Review: The Long Depression, Michael Roberts (Haymarket Books, Chicago 2016) 370 pp.

The Revival of Marxist Economics

Since the bursting of the speculative bubble in 2008, more students have apparently signed up for economic courses than ever before. However, when they get to university many became angry when they find that the courses on offer give them absolutely no clue as to how the real economy functions. We have good news for them. Help is at hand in the form of Michael Roberts’ latest publication “The Long Depression” with its subtitle “How it happened, why it happened and what happens next”. Although theoretically well-prepared, Roberts is no mere academic in an ivory tower. After working as an economist in the City of London for thirty years Roberts published “The Great Recession – The Marxist View” in 2009 and the current book can be seen as the sequel. It is lucidly written in a generous and genial but rigorous style which makes for a lively contribution to the “dismal science”.

As one of the most energetic Marxist bloggers on the world economy, Michael Roberts has been doing a running commentary on capitalism’s crises for a number of years [see thenextrecession.wordpress.com]. The 2008 collapse came as no surprise to us. We had been predicting it since the 1990s[1]. Our problem was a different one – we were trying to explain to each other how the speculative bubble was lasting so long into the Twenty-first Century. However when it did eventually burst it changed the discourse of everyday life. “Capitalism” and “the working class” (which were assured had once again disappeared) were suddenly everyday topics of discussion.

It also inspired a renewed interest in Marxism and in particular Marxist economic theory. With capitalist (“mainstream”) economists having completely failed to see that they were in a speculative bubble this was not surprising. Roberts does a wonderful job of revealing the complacency of the mainstream economists and also dismantles the various solutions (Keynesian, monetarist etc) that they are now putting forward to get out of the current depression. We’ll leave the reader to enjoy those themselves as we want to concentrate on Roberts’ contribution to Marxist theory.

The Law of the Tendency of the Rate of Profit to Fall

Although Marxism is becoming “respectable” once again in academic circles, amongst “Marxists” there has been controversy for years about what caused the continually recurring capitalist crises. Roberts, though, has no doubt that it lies in the law of the tendency of the rate of profit to fall. For Marx the law, “the most important in political economy[2]” (Roberts p.14) did not just explain crises but the very dynamism of capitalism itself. The “relentless search for surplus value” explains the “drive to increase the productivity of labor”[3] driving innovation and thus the dramatic technological dynamism of the system. Or as Marx put it

“The progressive tendency of the general rate of profit to fall is, therefore, just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour.” [quoted by Roberts p.16]

But at its heart this brings a contradiction which is that increased productivity means that labour, the source of all new value, has to be expelled from the production process and thus, as time goes on, there is “a reduction in the amount of labor available for exploitation per unit of capital outlay” [p.16]. The organic composition of capital (the ratio of fixed or constant capital to living or variable capital i.e. labour) rises and thus the rate of profit has a tendency to fall. The tendency can be arrested by many factors but not halted, and culminates in periodic recessions which characterise the capitalist mode of production from day one.

The law of the tendency for the rate of profit to fall has not been without its opponents, and not just amongst capitalists. Roberts lists them from German Social Democracy (Kautsky and Luxemburg among them, through the Bolsheviks who did not reject it but never made it central to their analysis) to more modern theorists such as Sweezy (underconsumptionism) and Michael Heinrich. Roberts does not refute them here (merely pointing to the work of Andrew Kliman, who does). The CWO has done battle with some of these in the past.[4] What is striking for the CWO, and the ICT, is that the analysis we have maintained since our foundation (40 years for both the CWO, and our Italian sister group, the Internationalist Communist Party) now finds an echo in the work of others. Roberts confirms that his own researches have led him to see it as central not only to explaining the current crisis but to understanding others going back to the nineteenth century. He finds it the most convincing explanation of why capitalism has periodic crises and considers it will continue to dominate capitalist accumulation until the working class consciously puts an end to it. He is not alone today. Many others, like his sometime collaborator Guglielmo Carchedi, plus Andrew Kliman and Paul Mattick jr etc have all followed a similar line of enquiry.

