Reply to Michel Husson on the character of the latest economic crisis

By Andrew Kliman.

In late December, Michel Husson, a Marxist economist, published a critique of my study of U.S. corporations’ profitability. His critique, “Les Coûts Historiques d’Andrew Kliman,” appears on the website of the Nouveau Parti Anticapitaliste.

I have just completed a response to him, entitled “Masters of Words: A reply to Michel Husson on the character of the latest economic crisis.”


For the full text, click here.  Below are the start of the paper, the first two sections, and the final section.

Masters of Words

A reply to Michel Husson on the character of the latest economic crisis

“I don’t know what you mean by ‘glory,'” Alice said.

Humpty Dumpty smiled contemptuously. “Of course you don’t–till I tell you. I meant ‘there’s a nice knock-down argument for you!'”

“But ‘glory’ doesn’t mean ‘a nice knock-down argument,'” Alice objected.

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean–neither more nor less.”

“The question is,” said Alice, “whether you can make words mean so many different things.”

“The question is,” said Humpty Dumpty, “which is to be master–that’s all.”

–Lewis Carroll, Through the Looking Glass

1. Introduction

This paper replies to Michel Husson’s (2009a; also Husson 2010) critique of my study of movements in the rates of profit of U.S. corporations (Kliman 2009). I showed that rates of profit fell markedly, beginning in the late 1950s and continuing through the early 1980s, and that no sustainable rebound in profitability took place between the trough year of 1982 and the trough year of 2001. Depending upon the particular measure of the rate of profit one considers, the rate of profit during that period either continued to decline, or stagnated, or increased extremely modestly.  I argued that this persistent fall in profitability is an underlying cause of the latest economic crisis, since it led to sluggish accumulation of capital, sluggish economic growth, instability, and, above all, mounting debt problems.

I also argued that, while some leftist economists–Husson is one of them–claim that “the rate of profit” did rebound substantially, and thus that profitability problems are not an underlying cause of the economic crisis, their conclusions are based partly upon cherry picking of the data and partly upon the use of current-cost “rates of profit” that are simply not rates of profit in the normal sense of the term. Although the latter practice is sometimes defended on the ground that it is a way of producing inflation-adjusted estimates, I argued that current-cost “rates of profit” do not adjust for inflation in a proper manner, and I went on to report on my own estimates of movements in inflation-adjusted rates of profit. I found that their trends in the period since 1982 differed very little from trends in un-adjusted rates of profit.


Curiously, Husson’s critique of my work does not defend the manner in which current-cost rates adjust for inflation, and I am not aware of anyone else who has done so, either. He ignores that issue and instead sets out to turn the tables. He criticizes my use of unadjusted (historical-cost) rates of profit. His major argument, however, is that the alternative procedure I used to adjust for inflation is “incorrect” and that my “error” results in the elimination of the substantial rebound in inflation-adjusted profitability that actually occurred.

Let me note that even if everything he says against the unadjusted rates of profit and my inflation-adjusted rates were correct, it would not constitute a defense of the use of the current-cost “rate of profit.” Such a defense has evidently not yet been produced.

The next section of this reply discusses what is ethically at stake in this debate, and the final section discusses what is politically at stake.  In between, I respond to the particulars of Husson’s critique. Section 3 defends the use of unadjusted historical-cost rates of profit (alongside inflation-adjusted ones). Section 4 argues that Husson’s critique of my inflation-adjustment procedure is much ado about nothing, since an alternative adjustment procedure along the lines he recommends yields results that are almost identical to those I reported originally. Section 5 argues that the failure of current-cost “rate of profits” to adjust for inflation in a proper manner is responsible for almost all the rise, since 1980, in a key current-cost rate (the ratio of U.S. corporations’ property income to the current cost of their fixed assets).

Husson argues that the low rate of accumulation we have experienced since the 1980s is not due to a failure of the rate of profit to rebound. Rather, he claims, it is due to a neoliberal “regime of accumulation” that has encouraged diversion of profits away from productive investment and into financial speculation. In Section 6, I briefly recapitulate the counter-argument I provided in Kliman (2009), which Husson has not addressed. And Section 7 briefly clarifies a point that Husson (2010) seems not to have understood: the current-cost “rate of profit” conjures away a portion of advanced capital, and this leads to a spurious rise in the rate of profit, when prices or the rate of inflation are falling.

