Value and Crisis Theory in the 'Great Recession'

Pluto Journals VALUE AND CRISIS THEORY IN THE "GREAT RECESSION" Author(s): Radhika Desai and Alan Freeman Source: World Review of Political Economy, Vol. 2, No. 1 (Spring 2011), pp. 35-47 Published by: Pluto Journals Stable URL: http://www.jstor.org/stable/41931916 Accessed: 06-03-2015 16:45 UTC Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Pluto Journals is collaborating with JSTOR to digitize, preserve and extend access to World Review of Political Economy. http://www.jstor.org This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions VALUE THE AND CRISIS "GREAT THEORY IN RECESSION" RadhikaDesai andAlanFreeman ofPolitical isProfessor Radhika Desai Studies, University there. Her a Capital andruns ofManitoba Reading Group intheModern Hands: States bookVisible forthcoming intheFuture ofWorld willappear Order International with Alan sheco-edits which bookseries Capitalism Email: Freeman. desair@cc.umanitoba.ca of attheUniversity fellow AlanFreeman isa visiting the Andrew with Healsoco-edits, Manitoba. Kliman, Email: afreeman@ Economy. ofPolitical Critique journal iwgvt.org ofthepresent Marxist onthecurrent throws Thisarticle Abstract: analyses among disarray light a recent in of recent discussions on crisis. "financialization," paper byCostas particular Focusing them tothe and traces in discussions these of difficulties a number this article highlights Lapavitsas, and between Marx's distinction of value. ofanytheory absence capitalproductive unproductive and suchphenomena toanalyze framework a coherent finance includes which provides capitalas and financialization rate of the between falling profit thefalsepolarization theneedfor obviates of from the isa withdrawal financialization Invalueterms, inthecrisis. factors sphere production Afinancial assetisa capitalized rates. ofcirculation intothesphere profit byfalling provoked asset anunproductive value.Itisitself whether ornotitproduces ofincome ona stream claim as a rateofprofit thegeneral valueandserves noadditional which onlytoequalize generates the and exacerbates This elsewhere. value from deduction long-run deepens generated parasitic ofthislong-run anda particular isthusanaspect, Financialization tofall. ofprofits form, tendency it. counter to not an historical running phenomenon tendency, independent valuetheory crisis; economy; political Keywords: crisissince1929findsMarxisteconomicsindisarray. During Capitalism'sgreatest notleastthose thecrucialdebatesamongMarxisteconomists, theGreatDepression, ofvalue. basedintheUSSR, restedona commontheoretical ground:Marx'stheory to the and their differences Thispermitted limitations, analyze crisis them,despite contradictions as an expressionof capitalism'sinternal (Day 1981; Howardand in at least Marxist No economist, Anglo-American capitalism's King1989). leading Recession"and "Great the current of such has ventured heartlands, explanation any anddistributed 2.1 Produced WRPE Journals WRPE.plutojournals.org byPluto This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions RADHIKA DESAI ANDALAN FREEMAN 36 of debatesbetweenthemreston a commontheoretical rejectionofMarx'stheory of his critiqueof politicaleconomy(see Freeman2010a; value,thecornerstone Kliman2010a). theconfusing oftwocontending Marxismoffers Inthesecircumstances prospect Marx'sownideasandbothstoutly accountsofthecurrent crisis,neither endorsing RobertBrenner has theirallegianceto Marxism.Economichistorian proclaiming of capitalismoverthelastdecadeand explainsthe trackedthe"LongDownturn" Marx's crisisas an outcomeoffallingprofit rates,butonlyafterexplicitly rejecting toFall(TRPF) (Brenner oftheRateofProfit accountoftheTendency 1999,2009).A number ofMarxisteconomists towhicha growing secondaccount, adhere, proposes on centered "financialization" and an understanding of contemporary capitalism also see as and the current crisis its outcome sees 