Roberts, though, is distinguished by his rigorous and detailed statistical analysis to support all his generalisations and predictions. He follows a Bayesian[5] approach which proclaims the power of data and facts over theory and models. In particular it champions the power of the aggregate. For Roberts

“The best economic theory and explanation come from looking at the aggregate, the average and the outliers. Data based on a few studies or data points provide no explanatory power.” [p.3]

Using this method he also recognises that what happened in the past is no sure guide to the future, but “aggregated evidence over time is much better than ignoring history”. And what he tries to do in this book is combine theory with data, not only to work out what is going on now but where we are all heading. Even if you don’t accept his method or conclusions, his indefatigable research is worth reading in its own right.

Summary of the Book

In a brief review we cannot do justice to the breadth and depth of Roberts’ survey[6] but to give a quick overview, the first seven chapters not only explain how the present recession came about but locate it in the historical context of past recessions and identify three recessions which plunged into depressions. We’ll look at the distinction later, but just to complete the overview, the next four chapters are case studies of the USA, Europe, Japan and the rest of the world to demonstrate that not only did capitalist economists not see the 2008 crash coming but they have still not come up with a strategy for getting out of the current “long depression”. Typically these chapters are full of statistical demonstrations which add up to a powerful case. The book then concludes with two more chapters which show how capitalism may escape this crisis but another one will inevitably follow and that this suggests that at some point capitalism will be superseded by a consciously organised society where those who create the world’s wealth, the working class, will replace production for profit with production to satisfy human need in a sustainable economy. There are two must-read appendices on “Measuring the Rate of Profit” and “The Failure of Keynesianism.

So much for the bones, but the meat of Roberts’ message is that the major economies of the world are in a “long depression” and the current low level of profitability, investment and high (and increasing debt) mean that it will not escape it before there is another slump. . A depression is different to a slump, or recession, which occur more frequently – and in Roberts’ analysis approximately every ten years – though each slump or recession exhibits slightly different characteristics and different degrees of contraction. Depressions occur less frequently when a slump is a great deal deeper and of longer duration.

Long Waves and Cycles

Basing himself on the Russian economist Kondratiev[7], Roberts identifies three such “long depressions” in the last 150 years. These were the depression of the late 19th century (1873-1890s); the Great Depression of the 1930s (1929-1942) and the present one which began in 2008. For him these are points when various cycles (calculated on different factors in the capitalist economy such as renewal time for constant capital or infrastructure or property prices as well as the original business cycle identified by Marx) come together so that what should have been a relatively short-lived recession or slump becomes a full scale depression. Kondratiev (writing in 1925) thought that these cycles came about between 50-70 years and were driven by the movement in world trade in prices of production and commodities. He takes the story back to 1790 to identify three such waves that occurred in the nineteenth century. This theory has come in for much criticism over the years but is currently enjoying a renaissance amongst those looking for a pattern in economic cycles.

Roberts admits that his use of the “conjunction” of cycles is the most controversial aspect of his explanation for depressions. There can be little argument with the notion of cycles in the capitalist economy since booms and slumps are a regular phenomenon of its history. It takes no special science to detect them. Those of us who recognise that the law of value, and its peculiar capitalist expression in the law of the tendency for the rate of profit to fall, have no quibble with the notion that cycles are absolutely central to explaining the contradictions of the capitalist economy.

Roberts has an interesting discussion (using the Marx-Engels correspondence) to show that Marx believed that if he could only get sufficient data he could accurately work out when the next cycle would end. Marx was only trying to explain what used to be called the business cycle (calculated on the basis of the overall movement of the capitalist economy in investment, employment and output but not necessarily on profitability although Marx thought the latter must lie behind it). Economists now call this the Juglar cycle. However when Marx was writing Capital the business cycle was the cycle of crisis. Throughout the nineteenth century crises burst out in the system for no apparent reason. Whereas all economic crises in past societies were to do with famines or shortages, in the nineteenth century capitalism produced a society which periodically fell into crisis when it was still dynamically growing. It was Marx’s achievement to discover the secret of both the staggering growth and the cycle of collapse in the law of the tendency of the rate of profit to fall.

