The Failure of Capitalist Production - Andrew Kliman

249 Pages·2012·7.25 MB·English

by  Andrew Kliman

A N D R E W K L I M A N
T h e F a i l u r e o f
C a p i t a l i s t P r o d u c t i o n
Underlying Causes of the Great Recession
THE FAILURE OF CAPITALIST
PRODUCTION
Underlying Causes of the Great Recession
Andrew Kliman
^fpy) PlutoPress
www.plutobooks.com
In memory of Ted Kliman (1929-2009)
and Chris Harman (1942-2009)
For Jesse
For Anne
Contents
List of Tables viii
List of Figures ix
List of Abbreviations xi
Acknowledgments xii
1 Introduction 1
2 Profitability, the Credit System, and the “Destruction
of Capital” 13
3 Double, Double, Toil and Trouble: Dot-com Boom and
Home-price Bubble 28
4 The 1970s—Not the 1980s—as Turning Point 48
5 Falling Rates of Profit and Accumulation 74
6 The Current-cost “Rate of Profit” 102
7 Why the Rate of Profit Fell 123
8 The Underconsumptionist Alternative 151
9 What is to be Undone? 181
Notes 208
Bibliography 227
Index 234
List of Tables
2.1 Non-Linear Effect of Falling Profitability on Business
Failures 17
4.1 Growth Rates of Real GDP Per Capita 53
4.2 Sovereign Debt Defaults and Restructurings,
1946-2005 57
4.3 Debt and GDP, U.S. 61
5.1 Rates of Profit, U.S. Corporations, Selected Trough
Years 82
6.1 Rates of Profit and Equity-market Rates of Return 117
7.1 Rapid Depreciation of Computer Equipment 142
8.1 Real Income Growth, U.S., 1979-2007 160
8.2 The Final Part of Output and Economic Growth 163
8.3 Initial Situation 169
8.4 First Ten Periods 172
8.5 Worldwide Growth of Real GDP since 1600 174
8.6 Investment and Growth, 1965-92 Averages 176
‘>.1 Pay, Exports, and Economic Growth in the U.S.
.uul China 187
List of Figures
2.1 Distributions of Rates of Profit 18
3.1 Mortgage Borrowing and Real Home Prices, U.S. 29
3.2 Relative Increases in Liabilities and Assets, U.S.
Households 30
3.3 Net Lending or Borrowing by U.S. Households 31
3.4 TED Spread, August 2008-January 2009 35
3.5 S&P 500 Index 39
3.6 Nonfarm Payroll Employment, U.S. 41
3.7 Nominal and Real Federal Funds Rates 42
3.8 Federal Funds Rate and Home Mortgage Borrowing 43
3.9 Excess Savings as Percentage of World GDP 45
4.1 Growth of World GDP Per Capita 52
4.2 Impact of China on Growth of GDP Per Capita 53
4.3 Gap between Actual and Potential Real GDP, U.S. 54
4.4 Growth Rate of Industrial Production, U.S. 55
4.5 Growth of Industrial Capacity, U.S. 56
4.6 Outstanding Debt as Percentage of GDP, U.S. 60
4.7 Change in Debt, All U.S. Domestic Nonfinancial
Sectors 62
4.8 Changes in Debt of U.S. Treasury and Households 63
4.9 Individual and Corporate Income Taxes, U.S. 64
4.10 U.S. Treasury Debt as Percentage of GDP, Actual vs.
Hypothetical 65
4.11 Gap between Actual and Potential Labor Force, U.S. 67
4.12 Average Duration of Unemployment, U.S. 68
4.13 Real Hourly Compensation of U.S. Employees 69
4.14 Changes in Income Inequality among U.S. Households 70
4.15 Growth of Government Structures, U.S. 71
5.1 Rates of Profit, U.S. Corporations 76
5.2 U.S. Multinationals’ Rate of Profit on Foreign Direct
Investment 79
5.3 Effect of Inventories on Before-Tax Rate of Profit 81
5.4 Inflation-Adjusted Properry-Income Rates of Profit 83
5.5 Inflation-Adjusted Before-Tax Profit Rates 84
5.6 Adjusted and Unadjusted Rates of Profit 85
5.7 Effect of Alternative Adjustments on Rates of Profit 87
X THE FAILURE OF CAPITALIST PRODUCTION
5.8 The Rate of Profit and the Rate of Accumulation 91
5.9 Net Investment as Percentage of Profit, U.S.
Corporations 92
5.10 Net Investment as Percentage of After-Tax Profit,
U.S. Corporations 93
6.1 Cherry Picking Troughs and Peaks 104
6.2 Current-Cost “Rates of Profit,” U.S. Corporations 111
6.3 Property-Income Rates of Profit 112
6.4 Relationship between Current-Cost and
Historical-Cost Rates of Profit 114
6.5 Current-Cost and “Real” Rates of Profit, U.S.
Corporations 120
6.6 Current-Cost, “Real,” and Inflation-Adjusted Rates
of Profit, U.S. Corporations 121
7.1 Net Value Added and Compensation of Employees,
U.S. Corporations 125
7.2 Profit Share of U.S. Corporations’ Net Value Added 125
7.3 Actual and Constant-Profit-Share Rates of Profit 127
7.4 Standard Decomposition of the Rate of Profit 130
7.5 Compositions of Capital, U.S. Corporations 132
7.6 Gap Between Nominal and MELT-Adjusted Rates
of Profit 134
7.7 Alternative Decomposition of the Nominal Rate
of Profit 135
7.8 Rate of Depreciation, U.S. Corporations 141
7.9 Rate of Non-IPE&S Depreciation, U.S. Business
Sector 143
7.10 Losses Due to Additional Moral Depreciation,
U.S. Corporations 144
7.11 Variables Adjusted for Excess Depreciation 146
7.12 Adjusted and BEA-Based Rates of Profit 147
8.1 Workers’ Share of U.S. National Income, 1960-2009 154
8.2 Real Hourly Compensation, Private-Industry
Workers in U.S. 157
8.3 Real Hourly Wages and Salaries, Private-Industry
Workers in U.S. 157