2. What is at Stake Ethically?

This reply’s title and epigraph are directed at the work of physicalist-Marxist and Sraffian economists generally, not that of Husson in particular. They refer to an ethical matter, one that concerns the responsibility of intellectuals when communicating with the public.

Physicalist-Marxist and Sraffian economists use the terms rate of profit or profit rate to refer to profit as a percentage of the amount of money that would currently be needed to replace the capital assets, i.e., the assets’ replacement cost, also known as their current cost. To almost everyone else, however, what these terms mean is profit as a percentage of the book value of the capital assets. The book value is the amount of money that was actually advanced (i.e., invested) in the past the order to purchase the capital assets–their historical cost –minus depreciation and similar charges. For instance, this is how the term is defined in the MIT Dictionary of Modern Economics (1992):


profit rate. profit expressed as a proportion of the book value of capital assets.

This is how it is defined in the Encyclopedia of Small Business (

the rate of profit (sometimes called the rate of return) …comprises various measures of the amount of profit earned relative to the total amount of capital invested …. [T]he profit rate measures the amount of profit per unit of capital advanced ….

And this is how Marx (1991a, p. 133, emphasis in original; 1991b, p. 91) defined it:

The surplus-value [s] or profit … is consequently an excess over and above the total capital advanced. This excess then stands in a certain ratio to the total capital, as expressed by the fraction s/C, where C stands for the total capital. We thus obtain the rate of profit[,] s/C ….

Profit . . . expresses in fact the increment of value which the total capital receives at the end of the processes of production and circulation, over and above the value it possessed before this process of production, when it entered into it.

Because this is what rate of profit means to almost everyone, when they read or hear that “the rate of profit” has consistently risen since the early 1980s, they are seriously misled into thinking that there has been a recovery in what businesses, investors, Marx, and they themselves mean by the rate of profit.

However, no such recovery has taken place. So physicalist-Marxist and Sraffian economists have a responsibility, when engaging in public communication, to avoid saying things that will inevitably be understood as statements that there has been such a recovery. Ideally, they should avoid trying to make rate of profit mean just what they choose it to mean–neither more nor less–and find a different term for what they now insist upon calling “the rate of profit.” But if this is somehow too much to ask for, they should at the very least let the public know that “what we mean by ‘the rate of profit’–which is not what businesses and investors mean, or that Marx meant, but is instead the ratio of profit to the replacement cost of capital–has consistently risen since the 1980s.”

Definitions of one’s variables that are buried in the middle of technical papers are not adequate substitutes for such clarifications. Most people who hear talks or read interviews will not read the technical papers. Even those who do read them will frequently not realize that “fixed assets valued at current cost” differs from “the amount of money actually spent to acquire fixed assets, minus depreciation” unless this is pointed out explicitly. But intellectuals–especially radical intellectuals–have a responsibility to promote understanding, not misunderstanding, among the public. If they instead become the masters of words, they likewise become the masters of public discourse rather than its servants.

8. What is at Stake Politically?

Husson (2009a) concludes his critique of my work by quoting, and taking issue with, my response to a question during the discussion period that followed a talk I recently gave on the latest economic crisis:[1]

The first question I was asked was regarding my criticisms of the claims made by Marxist economists such as Gérard Duménil and Dominique Lévy, Fred Moseley, and Michel Husson who have said that the rate of profit, especially of corporations in the US, ha[s] almost completely recovered from the low point in the early 1980s. It is an extremely important issue because it affects how we view the character of the present crisis. If there is a huge crisis in the midst of an almost complete recovery of the rate of profit, that suggests that it is purely a financial crisis that we are experiencing rather than a crisis of capitalist production as such. And it suggests therefore that what needs to be fixed is the financial system: we need regulation, we need, maybe, nationalization of banks, but a change in the character of the socio-economic system is not on the agenda. So a lot of people are moving into the camp of Keynesianism and calling for fights against financial capitalism rather than against capitalism. [emphasis added]

In response to the sentences I have italicized, Husson objects that each link of my syllogism is false. If the rate of profit is high, it is still possible that the crisis is not only a financial one, and even if the crisis is only a financial one, it is still possible that it calls into question the underlying logic of the system. But the term “syllogism” is his, not mine. When one is giving an impromptu verbal response to a question, it is not the time to try to formulate a watertight syllogism. I therefore said “that suggests” and “it suggests,” not “that implies,” or “it follows inevitably that,” or some similar expression that announces the conclusion of a syllogism.