2010; (Lapavitsas2009a,2009b DuménilandLévy2004,2009 andBlackburn 2006,2008).1Thoughoftenliberally onMarx'svaluetheory withreferences toMarx,theseaccountsrestneither peppered - mostnotably ofcapitalismwhichhe identified noron thecentralcontradictions of mechanisms law of the the Rate of his Profit toFall.Further important Tendency demand(Desai ofcrisisidentified by Marx suchas thepaucityofconsumption in these discussions. find a Duménil fail to and also Levy(2011) in 2010) place thatof1974, from in distinction articulate the that the thesis crisis, present particular "crisisofneoliberalism" ratebutbya distinct is not"causedby"thefallingprofit demandortherateofprofit. Indeed ofeitherthelevelofconsumption independent is fallingat all. thisschoolexplicitly deniesthattherateofprofit toexaminethesehighlycontestable Herewe arenotconcerned claims, empirical inKliman(2010b) andFreeman(2009b). whichwe believeareadequatelyrefuted theoretical weaknessesofthisschool:the In thisarticlewe focusonthetwocentral andthe is somekindofnewhistorical claimthat"financialization" development, the unrelated to claimthatitis an independent development, generalproblemsof oftherateofprofit to fallor whichcenteron thelong-run accumulation tendency we shallshow,arisesfromtheschool'sfailure, thepaucityofdemand.Thisinturn, of Marxistallegiance,to roottheirexplanations despiteits manyprotestations theoretical in Marx's own theoryof value. In thepresentcrisis,theunderlying weaknessofa non-value-basedapproachhas thusemergedintoclearview. oftheMarxist financialization Wefocusona paperbya keymember school,Costas far to "financialization" most so has made the who significant attempt put Lapavitsas, recourse tovaluetheory. As we show theoretical ona Marxist basis,anddo itwithout ofthe oftheattempt inthisarticle,theveryseriousness laysbaretheimpossibility old and obscure technical debates about "the It makes clear that apparently enterprise. ofthe aboutthe"inconsistency" andthe"OkishioTheorem" transformation problem" The"Marxists without andenduring TRPF hadimportant Marx,"as consequences. Freeman(20 10a) characterizes them,arebeingdrivenbythelogicoftheirpositions ofPolitical Economy WorldReview This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions VALUE ANDCRISIS THEORY INTHE"GREAT RECESSION" 37 tounanchor themselves fromtheMarxismtheyespouse,leavingbehindthemonly thequestionofwhytheyclaimallegiancetoitatall. We wouldconsiderMarxof littlerelevancetodayifeventshad indeedpassed himandhis ideasby.Buttheyhavenot.RatherMarx'saccountofcapitalismhas undeserved been,untilrecently, obsolescence,onewhichthe subjecttoan entirely ifthesoaringsales of Capitalare evidence. crisisappearsto be rapidlyreversing thetraditional Moreover, groundsonwhichMarxistschoosetoignorethisaccount havebeentheoretically disproven by scholarsworkingwiththeTemporalSingle of Marx's value theoryas explainedin Freeman SystemInterpretation (TSSI) in the of this causes of crisisto which (2010b) pages journal.Otherinterrelated Marxdrewattention, suchas theconstraints whichcapitalistaccumulation places ondemand,andhisrefutation ofSay's law,aremoreoftenthannotdiscounted with no theoretical at all grounds (Desai 2010). We will arguethatMarx's accountof themechanismsof crisisfurnishes an of the crisis which is not to explanation superior only contemporary bourgeois theory, butalso tothatsuppliedbyeither ofthe"Marxismwithout Marx"schoolsdescribed above, whenmoderndevelopmentsare takenintoaccountwithinhis original - whenproperly theoretical framework. Fromourperspective "financialization" - is notan independent in termsofMarx'svaluetheory restated but phenomenon an outcomeofthelong-term declineintheUS rateofprofit fromitspostwarpeak. To assignfinancialization as thecause ofthecrisisis likerecording thedeathofa man "heart as failure" because the heart first. succumbed starving Wehaveexploredtheproblems withBrenner's theoretical oftheTRPF rejection andthemerits