15). Later in the same book Marx writes that `The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.’ (Marx, Capital Vol. III, Chapter 30)

Kliman opposes himself to the quasi-Keynesian underconsumptionism of Paul Sweezy, but Sweezy’s view does not stand up to much criticism, and it is capitalism’s tendency towards overproduction (not underconsumption) that many Marxists point to as the general predictor of capitalist crisis. This view – which does not position itself as the magic formula for predicting crisis – is not seriously considered by Kliman, and it should be. It is in overproduction – the tendency to push beyond the limits of the market – that Marx locates the basic contradiction of capitalism.

The Failure of Capitalist Production does have its strong points: in particular the chapter on the 1970s, not the 1980s, as starting point of the current crisis is a good counter to the ‘neoliberal’ argument, but even Kliman’s own graphs don’t obviously support his conclusion that the U.S. economy was stagnating from the 1970s onwards. For example, Figure 4.4 ‘Growth Rate of Industrial Production U.S. (percentage change during prior decade)’ (55) shows that the growth rate recovered in the mid to late 1980s and never hit the depths of the 1981 recession. Whilst Kliman clearly shows that there has been a long term decline in the rate of profit since the end of World War Two, The Failure of Capitalist Production doesn’t convincingly show that there was a rebound in the 1980s and 90s – even if this rebound wasn’t sustained (is any capitalist rebound ‘sustained’ anyway?).

Overall, The Failure of Capitalist Production puts forward an interesting thesis which makes a real contribution to our understanding of the crisis, not least in its collection and interpretation of data for the U.S. economy. However, it does not offer compelling arguments for the reader to accept its rather extraordinary conclusion – that capitalist production has failed because of the LTFRP. The reason for the limitations of The Failure of Capitalist Production is, I think, due to its tendency to abstract from the real world which includes countervailing tendencies in politics, international relations, globalisation, the collapse of the USSR, and the contortions that capitalism performs in order to overcome its own barriers, but which return in the shape of greater crises.

4 February 2013

18 comments

  1. The saying goes that all press is good press. At least on Amazon, Kliman’s book has received six reviews, all of which are five stars (I confess I wrote one). I am not so sure that this review though is good press…

    When Wood writes that Kliman only focuses on the US, and that this detracts from his thesis, he cites page 53. In reality on page 53 Kliman has a chart that covers half the page focusing on ‘Growth Rates of Real GDP Per Capita’ focusing on 14 different economic countries (and/or regions), other than the US. As he says on page 51, the reason for the focus on the US economy is because “The US was the epicenter of the latest crises, and because the data that are available for other countries are not as complete and often not as reliable.” Although there is a US focus, Kliman does not categorically exclude other countries, which make appearances throughout the text.

    The reviewer also seems to conflate, or confuse, growing inequality with an increase or stabilizing of worker wages. These two factors are not mutually exclusive. Even if workers get a larger share of the corporate profits (via benefits), or receive benefits from the government which are of course a redistribution of wealth, it’s still entirely possible for inequality amongst workers, or between workers and CEOs to rise. The reviewer then goes on to state that Kliman feels, pre-crisis, “workers never had it so good.” Yet on page 154, where Kliman is in the middle of fleshing out his opposing view to the Monthly Review school of thought (i.e., why workers do have a larger share of compensation via benefits), he states “I do not mean to imply that working people are living well. This isn’t the case. They were not well off in the mid 1970s.”

    Upon contesting – falsely – that Kliman thinks workers never had it so good, Wood suggest: “we should, as Marxists, understand that the economy is global, and that the vast majority of the global proletariat do not have access to such luxuries.” Kliman does just this in his final chapter. Just to take one quote among many “Unemployment is rampant in China and it’s among the factors that keep wages down.” This is in the midst of talking about how the crises impacted France, the UK, Japan and Germany! More evidence that Kliman’s book is not devoid of all non US data and more evidence that while most the evidence is local, Kliman does think global.

    Later the reviewer goes on to say that:
    “However the state also provides things for workers that have been won through class struggle. There is no mention of class struggle, or the changing political power of the working class throughout Kliman’s book.”