By 1873 something begins to shift in this decennial crisis when the crash occurs (ably explained by Robert in his Chapter 2 “The Long Depression of the Nineteenth Century”). All the other capitalist slumps had been of very short duration (3-4 years at most), capital was devalued and those who still operated profitability could start again by reabsorbing their failed rivals. In 1873 though, the rebound was not so fast, and was much weaker. From 1873-96 prices fell around 40%. As Roberts states

“The long depression of the late nineteenth century was not a simple story of economic standstill. Instead it was – as all future depressions can be characterised under capitalism – a long period where excessive capital stock must be devalued or deleveraged before sustainable faster economic growth can resume.” [p.36]

Central to Roberts’ argument for all depressions, including the one we are in now, is Marx’s insight that when the organic composition of capital (that is the ratio of fixed (or constant) capital i.e. workplace, machinery and raw materials), to variable capital (labour power) reaches a certain point, the rate of profit becomes too low to act as an incentive to invest in productive endeavours. This brings about a low growth or no growth situation or depression. The only way out of this is a devaluation of capital which is usually brought about by the collapse of some firms and the revival of the survivors. We can heartily agree with Roberts general analysis that

“The long depression was a reality not a myth. It was triggered by a major international financial panic, ricocheting from Europe to the United States and back. But its main cause was not to be found in the financial sector or due to a squeeze on money supply or a rigid gold standard, as was argued by contemporaries and mainstream economists since then. The cause was the productive sector of the capitalist economies. Industrial production growth slowed down because the profitability of capital investment slumped. Capital investment slumped because the profitability of capital took a dive from the early 1870s and stayed low until the mid 1890s. There were a series of recessions and weak recoveries and different economies experienced different levels of severity and recovery, but all experienced lower growth, lower investment, lower prices and, above all, lower profitability”. [p.42-3]

Roberts wants us to see this as comparable with the depression of our day[8]. As an overarching explanation it is powerfully true but it does not ask why the decennial crises of the first 70 years of the nineteenth century give way to this new type of depression. Could it be that the process of centralisation and concentration of capital, which Marx also indentifies as a consequence of the law of the tendency of the rate of profit to fall, had created such a concentration of capital that a brief period of “deleveraging” and devaluation of capital was insufficient to bring about a real shift in the organic composition of capital?

Roberts lucidly demonstrates that the main loser in the post-depression period was Great Britain, as most new investment went to the developing German and US economies. Both would overtake Britain before the First World War. As Britain’s share of the world market in manufacturing goods declined relatively even British investors sent their money abroad to its overseas empire. Roberts doesn’t deal with the fact that after the long recession “invisible earnings” (i.e. financial profits made overseas) overtook manufacturing as the main source of national income.

Nor does he draw any conclusions about the fact that the long depression signalled that capitalism had moved from just a world market to what Bukharin[9] called a “world economy”. The rise of finance capital and the “Scramble for Africa” were only the more obvious manifestations that capitalism was changing. Imperialist rivalry and the increasing intertwining of the interests of the capitalist class with the state were to have a profound effect on the nature of capitalism.

State Capitalism and Imperialist War

Engels was not the only one writing at the end of the long depression that there would be a European-wide war within twenty years. In the event that war would transform the relationship between capitalism and the state in a way that Marx and Engels could not have foreseen. The fundamental laws of capitalism were not altered, and remain as Marx analysed them, but there was a constant increase in state involvement in economic decision-making which culminated in today’s micro-managing of fiscal and financial policy of today. This state intervention has prolonged, but not solved, the fundamental problem behind the present crisis which requires massive capital devaluation.