ofhishistorical accountelsewhere(Desai 2010; Freeman2009b).In thisarticlewe exposethecritical withMarxistaccountsoffinancialization problems on the in contradictionsthemostseriously Marxistofthem.We situate byfocusing literature and discusshow itstwokey Lapavitsas'accountin thefinancialization failuresstemfromtherejectionofvaluetheory. First,becausehe rejectsthemost - thatthemagnitude basicprinciple ofMarx'svaluetheory ofvalueis determined by - hesubscribes theamount ofsociallynecessary laborembodiedincommodities toa distinction betweena "real"anda "financial" No theoretically groundless economy. morethana commonsensenotionelevatedtotheoretical this cannot status, replace Marx'sdistinction, whichhas becomecriticalinourtimes,betweenactivities that it.Second,havingrejectedtheTRPF, producevalueandthosethatmerelycirculate occursat all. Lapavitsascannotexplainwhy"financialization" Varieties of Financialization The literature on "financialization" is hugeand notspecifically Marxist.One of theearliestworksin thisveinwas thatoftheMarxisantFrenchregulation school 2.1 Produced WRPE anddistributed Journals byPluto WRPE.plutojournals.org This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions RAD HIKADESAI ANDALAN FREEMAN 38 AlainLipietz(1985). Similarideasbecamequitemainstream economist whenWill Hutton ofthefinancialized Thatcherite producedhiscritique economygoverned by "shareholder value"a decadelater(1995).A powerful semi-Marxist accountbased onBraudelian ideasoflong-term between cyclicalalternations productive expansion and "autumnal"financialization emergedin the early 1990s: post-Keynesian accounts(such as Wade (Epstein2005; Crotty2009) and generallyprogressive have continued to While these accounts are worksof serious 2008) proliferate. motivated totheconsequences bydeeppoliticalandmoralopposition scholarship, ofcontemporary "financialized" andwhilemanyilluminate theprocesses capitalism, ofcriseson whichtheyaimtheirsearchlights fail to locatethese powerfully, they in the internal of dynamics capitalism. processes Havingneverknown,orlikethe Marxistsamongthem,havingrejected, Marx'svaluetheory, thosewhoworkwith fallbackonconceptions thecategory offinancialization oftherelationship between financeand therestof theeconomywhichdo notbeartheoretical or historical scrutiny. Marxistwriterson financializationoftenreverentiallyreferenceRudolf 1910classicFinanceCapital( 19 10/1981). Buttheycommit a category Hilferding's error. offinancial overproductive ina activities Theyaimtoexplainthedominance sector (Dore2000) scenariowherenotonlydoesthefinancial typically Anglo-Saxon failtofinance mostindustrial butindustrial housesthemselves resort to investment, amountsoffinancial investment increasing (Krippner 2005). However,Hilferding, at theheightofthesecondindustrial withitsimmensely revolution, writing high on the financerequirements, the of finance to described, contrary, harnessing in Germany(as classicallydescribedby theserviceof industry pre-eminently Gerschenkron confusions itis nowonder 1962).Withsuchfundamental abounding, thatalthoughmanysuspectthat"financehas expandedbecause of endogenous difficulties in thesphereofproduction" (Lapavitsas2010: 9), theycannotexplain fromPaul why.His own surveyof the intellectualhistoryof financialization and the Review the the Sweezy Monthly group,through post-Keynesians, Arrighi, of economic and the UK regulationists, geographers financialization, sociologists CentreforResearchon Socio-cultural Change,leads Lapavitsasto concludethat "difficulties between weakproduction andthriving emergewhencausationis sought - whether inonedirection, finance ortheother"andchargesthemwithdoinglittle morethan"revealingkeyfeaturesof contemporary capitalism,almostas 'thick description"' (Lapavitsas2010: 15). Buthowmuchbetterdoes Lapavitsasdo? Is There a "Marxist"Theory of Financialization? therejectionofMarx'svaluetheory, Lapavitsasbeginsbyfurther buttressing just in case