    Again, this is just untrue. First, because Kliman specifically discusses various benefits (medicare, medicaid, social security), as ways in which workers have used the state to their advantage to garner extra compensation. Second, in the final chapter, where Kliman is discussing “what is to be undone”, he explicitly says: “almost all revolutionary socialist maintain, to the contrary, that the interests of working people and the interest of the system are, in the end fundamentally opposed.” And again, on page 203: “Working people will have to fight tooth and nail just to prevent their living and working conditions from deteriorating FURTHER, in the face of efforts to restore profitability and economic growth through austerity measures” [caps mine]. Much of the entire final chapter is specifically a discussion about the state, working class, and conflict.

    There’s more to be said about this review, but I think reading the best antidote is to read Kliman directly, and then compare.

  2. This reply was first published on Feb. 6, 2013 in _With Sober Senses_,

    http://www.marxist-humanist-initiative.org/economic-crisis/reply-to-a-review-of-the-failure-of-capitalist-production.html

    Reply to a Review of “The Failure of Capitalist Production”

    by Andrew Kliman, author of “The Failure of Capitalist Production: Underlying Causes of the Great Recession” [www.marxist-humanist-initiative.org/literature]

    THE RATE OF PROFIT

    In his review of my book in the Marx & Philosophy Review of Books, Matthew Wood says that it ignores “countervailing tendencies [to the law of the tendential fall in the rate of profit (LTFRP)] in politics, international relations, globalisation, [and] the collapse of the USSR,” and therefore “does not offer compelling arguments … that capitalist production has failed because of the LTFRP.” This simply isn’t so. The book doesn’t ignore ANY countervailing tendency in the sense he intends.

    It looks at the movements in U.S. corporations’ actual rate of profit. These movements are the result of everything that affected the rate of profit–all countervailing tendencies, institutions, accidents, etc., as well as the operation of the LTFRP. Thus, irrespective of how much or how little a particular countervailing tendency is explicitly discussed, its influence is fully taken into account. The net result was that the corporations’ rate of profit fell and never rebounded in a sustained manner under neoliberalism.

    This last phrase, which the review mocks (“is any capitalist rebound ‘sustained’ anyway?”), is shorthand for the following: some measures of the rate of profit were trendless between the recession of 1982 and the start of the Great Recession, while others continued to trend downward. This calls into question the widely-held claims that neoliberalism in the U.S. ushered in a new expansionary phase of capitalism by increasing the degree of exploitation and thereby causing the rate of profit to trend upward.

    Wood suggests that the book is selective when considering data. Supposedly, I purport to look at “relevant statistical data,” but “what is relevant is something that Kliman’s opponents take issue with.” However, the book re-examines the EXACT SAME data that the opponents offer, and argues that they have misinterpreted it.

    He also suggests that the book considers ONLY the property-income rate of profit, somehow managing to overlook my very detailed discussion of corporations’ before-tax rate of profit, and the seven graphs and two tables in which that rate appears. The before-tax rate EXCLUDES from profit the items about which the review complains: “the moneys spent to make interest payments and transfer payments …, to pay sales and property taxes, and other minor items.” I show that the before-tax rate of profit failed to recover in a sustained manner (i.e., it was trendless) under neoliberalism. (In any case, the review’s claim that the property-income rate “includes Kliman’s aforementioned ‘social wage’ that the state pays to the worker under the heading ‘profit’” is almost entirely incorrect. Taxes for government-provided pension and health benefits (Social Security, Medicare, etc.) come out of the compensation that employees receive, not out of profit. And “consumer credit, hire purchase [and] ‘sub-prime’ mortgages” aren’t part of either profit or employees’ compensation.)

    RISING INEQUALITY

    Income statistics are much trickier things than most people realize. It is very easy to draw incorrect inferences from them, as Wood–along with many other leftists and liberals–has done. He points to the decline in the “labour share of income” in the U.S., as well as “the growth of inequality, the [relative rise in income of] the 99%, and the decline in things like trade union membership, labour rights, the growth of underemployment and casualization.” He seems to think that these phenomena contradict my book’s finding that real (i.e., inflation-adjusted) compensation of U.S. workers has risen, as well as its findings that their share of the nation’s income, and employees’ share of corporations’ output, were stable between 1970 and the Great Recession, and higher than in 1960.