Roberts partially recognises that cycles are getting longer when writing about Kondratiev waves, where he notes that their length seems to have increased “from about fifty-five years to sixty-four years in the third cycle and seventy-two years in the fourth cycle”. He adds

Various reasons have been proposed for the lengthening of the cycle, including demographics and government debt financing. [p.230]

His lack of curiosity about government action is one of the weaker aspects of his excellent work. For this is key to how capitalism has endured in the post-Second World War period. The relationship between capital and the state began to change just before, but more particularly, after the First World War in line with the imperialist character of late capitalism. Before the First World War the state accounted for approximately 10% of GDP but after it there is a broad tendency for the state to take on more and more the role of generating GDP. In the UK, for example, it rose to over 40% after 1945 and, despite all the talk of “rolling back the frontiers of the state” in the 1980s, that figure has not altered much. The issue is quite complex but without such state intervention and micro-management via interest rates and fiscal policy the capitalist crises would be far more intense and socially destructive than they have been so far.

In our analysis there certainly are cycles but the business cycle of the nineteenth century that Marx tried to calculate has been transformed into a cycle of booms and busts culminating in a generalised war. Only massive wars involving the leading capitalist nations can devalue the necessary amount of capital and open up a new cycle of capital accumulation. Roberts recognises that the Second World War did just that in his chapter on the Thirties Great Depression. Who can disagree with his central conclusion?

What the story of the Great Depression and World War II shows is that once capitalism is in the depth of depression there must be a grinding and deep destruction of all that capitalism had accumulated in the previous decades before a new expansion becomes possible. There is no policy that can preserve that and preserve the capitalist sector*[10]*. [p.58]

Yet he doesn’t see war as playing a distinct part in devaluation beyond all the other strictly economic means (bankruptcies, write-offs etc). Is it a coincidence that the greatest secular boom in capitalist history came after the most destructive war in history? This post-war boom came to an end due to the crisis of profitability in the early 1970s and a succession of policies have been tried from Keynesianism (spending your way out of a depression) to neo-liberal deregulation in order to allow capital to move more freely to find cheaper labour. All ultimately failed and culminated in the false dawn of the speculative bubble, fuelled by debt, which came to a sudden halt in 2008. And the state was on hand to bail out the banks and transfer private debt into sovereign debt, leaving the biggest legacy of indebtedness since the Second World War.

The difference is that today the state, instead of allowing a devaluation such as that of the world in 1945 (since the collapse of the banking sector would have put the system at risk), has just kicked the can down the road. The issue of devaluation, as Michael Roberts and many others have made clear, still hangs over the system, preventing growth and ensuring the debt mountain gets ever higher. He expects though that capitalism will escape once again.

Capitalism will enter a new up phase on the back of the destruction of capital values from the series of slumps in the winter phase [of the Kondratiev cycle – ed] (2001 recession, the Great Recession of 2008-9 and probably a final slump in 2016-17?). From the mid 2030s we would enter another Kondratiev summer, when profitability would fall, capitalism would be in crisis again, and class struggle would intensify. This would last until the 2050s. This is really what we call the long view! [p.234]

His final chapter is entitled “Past its Use-by Date?” indicating his view that capitalism cannot go on forever. He does think though that the current depression can be solved by purely economic means. However unlike his earlier chapters, he does not explain in detail how capitalism can escape this depression other than to assume that devaluation will happen again (because it has in the past) and that this time it will be sufficient to restart a cycle of accumulation. We can fully agree that

Capitalism will not just collapse of its own accord … Capitalism can only be replaced by a new system of social organization through conscious action of human beings, in particular by the majority of people (the working class globally). Without such conscious action, capitalism can stumble on or society may eventually fall back into barbarism[11]. [p.270]

What we cannot see is just how a peaceable devaluation can come about as long as states everywhere are determined to defend their own capital values in a world where rising levels of frustration with the failing system are (in the short term) benefitting beggar-my-neighbours policies, such as competitive devaluations and tariffs (world trade is falling as we write) and causes for more general war are proliferating all over the planet. Yet Roberts does not see generalised war as related to the economic cycle. In his concluding remarks you can see that he regards war as something unconnected (“exogenous” as he might say) to the process of accumulation.

