The Real Movement

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Tag: CPI

V: How Peter Jones demolished Andrew Kliman’s book in 22 brief pages

Does the collapse of the gold standard and the switch to commodity money have any implications for labor theory? The Brazil labor theorist, Paulani argues it does not:

“when, historically, the umbilical cord that linked the money form to the commodity form was cut (in 1971), the dollar value of goods shifted in relation to other currencies, but they kept between themselves the relations which their labour values (prices of production) produced earlier, backed in gold…”

According to Paulani, then, the prices of commodities may have no longer been convertible into gold after 1971, but they did not shift relative to each other. If, before the collapse of the gold standard, four candy bars exchanged for one pair of teatssocks, this much remained unchanged afterwards. Whether this is true is not the point, since, stated in this simplistic form, it can easily be disproven; however, many such changes can be written off to supply and demand “shocks” of one sort or another. Since any such shock is accidental, Paulani’s argument can be reduced this: whatever change did occur, they were accidental and did not result from the collapse of the gold standard. In fact, since relative prices fluctuated constantly even before the collapse of the gold standard, this is a reasonable explanation.

However this argument by Paulani in her 2014 paper is directly challenged by Peter Jones in his 2013 paper, The Falling Rate of Profit Explains Falling US Growth”. Jones argues the collapse of the gold standard directly explains the difficulty labor theorists are having substantiating Marx’s falling rate of profit thesis.

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IV: Simon Mohun’s unproductive effort to identify productive labor

As I explained in my last post, substantiating Marx’s falling rate of profit as the cause of capitalist crises, and, in particular, as the cause of the so-called great financial crisis of 2008, runs into the difficulty that Marx made his argument on the basis of values. The difficulty this poses for analysis is that, since 1971, the various categories of analysis employed in measuring the rate of profit are denominated in inconvertible fiat dollars. Fiat dollars are not money in themselves, but tokens — 2007-10-20-77368474placeholders — for commodity money. Prices denominated in this inconvertible fiat, therefore, are not values in the sense Marx employs this term throughout Capital.

Thus, in order to construct an empirical proof of Marx’s thesis on the causes of capitalist crises using the empirical data, labor theorists are forced to convert inconvertible fiat prices into Marxian values. This is a new problem that did not exist before the period between 1933 and 1971 when the gold standard began to come unraveled. Since the dollar was pegged to some definite quantity of gold, dollars prices represented some definite quantity of gold as well. After the collapse of Bretton Woods in 1971, however, this relationship was severed and the dollar’s exchange rate with gold was allowed to float.

The question immediately arose whether Marx’s theory applied in the case where the currency used in daily transactions no longer had any fixed and definite relation to commodity money. Since the quantity of fiat in circulation has always been determined by the state, not by the values of the commodities in circulation, was it not the case that the socially necessary labor time required for production of commodities (value) no longer determined how a capitalistic economy functioned?

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III: How Fred Moseley MELTed Kliman’s argument on the falling rate of profit

One of the little discussed problem with Andrew Kliman’s attempt to empirically verify Marx’s falling rate of profit thesis is that he is working with inconvertible fiat dollars (dollars which no longer can be redeemed for gold) and dollar prices — in the form of GDP, wages, profits, etc. — and these prices are not labor values as Marx defined the term. How Kliman handled this problem in his analysis of the empirical data is a story in itself.

7351347-crisis-finance-the-dollar-symbol-in-melting-ice-devaluated-money-image-symbolizing-the-bankruptcy-1024x939In his paper, “The Law of the Tendential Fall in the Rate of Profit as a Theory of Crises”, Gugliemo Carchedi answered critics who argue the falling rate of profit thesis cannot be empirically substantiated because Marx was discussing values not prices in his thesis. Fiat prices, however, are not values and have no relation to the values or socially necessary labor times required to produce commodities.

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II: How Andrew Kliman crippled his own argument on the rate of profit

The phony debate over investment and the cause of crisis

One of the biggest controversies among labor theorists when it come to calculating the rate of profit is whether the profit rate should be calculated based on the original amount of capital laid out by the capitalists minus depreciation or the current cost of replacing this capital. For example, assume I bought a widget machine for 100 dollars last year. Assume also that since I bought this machine, the price of widget machines fell from 100 dollars to fifty dollars. When I calculate my profit do I do this based on my original investment of 100 dollars or on the basis of the current market price of fifty dollars?

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I: Critical weaknesses in Andrew Kliman’s argument on the falling rate of profit

I have been looking at the numbers in this very interesting paper by Carchedi: “The Law Of The Tendential Fall In The Rate Of Profit As A Theory Of Crises”. I decided to test his 12 reasons why the falling rate of profit is the best explanation for the financial crisis of 2008 — not because I disagree, but because I think he makes a poor case for it. I thought I might go over his material in order to get an idea of how far off his calculations are when measured against a commodity money as Marx used in Capital. The problem, however, is that, so far as I can tell, Carchedi has not published the source data he used to arrive at his conclusions in the paper. (It is possible he published it in a different place, but I just haven’t come across it yet.)

Fortunately, an argument similar to Carchedi’s is also made by Andrew Kliman in his 2011 book, ‘The Failure of Capitalist Production’. And, unlike Carchedi, Kliman generously published a comprehensive spreadsheet of his source material compiled while writing his book. So, with this post, I am going to kick off a comprehensive review of Kliman’s empirical argument for the falling rate of profit thesis.

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