    But there are simply no contradictions here. I have discussed some of the many reasons why these phenomena are not contradictory in a recent talk [www.marxist-humanist-initiative.org/economic-crisis/video-why-trickle-up-economics-won%E2%80%99t-work.html] and a recent contribution to a symposium on my book in the journal Marxism 21 [nongae.gsnu.ac.kr/~issmarx/eng/article/28/Kliman28.pdf]. I’ll just mention one reason here: inequality of income BETWEEN workers increased. This phenomenon, which accounts for a large part of the increase in inequality, makes it clear that we can’t automatically infer that income has been distributed from workers to owners when we read that incomes have become more unequal.

    The conclusion I drew from my findings was not “that American workers had, until the crash of 2007, never had it so good.” I said the opposite:

    I do not mean to imply that working people are living well. That isn’t the case. They were not well-off in the mid-1970s, and their incomes have grown only slowly since then. But the reason they aren’t living well has nothing to do with a DECLINE in their share of national income, because no such decline occurred. … Since corporate income has not been growing quickly and working people have been getting a close-to-constant share of it, their compensation has increased only slowly (p. 155).

    The constancy of working people’s income as a percentage of U.S. national income is important if we want to understand the underlying causes of the Great Recession, because it means that the account provided by the Monthly Review school and other underconsumptionists is fatally flawed on empirical grounds. Similarly, the fact that employees’ share of corporate output did not fall under neoliberalism is important in this context because it helps to explain why the corporations’ rate of profit failed to rebound in a sustained manner.

    RELATIVE STAGNATION AND CLASS STRUGGLE

    My book doesn’t say that “the U.S. economy was stagnating from the 1970s onwards.” My actual conclusion is that “the economy never FULLY recovered from the recessions of the mid-1970s and early 1980s,” and I refer throughout to “RELATIVE stagnation” (p 1, p. 9; emphases added). The evidence concerning the growth of U.S. industrial production that Wood mentions is entirely consonant with my actual conclusion. Its ten-year growth rate averaged 57 percent between 1957 and 1973, but plummeted to 30 percent between 1975 and 2008. Even when the growth rate of the latter period peaked in 2000, it was less than the average growth rate between 1957 and 1973.

    Nor do I argue for “excluding China from the global growth rate because it is an anomaly.” I compared the growth rate that includes China to the growth rate that excludes it in order to show why, in “the period since 2000, the World Bank figures indicate that growth of real GDP per capita accelerated only minimally, while [Angus] Maddison’s figures suggest that the growth rate returned to pre-1973 levels” (p. 51).

    The review states, “There is no mention of class struggle, or the changing political power of the working class throughout Kliman’s book.” Yet my explanation of relative stagnation since the economic crises of the mid-1970s and early 1980s rests largely on the “wave of radicalization of working people … [that] the Depression of the 1930s triggered. This legacy of class struggle has helped shaped economic policy and performance during the last several decades” (p. 24). I also argue that the rise of neoliberalism in the U.S. was due partly to “the Keynesianism that dominated the left[, which] helped to demobilize working people” (p. 201). And recent class struggles in China play a significant role in the book’s rather lengthy discussion of the rapid growth of China’s economy.

    PROFITABILITY AND CAPITAL ACCUMULATION

    Wood’s theory of capitalist crisis seems to be grounded in the supposed fact that capitalists expand production without regard to, or without attending sufficiently to, how profitable they expect it to be. I don’t know enough about robber barons and railroad investment, or about British textile capitalists and investment in that industry, to say definitively that this theory is wrong about those cases. But insofar as the underlying causes of the Great Recession are concerned, it is clearly wrong. As I show in my book, there was a very tight relationship between the rate of profit and the rate of productive capital accumulation (investment) in the U.S. corporate sector between 1970 and the recession, and movements in the rate of profit preceded movements in the rate of accumulation. This strongly suggests that movements in profitability were driving movements in investment.

    Further work on this issue (Andrew Kliman and Shannon D. Williams, “Why “Financialization” Hasn’t Depressed U.S. Productive Investment” [akliman.squarespace.com/writings]) strongly suggests this as well. Williams and I show that the ENTIRE decline in the rate of accumulation between 1948 and 2007 is attributable to the decline in U.S. corporations’ after-tax rate of profit. By producing this slowdown in investment, the fall in the rate of profit led indirectly to a slowdown in economic growth and growth of income, and to rising debt burdens, i.e., to the situation that underlay the Great Recession and that underlies the persistence of the economic malaise since it ended.

