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


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 and a recent contribution to a symposium on my book in the journal Marxism 21. 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”) 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.



  1. I am perplexed by the original review. They 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, it sounded 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 they 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,

  2. 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.

    Flora Cosmos

  3. 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 the best antidote is to read Kliman directly, and then compare.

  4. (I posted this at the review site; awaiting moderation)

    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.

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