8.4 Shares of Income 170
8.5 Growth of Investment, Consumption, and GDP
in U.S., 1933-2009 174
9.1 Fall in Six Largest Economies’ Real GDP Growth,
2007-2009 188
List of Abbreviations
AIG American International Group
BEA Bureau of Economic Analysis
BLS Bureau of Labor Statistics
CBO Congressional Budget Office
CPI-U consumer price index for all urban consumers
CPI-U-RS CPI Research Series Using Current Methods
CPI-W consumer price index for urban wage earners and
clerical workers
Fed Federal Reserve System
GDP Gross Domestic Product
IMF International Monetary Fund
IPEScS information-processing equipment and software
LIBOR London Inter-Bank Offered Rate
LTFRP law of the tendential fall in the rate of profit
MELT monetary expression of labor-time
NIPA National Income and Product Accounts
OECD Organization for Economic Cooperation and
Development
OPEC Organization of Petroleum Exporting Countries
PCE personal consumption expenditures
S&Ls savings and loan associations
S&P Standard and Poor’s
TARP Troubled Assets Relief Program
TSSI temporal single-system interpretation
Acknowledgments
I thank everyone who provided expert advice on technical matters
and everyone who offered comments on the papers, book reviews,
talks, interviews, and draft manuscript that eventually turned into
this book. I have benefited enormously from their feedback. It not
only improved the book significantly but guided the direction of my
research in crucial ways. I would like to thank each one by name,
but unfortunately I cannot. Even were they not too numerous to list,
they include many audience members and reviewers whose names I
do not know. If you are among them, please know that the difference
between what you originally read or heard and the ideas as they
appear in the final text is a sign of my debt and gratitude to you.
I thank my departmental colleagues at Pace University, who have
been very supportive of my research. I also thank the university’s
Dyson College of Arts and Sciences, which granted me released
time to pursue my research on profitability trends and provided a
research grant that enabled me to purchase a supersized computer
monitor. The monitor has made the work of data analysis much
less onerous and more productive.
None of the book is a republication of previously published works
of mine, but I have drawn freely on those listed below. I thank the
following publishers for allowing me to do so:
• The Commune, which published “The Economic Crisis: An
interview with Andrew Kliman” as pamphlet no. 4, November
2008.
• The Institute for Social Sciences of Gyeongsang National
University, which published “Masters of Words: A reply to
Michel Husson on the character of the latest economic crisis,”
in Marxism 21, vol. 7, no. 2, Summer 2010.
• International Socialism, which published “A Crisis for the
Centre of the System,” in issue no. 120, October 2008,
and “Pinning the Blame on the System,” a review of Chris
Harman’s Zombie Capitalism, in issue no. 124, September
2009.
• Lexington Books, which published Reclaiming Marx's
“Capital”: A refutation of the myth of inconsistency in 2007.
xii
ACKNOWLEDGMENTS xiii
• Marxist-Humanist Initiative, which published “The Persistent
Fall in Profitability Underlying the Current Crisis: New
ternporalist evidence” in March 2010 and, in With Sober
Senses, its online publication: “On the Roots of the Current
Economic Crisis and Some Proposed Solutions,” April 17,
2009; “How (Not) to Respond to the Economic Crisis,” May
5,2009; “Cherry Picking Peaks and Troughs,” May 13, 2009;
“Appearance and Essence: Neoliberalism, financialization, and
the underlying crisis of capitalist production,” May 17, 2010,
and “Lies, Damned Lies, and Underconsumptionist Statistics,”
September 16, 2010.
• Megafoni, an online journal, which published Joel Kaitila,
Lauri Lahikainen, and Jukka Peltokoski’s interview, ‘“ Kukaan
ei tiedá, onko kriisi ohi’—Andrew Klimanin haastattelu,” on
November 23, 2009.
• Palgrave Macmillan, which published “Production and
Economic Crisis: A temporal perspective,” in Richard Westra
and Alan Zuege (eds), Value and the World Economy Today
in 2003.
• Razón y Revolución, which published Juan Kornblihtt’s
interview, “Entrevista al Economista Estadounidense Andrew
Kliman,” in El Aromo no. 50, July 2009.
• Taylor &c Francis, which published ‘“ The Destruction of
Capital’ and the Current Economic Crisis,” in Socialism &
Democracy, vol. 23, no. 2, July 2009.
• The Workers’ Liberty website, which published Martin
Thomas’ interview, “Andrew Kliman—The level of debt is
astronomical,” on January 12, 2009.
Special thanks go to Anne for her invaluable editorial advice and
careful copy-editing, and for her intellectual, professional, and
personal support, without which neither this nor my prior book
could have been written.
New York City
June 2011