    Wood attributes his theory to Marx, but Marx held that

    the rate of profit … is the spur to capitalist production in the same way as the valorization of capital is its sole purpose, [so] a fall in this rate slows down the formation of new independent capitals and thus appears as a threat to the development of the capitalist production process (Capital, vol. 3, chap. 15, pp. 349-50 of Penguin ed.).

    Similarly, Wood writes, “It is in overproduction – the tendency to push beyond the limits of the market – that Marx locates the basic contradiction of capitalism.” What Marx actually wrote was,

    this contradiction … consists in the fact that the capitalist mode of production tends towards an absolute development of the productive forces irrespective of value and the surplus-value this contains …; while on the other hand ITS PURPOSE is to maintain the existing capital value and to valorize it to the utmost extent possible (i.e. an ever accelerated increase in this value). IN ITS SPECIFIC CHARACTER IT IS DIRECTED TOWARDS USING THE EXISTING CAPITAL VALUE AS A MEANS FOR THE GREATEST POSSIBLE VALORIZATION OF THIS VALUE (ibid., pp. 357-8 of Penguin ed.; emphases added).

    Wood has mistaken one pole of the contradiction for the contradiction itself, overlooking the other pole–profitability. And even the pole that he focuses on, “absolute development of the productive forces irrespective of value,” gets turned into “overproduction – the tendency to push beyond the limits of the market,” though it is clear (to me, at least) that Marx is referring to the technological changes that tend to depress the rate of profit because they are introduced without regard to their effect, at the level of the economy as a whole, on the production of value and surplus-value.

    THE U.S. AND THE WORLD

    I do agree with the review that, since my book’s data analysis focuses on the U.S., it cannot automatically be assumed that it applies to other countries. However, I argued in the book that “since the U.S. was the epicenter [of the latest crisis]—since, in other words, the crisis erupted elsewhere because it first erupted in the U.S. and then spread—the relative lack of discussion of other economies does not reduce the adequacy of this book’s analysis of the long-term economic difficulties underlying the crisis and slump” (p. 3). I continue to think this is right. Wood seems unhappy with it, but that is probably because of his incorrect inference that the book’s relative lack of explicit discussion of events outside the U.S. caused me to ignore countervailing tendencies to the LTFRP.

    In any case, it is not only my own book that focuses on the U.S. Every detailed empirical investigation of the underlying causes of the recession that I know of does so, because U.S. data are far more complete than data for other countries, and often more reliable. Works that may seem to provide a detailed empirical analysis of the world economy actually focus on U.S. data and try to extrapolate their findings beyond it, or they weave a narrative by drawing global inferences from a rather diverse assortment of surface-level facts. The extrapolations are unsafe, as Wood himself suggests, and I have found that more detailed analysis often reveals that surface-level facts (like income inequality trends) do not imply what they initially seem to imply. So I prefer to limit myself to saying only what I can say more confidently.

  3. I am perplexed by the review. You seem to imply that Kliman’s studies, which are empirical more than anything, don’t take into account counter-tendencies to the falling profit rate. I don’t understand how this is possible in the first place, I don’t think the subject matter (i.e. real existing observable facts) permits this. By their very nature, the dynamics of the profit rate will already reveal these counter-tendencies because their existence contributes to the movements of the rate of profit.

    Frankly, this sounds like confirmation bias. What bothers me is the amount of libelous or misguided attacks on Kliman (and TSSI authors in general) when all he (and they) are trying to do is restore the scientific status of the labor theory of value, unraveling decades of nonsense built around it by Marxian and non-Marxian economists.

    I hope you will all read his reply to the review and resolve any further contradiction. In any case, I would insist for every self proclaimed Marxist to fully understand the opponent’s argument before launching in a critique of it, and to do so with little sarcasm and a more comradely attitude.

    Best wishes,
    Klaas.

  4. Given that the reviewer is a Phd. post graduate student one would have expected a knowledgable well ballanced review of Kliman’s book. Unfortunately we have a catelogue of distortions both of the content and the central thrust of Kliman’s thesis. What is becoming of the level of academic scholorship these days?

    To be clear I do not agree with some Kliman’s conclusions, specifically on a lack of of an articulated explanation of how the working class are suppossed to fight back during the present crisis and I have to take exception with his comments designating the Soviet Union as a state capitalist economy. However this last point is mentioned only in passing, is not the central focus of the book and is therefore substantively irrellevent.