Assuming that capitalism in any major economy is not replaced by a planned economy, owned in common and controlled by the majority, or that there is not a new and devastating world war in the next decade, capitalism will eventually recover. [p.270-1]

Our argument is that another slump will only have the same sort of effect as 2008 but there will even more dire social consequences. Even after another slump capitalism, with the added oxygen of state management (although it is running out of options), might be able to limp along economically for some time yet. Even so, without tackling the overblown organic composition of capital via the devaluation that only a major war can bring, it can only do so at the expense of the working and living standards of most of the world’s population. Social convulsions cannot be avoided. Whether these result in the victory of a class conscious working class creating a new mode of production, or “the common ruin of the contending classes”, possibly via an imperialist conflagration (think of Syria multiplied) is a matter for history to decide.

In the meantime, despite our different perspectives, we would encourage every revolutionary, who wants to see how Marx’s economic constructs can explain what underlies the capitalist economy today, to go out and get Michael Roberts’ latest book. Without an understanding of the material basis of modern capitalism we can have no meaningful discussion about where we are headed, and what the challenges are that lie ahead. “The Long Depression” is an excellent and stimulating contribution to that task.

Jock

October 24 2016

[1] Our views are based on Marx’s view (in Capital Volume 3) that in the final stages of the cycle of accumulation capitalism is forced to resort more and more to speculation as opportunities for productive investment declines. We have articulated this in a number of articles starting with “The World Capitalist Crisis Deepens” in Revolutionary Perspectives 13 (Series 3 Winter 1999)

[2] Roberts is here quoting Marx in the Grundrisse.(p.748 in the Pelican edition)

[3] The book is excellently produced by Haymarket Books with only one typo in 370 pages and has an excellent wrap round cover that can be used as a bookmark. The only small mismatch is a UK author writing for an American press means spelling inconsistencies. Where quoted we have used the same as in the book.

[4] See for example leftcom.org . Kliman’s debunking of underconsumptionism can be found in Chapter 8 of his “The Failure of Capitalist Production”. Roberts (with Carchedi) replies to Heinrich in “Old and New Misconceptions of Marx’s Law” in Critique 41.

[5] After another eighteenth century clergyman Thomas Bayes (1701-61) who, unlike Malthus, was a non-conformist. He discovered a simple formula for calculating probability. His idea was that new data should be used to question existing knowledge or expertise.

[6] Just a couple of issues we have not gone into but are worth quoting. He points out that new technology and robotisation is no solution for capitalism since “the robotic revolution will exacerbate the contradiction under capitalism between developing the productivity of labor and appropriating more value in profit for capital.” [p.270] and he also sees that “the rapacious drive for more value has so seriously damaged the planet that we face an environmental and ecological crisis over the next generation that will increase already growing inequalities and poe major struggles over land, water and resources” [ibid]

[7] Kondratiev was Minister of Agriculture in Kerensky’s Provisional Government in 1917 (the one which failed to carry out land reform). He was not a Marxist and after 8 years imprisonment by Stalin was shot in 1938. We deal with “long wave” theory a little in our review of Paul Mason’s Postcapitalism – A guide to the Future” in Revolutionary Perspectives 07 (Series 4) or see leftcom.org

[8] He is not alone. Laurence Mutkin, global head of rates strategy at BNP Paribas, made the same comparison in the Financial Times in “The 1890s and the end of the great bond bull market”. [October 24 2016] See ft.com

His happy conclusion [for investors] is that we are in for a repeat and that bond yields and inflation will now rise again. He does admit that this long depression did also lead to a rise in protectionism but does not mention that this, in due course, was also a contributing factor in the drive towards the First World War.

[9] See “Imperialism and World Economy” which is online at marxists.org

[10] We are not sure what he means by “capitalist sector” unless he thinks that socialism is about state ownership of the means of production and that nationalised industries are socialised. This does not seem to be the case as the evidence of the final quote from his book in this review demonstrates.

[11] We should also credit Roberts with a coherent response to the pedants who question the notion of “barbarism”. “By “barbarism” I mean a decisive drop back in the productivity of labor and living conditions to pre-capitalist times … The technology of the Romans (derived from the innovations of the Greeks before them) was mostly forgotten and became unused. That could happen again and much more quickly in a world where things move so much more rapidly.” [p. 270-1]