Yet there is indeed a precise logical connection that can be drawn between the notions that profitability has rebounded, that the latest economic crisis has an irreducibly financial character, and that changes to the financial system could in principle prevent such crises in the future. That connection was spelled out admirably by Chris Harman (2009, p. 299, emphasis added) a few months before his tragic and untimely death last fall:

Those radical economists who put the stress on financialisation in creating the crisis [… characteristically] claim that profit rates had recovered in the 1980s and 1990s sufficiently to have brought about a revival of productive investment were it not for the power of financial interests. Such was the argument of the French Marxist Michel Husson, when he claimed in 1999 that there were ‘high levels of profitability”, and [Engelbert] Stockhammer and [Gérard] Duménil were saying much the same thing in the summer and autumn of 2008. If they were right, the crises that broke out in 2001 and on a much bigger scale in 2007-8 would indeed have had causes very different to previous ones, including the inter-war slump [i.e., the Great Depression–AJK], and greater control by the existing state over the behaviour of the financial sector would in the 21st century be sufficient to stop such crises. In accordance with such an approach, Duménil and [Dominique] Lévy described the “Keynesian view” as “very sensible” and looked to “social alliances” to “stop the neoliberal offensive and put to work alternative policies–a different way of managing the crisis.”

If the sentence of Harman’s I have italicized still does not qualify as a fully-articulated syllogism, it comes damned close.

Unfortunately, Husson chooses not to respond to the substantive issues at stake here. Instead, he changes the subject. The error upon which my “false syllogism” rests, he writes, is my inability to understand that “capitalism may be in crisis even as it enjoys a high rate of profit. … [T]he crisis is that capitalism is incapable of responding, and indeed refuses to respond, in a rational manner to the needs of humankind, whether these be social needs or the struggle against climate change” (emphases added).

Husson’s use of the word “crisis” here is a bad pun. My talk–entitled “La Crisis Económica, sus Raíces y Perspectivas”–was wholly about the economic crisis, Thus, when I used the word “crisis” in my “syllogism,” it was the economic crisis to which I was referring. I do not mean to suggest that social needs and climate change are “non-economic” matters. My point is rather that economic crisisis a technical term that has long had a specific and precise meaning: “A situation in which the economy of a country experiences a sudden downturn brought on by a financial crisis” ( economic-crisis.html). So when Husson answers me by employing the word “crisis” in a different sense, he is just changing the subject.

In other words, the question is not whether capitalism is experiencing some sort of crisis. Nor is the question whether there is some justification for fighting against capitalism. Rather, the questions that are at issue–and in need of a full debate–are these:

  • Is the latest economic crisis a crisis of a specific form of capitalism, rather than a crisis of capitalism itself, such that a change in the form of the system can in principle prevent the recurrence of economic crises of the same sort?
  • Has this economic crisis put a change in the character of the socio-economic system on the agenda, in the sense that, in order to prevent the recurrence of economic crises of the same sort, capitalism itself must be transcended?

My answer to the first question is “no” and my answer to the second one is “yes.”

To the best of my knowledge, Husson has not explicitly answered these questions. But he has characterized the latest economic crisis as one that is “shaking the foundations of neo-liberalcapitalism,” not “shaking the foundations of capitalism” sans phrase. He has written that “[t]he crisis is a glaring confirmation of the criticisms addressed to financialised capitalism,” not “criticisms addressed to capitalism” sans phrase. In the same piece, he wrote that “we have to take strength from the rout of the advocates of neo-liberalism” but he did not also warn us of the dangers we face now that the crisis has given new life to Keynesianism, social democracy, and “leftist” visions of statist capitalism.[2]

Such statements seem to suggest that Husson’s answer to the first question is “yes” and his answer to the second question is “no.” If that is not the case, it would be helpful if he would clarify his views.

[1] The event took place on December 15, 2009 at the Instituto del Pensamiento Socialista Karl Marx in Buenos Aires. The web TV site of the Partido de los Trabajadores Socialistas,, carries the talk (“La Crisis Económica, sus Raíces y Perspectivas”) and the discussion period following it.

[2] The quotations from Husson in this paragraph are from the first paragraph, and the first paragraph of the final section, of Husson (2008b). Emphases are mine.

One Comment on “Reply to Michel Husson on the character of the latest economic crisis”

  1. 1m said at 9:44 am on February 24th, 2010:great stuff, thank you.

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