    Nevertheless Kliman has produced and invaluable work of empirical scholorship and meticulus research for serious Marxists which is in the spirit of Marx himself. He is also prepared to discuss objective and honest criticism of his work.

    This review is dishonest and subjective and really cannot be taken seriously particularly by anyone purporting to base themselves on the teachings of Karl Marx.

    I don’t need to rage against the distortions of the reviewer as the author has answered them in methodical detail himself.

    I would recommend that ”The Failure of Capitalist” should be read by every Marxist for what it is, a scientific work of Marxist Political Economy even if they do not agree with Kliman’s complete approach..

    As for the reviewer perhaps a good tip would be to do a refresher course on Marx’s Capital and brush up on academic standards and ethics.

  5. I write to ask for clarification.
    I do not really understand the essence of the dispute between underconsumption and overproduction. Could one of the learned economists [ I am not of this tribe] please explain the significance of the dispute?
    I will try to clarify my problem by simply stating what I understand to be the essence of the facts.
    > Capitalist crises arise because there is a growing discrepancy between the acceleration of productive capacity and the acceleration of effective consumption capacity.< I thank any of you generous people who can find time to answer idiot questions.

  6. Given that the reviewer is a Phd. post graduate student one would have expected a knowledgable well ballanced review of Kliman’s book. Unfortunately we have a catelogue of distortions both of the content and the central thrust of Kliman’s thesis. What is becoming of the level of academic scholorship these days?

    To be clear I do not agree with some Kliman’s conclusions, specifically on a lack of of an articulated explanation of how the working class are suppossed to fight back during the present crisis and I have to take exception with his comments designating the Soviet Union as a state capitalist economy. However this last point is mentioned only in passing, is not the central focus of the book and is therefore substantively irrellevent.

    Nevertheless Kliman has produced and invaluable work of empirical scholorship and meticulus research for serious Marxists which is in the spirit of Marx himself. He is also prepared to discuss objective and honest criticism of his work.

    This review is dishonest and subjective and really cannot be taken seriously particularly by anyone purporting to base themselves on the teachings of Karl Marx.

    I don’t need to rage against the distortions of the reviewer as the author has answered them in methodical detail himself.

    I would recommend that ”The Failure of Capitalist Production” should be read by every Marxist for what it is, a scientific work of Marxist Political Economy even if they do not agree with Kliman’s complete approach..

    As for the reviewer perhaps a good tip would be to do a refresher course on Marx’s Capital and brush up on academic standards and ethics.

  7. Wood tries to back up his assertion that Kliman’s methodology is wrong by stating that Kliman’s data analyses contradict the popular left and non-left understandings of the economy, as if that proved the validity of Wood’s criticism. It seems to me a good thing that Kliman doesn’t go along with the herd, but looks deeper into the data–and I say “wow” that the data fit Marx’s “law of the tendency of the rate of profit to decline,” a theory so important that Marx called it “the” fundamental law. But Kliman’s approach is apparently threatening to people who cling to the popular view that the economic crisis is rooted in distribution and the market, rather than in production.

    Wood simply assumes what is to be proved; he says, “The cause of the current crisis being the exhaustion of all suitable markets and availability for capitalism to turn a profit…,” which is the opposite of what Kliman’s book demonstrates. Wood’s appeal to authority to disparage Kliman’s empiric and theoretical work is a sorry reflection on the state of left discussion on the crisis. It seems that we are living in a time of anti-reason. Five years after the crisis began, there has been no thorough, reasoned debate and resolution about what happened, why, and what it means for those of us who want to help change people’s lives for the better.

    The comments from Klaas and CB, as well as Kliman’s own, expose the falsity of Wood’s claims that the book ignores countertendencies to the tendency of the rate of profit to fall, the non-U.S. world, and other “real developments in human society and between societies.” Wood appears to be disparaging the results of careful and thorough research and analysis on the grounds that Kliman doesn’t discuss all of Wood’s favorite topics, whether relevant to the book or not. The book is about the underlying causes of the Great Recession, not about all of recent economic history. One suspects, like Klaas does, that prior prejudice causes Wood to ignore or misrepresent Kliman’s analyses and conclusions.

    Does Wood really not understand what CB states so clearly, that growing inequality (of income? of wealth?—these are very different measures) is not contradictory with workers’ unchanged share of corporate income? They are apples and oranges. As for (wrongly) faulting Kliman for not discussing “class struggle,” Kliman’s revolutionary conclusions come mostly at the end of this book, in the last chapter, which Wood does not discuss. But the inevitability of Kliman’s conclusions—ultimately, that capitalism cannot be substantially and sustainably reformed to benefit workers–has had its groundwork laid in the preceding chapters.

    Wood’s criticism relies on stringing together allegedly relevant elements that Kliman’s book supposedly misses: “the growth of inequality, the language of the 99%, and the decline in things like trade union membership, labour rights, the growth of underemployment and casualization.” But how this hodge-podge is relevant to Kliman’s actual findings, we aren’t told. Since when did “language” about inequality become evidence of inequality?

    It seems that Wood is faulting Kliman for not writing an economic history of the world over the past 40 years—not the purpose of the book! Wood and others who want a grand narrative in place of careful examination of economic variables will always have an excuse to find fault with Kliman’s more limited and serious approach. And those who are wedded to the idea that the economy is determined by the market rather than by the nature of production are going to find fault with a book that comports with Marx’s revolutionary theory.

  8. I am currently reading The Failure of Capitalist Production and I’m not sure if Wood is reviewing the same book. All throughout, Kliman uses several different measures of virtually every concept he employs, specifically adjusting for methodological differences in order to strengthen his points. In fact, his points are most clearly articulated by the comprehensive empirical research that makes up the majority of the book. A cursory glance at any of the graphs or charts will convince you that he has gone out of his way to make sure to preempt and confront accusations of obfuscation and statistical manipulation.

    The woeful misrepresentation of Kliman’s methodology and conclusions, coupled with the snide tone of the article, makes me wonder whether Wood has an axe to grind with Kliman. Considering that Wood did his master’s thesis on Cohen, I have a hunch that he resents Kliman’s rejection of the type of post-Marxian economic theory that defined Cohen’s associates within the dismal science. Conjecture aside, this article was well below the standard of quality I’ve come to expect from this book review and just smacks of petty ideological differences. I hope Marx & Philosophy Review of Books will reconsider Kliman’s book and give it a fair hearing.

  9. Good review, that goes to the heart of the issues with AKs book. Its empirically unsustainable – that is just plain wrong – to argue that the rate of profit has been falling or stagnant during the period of globalisation. What’s more by leaving out the growth of the emerging markets, BRICs etc. its hopelessly one sided.

  10. As i have carefully read Kliman’s book, i have to say that this review is quite misleading and not adequate. Why? First, read Andrew Kliman’s comment and then get a copy of his book to form yourself an opinion about these important and interesting issues.

  11. Upon finding that there was a review of Andrew Kliman’s book, I looked forward to a great debate on the fundamentals of Mr. Kliman’s thesis, the fall in the rate of profit underlying the recent crisis. What more could one hope for than a great debate between, on the one hand, the validity of Marx’s law and Kliman’s mountain of empirical data, and on the other, those seeking to undo the compelling arguments of both? This is a debate we deserve to hear. Imagine my disappointment when I found a half-hearted critique resting upon such unsupported assertions as, “the cause of the current crisis being the exhaustion of suitable markets”, and “capitalism’s tendency toward overproduction”, which, we are assured, “many Marxists point to”. But then many Marxists could be wrong, especially those who provide no proof, nor empirical data, could they not? Kliman clearly, if nothing else, provides reams of empirical data to make his case. So could we not discuss the factual data? And could we not debate what he in fact claims in his book, rather than manufacturing criticisms of claims that are not even in his book? It would seem such a serious effort by Professor Kliman at least deserves a serious review, and by one who has seriously read Das Kapital.

  12. Hi Sydney,

    I don’t think your questions are “idiot questions.”

    I also avoid terms like “overproduction theory of crisis” and “overaccumulation theory of crisis” and “falling rate of profit theory of crisis” because all of them can mean many different things and incompatible things, so they aren’t really helpful IMO.

    In re the underconsumptionist theory of crisis, at least the variant put forward by Baran, Sweezy, and the Monthly Review school, the “essence of the dispute” is just what you say it is, the dispute over the claim that “[c]apitalist crises arise because there is a growing discrepancy between the acceleration of productive capacity and the acceleration of effective consumption capacity.”

    That’s what they claim to have demonstrated (on logical grounds, not (just) on contingent empirical grounds). In Chap. 8 of “The Failure of Capitalist Production,” I argue that the logical demonstration is fatally flawed, and that the associated empirical argument doesn’t work, especially not in the case of the Great Recession.

    The whole chapter, about 10K words, is devoted to this and needed to show this. I can’t explain it adequately here. I’ll just make a few comments.

    The basic problem is that personal consumption demand is ONLY ONE PART of total demand for produced goods and services. Investment demand (for, e.g., factory and office construction, new machinery, etc.) is another part. So if growth of personal consumption demand lags behind supply (production of goods and services), this does not tend to produce a downturn in the economy if investment demand grows rapidly enough to “pick up the slack.” Given sufficiently rapid growth of investment demand, total demand can grow, on average, at the same rate as supply, even though growth of personal consumption demand is far less. Under such circumstances, there’s no relative growth of excess productive capacity due to sluggish growth of personal consumption demand.

    Baran-Sweezy were aware of this, of course, but they tried to demonstrate in “Monopoly Capital” that investment demand cannot pick up the slack indefinitely. I argue that the demonstration is fatally flawed on logical grounds because it implicitly assumes–incorrectly–that something that increases indefinitely must also increase boundlessly. I also provide a numerical and algebraic counterexample, in which investment demand increases forever as a share of income, and it continually picks up the slack. And it does so without leading to the “explosive growth” that Baran-Sweezy rightly reject, because the increase in the investment share of income isn’t boundless.

    I also point out that, between 1933 and 2008, real (inflation-adjusted) investment demand (excluding demand for new homes) in the U.S. grew almost FIVE times as fast as real personal consumption demand. I think this shows that what Baran and Sweezy say can’t happen indefinitely, DID happen indefinitely.

    Finally, with respect to the Great Recession, the underconsumptionist claim is that working people’s income fell as a percentage of output (goods and services produced) in the decades preceding the recession. In other words, their income didn’t grow fast enough to enable them to buy as big a share of the output as it once did. So they had to resort to borrowing to keep their personal consumption demand from falling (as a percentage of output), and this led to debt problems that helped set the stage for the financial crisis and recession.

    Clearly, everything here rests on the claim that working people’ income fell as a percentage of output. I show in chapter 8 that it didn’t.

    (I used national income, which is conceptually the same thing as net national product, as the measure of output. My measure of working-class income was the sum of (a) wages and salaries, (b) nonwage compensation (pension and medical benefits), and (c) social benefits provided by government (minus the Social Security, Medicare, and similar taxes and employees and employers that pay for part of the social benefits). The social benefits include Medicaid, cash welfare assistance, food stamps, earned-income tax credit and child tax credit disbursements, Social Security and Medicare payments in excess of tax contributions received for them, veterans’ benefits, education benefits, and so on.)

  13. Bill Jefferies,
    your claim is factually wrong, as demonstrated on page 53 of Kliman’s book where he in fact empirically shows that the growth rates of 14 other countries have also been in decline since the 1970s (one being Russia, so part of the BRICS). 15 if we count the US, which he demonstrated with forceful and consistent logic, that despite a blip here or there, the rate of profit in the US, post 1968, is being propped up by papering over debt and credit… He does of course discuss China, the C in BRIC, on about 12 pages (if you check the index).

    I’m no economist, but the criticisms I see thrown at Kliman strike me as personal, and not empirical…

    Finally, let’s remember that no one disputes that the SOURCE of the crisis was here in the U.S. Which means analyzing the LTFRP in the US, is not an outrageous proposition, for elucidating the cause of the crisis.

  14. Dear Andrew,

    Thank you very much for taking the trouble to answer my argument in such detail. It was very enlightening.

    I shall now make a detailed study of your book with my limited background. I shall no doubt, have questions and comments when I have finished that study.

    I have however, one question(s), if I may bother you further, that arises from your detailed comments above.

    I have always understood that the production of producer goods is dependent on the category of capitalists who produce what your MR friends seem to call wage goods. I would assume that such capitalists have a care not to invest in new producer goods unless they see a reasonable likelihood of being able to sell the consequent wage goods. I am also aware of the problem of a time-lag in this process.

    So my question is an empirical one. What is the relative size [perhaps,in value created? and as best as you can estimate with such data as there is,] of the category of producer goods compared to the category of wage goods, say in the US.?

    I would like to thank you again for your participation in this discussion. It is invaluable for those of us who are not professional political economists.

  15. Having read Andrew Kliman’s book last year, I too found Matthew Wood’s review perplexing because I recalled many of the issues Wood raises were preemptively dealt with by Kliman in the text.

    While I wasn’t convinced by all of Kliman’s arguments, what struck me when I was reading the book was how shocking some of the empirical data seemed (e.g. over wage trends, inequality, etc.) when compared to the common sense on the Left. I think that part of the reason for why the book has received a hostile reception in some quarters is not just to do with rejection of TSSI approaches to explaining capitalist development and crisis, but to the very counterintuitive conclusions pointed to by Kliman’s data.

    This leads to a tendency to dismiss the data as ludicrous rather than actually engage with the numbers, the methodology Kliman used, or the explanations he put forward (many of which are actually closer to Marx’s account of the system in Capital than the Left common sense, which often misses the nature of the capitalist mode of production as one of competitive accumulation.

  16. Hi Sydney,

    Thanks for your kind response.

    You write, “I have always understood that the production of producer goods is DEPENDENT on the category of capitalists who produce what your MR friends seem to call wage goods. I would assume that such capitalists have a care not to invest in new producer goods unless they see a reasonable likelihood of being able to sell the CONSEQUENT wage goods” (my caps).

    This claim—that production of more wage goods (or other goods for personal consumption) is the inevitable consequence of investment in additional producer goods, and therefore that such investment is dependent on demand for wage goods—is very contentious. Indeed, the claim is at the heart of the controversy over underconsumptionism. It’s basically what underlies the underconsumptionist argument that, if personal consumption demand tends to fall as a share of output, “investment demand cannot pick up the slack indefinitely,” as I put it in my previous comment.

    I discuss the consequent-dependent claim on pp. 161-4 of my book (FCP). Why can’t iron be mined to produce steel, and steel be produced to build mining equipment, and mining equipment be produced–not to produce wage goods, but to mine more iron? Etc. Not as the WHOLE of production, of course, but as a growing share of it.

    Also, a section that follows, demonstrating logical error in Baran-Sweezy’s Monopoly Capital, is basically about the same issue. The argument of theirs that commits the error in question is an attempt to show that “a larger and larger volume of producer goods [that is produced] for the sole purpose of producing a still larger and larger volume of producer goods[, rather than personal consumption goods] in the future” is “nonsensical from an economic standpoint.”

    I’m not sure what light is shed on all this by the statistic that you asked about, the relative size of the output of producer goods and personal consumption goods in the U.S. (no data sources distinguish between “wage goods” and other goods and services for personal consumption).

    But a rough approximation is that the current-dollar value of producer goods was, on average, 54% of the value of gross output from 1987 through 2008, and it tended to rise modestly over time (it’s dipped a good deal since 2008). I don’t think pre-1987 figures are available. What is counted here as spending on producer goods is the sum of gross private domestic investment spending and expenditures on “intermediate inputs.”

    (Both of these categories consist of produced goods that enter into the production of other things; the difference between them is basically that “investment” goods—structures, equipment, and software—last at least 3 years, while intermediate inputs are raw materials and other stuff that gets used up quickly.)

    Now, this doesn’t quite mean that 100% – 54% = 46% of the value of gross output was spending on consumption goods. Part of the remaining 46% of gross output consisted of investment spending by government, which isn’t spending on consumption goods. And part of the remaining 46% of gross output consisted of the difference between spending on exports and the spending on imports, which the tables don’t break down into investment spending vs. consumption spending. On the other hand, gross private domestic investment spending includes all spending on residential construction, while I think that part of spending on residential construction is really personal consumption spending, not investment demand, and part of spending on residential construction is neither productive investment nor personal consumption.

    If I better understood what question you’re trying to answer with the statistics, I might be able to produce something more suitable to answering it.

    If you want to pursue the statistical part further, please e-mail me at akliman@pace.edu. That way, I can send you stuff and ask questions, and we won’t be bothering the moderators or boring other people.

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