thoseeagerlyreachingforCapital feeltheyhave foundenlightenment WorldReview ofPolitical Economy This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions THEORY INTHE"GREAT RECESSION" ANDCRISIS VALUE 39 farepoorlyin relation thepresentcrisisin it:"Traditional explanations regarding to thiscrisis,"he says,sinceithas "no historical parallel."Giventhenumberand thisis of capitalism, crises that have of financial accompaniedthehistory variety of workers' financialization thinks that the he "increasing Perhaps unpersuasive. andassets"(Lapavitsas2010: 22) is unprecedented. income,savings,consumptions at least,workers' workers'indebtedness nor,in the20thcentury However,neither on a mass scale in mortgagecrisesis new: the 1929 and farmers'involvement crashwas precededbya housingbubble,"shoestring and,eventually, mortgages" a mortgage crisis(Hobsbawm1994: 100;Dollars & Sense2009). as "one of a fewinnovative Lapavitsas'nextmoveto establishfinancialization ideastocomeoutofradicalpoliticaleconomyinrecent years,"holding"considerable ofMinskyandKeynes 2010: is his dismissal theoretical 4), promise"(Lapavitsas WhileMinskymayhave ofit.Thisfaresno better. as potential sourcesofa theory had littleto say about"thelongtermbalancebetweenfinanceand therestofthe Keyneswhenhe tries economy"(Lapavitsas2010: 12),Lapavitsasmisrepresents class" as thevillainagainstwhoma tohangon hima narrowconceptofa "rentier mustbe defended "successful (Lapavitsas2010: 12).As we shallsee,in capitalism" the thishe is likemost"Marxists"and"Keynesians"whonotonlymisunderstand founders oftheirrespectiveschoolsand rejectpreciselywhatwas mostprescient in them,because it is also themostpoliticallyradical.Of course,betweenthem insightsthesetwocriticsof classicalpolitical theyalso overlooktheintellectual and neo-classical economics shared(see Patnaik2009; Sardoni1997; economy Desai andFreeman2009; Desai 2009; Desai 2010). inMarx'sdiscussion togroundfinancialization Nevertheless, Lapavitsas'attempt He is in volume three of of finance, , Capital hardlyunsophisticated. particularly "fictitious Marx's ideas about the to criticizes capital"to tendency deploy justly Andhe is also rightto andprofits areexaggerated. operations implythatfinancial - "capitalforloan.. . andloanablecapital takeMarx'sdiscussionofinterest-bearing ofindustrial theoperations (andother)capital,by through emerging spontaneously ina "setofmarkets instance" andoperating takingtheformofidlemoneyinthefirst as separatecapitalistconcerns)thatmobiliseloanable and institutions (operating pointfora Marxistdiscussionof capital"(Lapavitsas2010: 13)- as thestarting he runsintoproblemsalmostrightaway. finance.However,thereafter What'srealabouttherealeconomy? lead to financialIn oppositionto thewidespreadidea thattroublesin production between"finance"and ization,Lapavitsasseeksa "morecomplexrelationship" "realaccumulation" (Lapavitsas2010: 16). But Marxhimselfmakesa different firstof all, he does not speak of "real accumulation"at all, butof distinction; theaccumulationof value- thatis, sociallynecessarylabortimeembodiedin 2.1 Produced anddistributed WRPE Journals byPluto WRPE.plutojournals.org This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions RAD HIKADESAI ANDALAN FREEMAN 40 sincean economy retained difference, capital.Thisas we shallsee is an important can stagnatein value termseventhoughit is apparently growingin "real,"that from is, use-value,terms.And second,insofaras Marxdistinguishes production that value andthose distinction is betweenactivities produce hisprimary finance, labor.The latteris not andunproductive thatdo not- thatis, betweenproductive exhaustedby finance:forexample,production organizedby thestatealso does use value. Thisis whyverylarge-scale it notproducevalue,though does produce theUS economyduringtheSecondWorldWar,and,not restored stateinvestment moresuccessfulthanits the Chinese least,why economyis provingimmensely neoliberalcompetitors.2 use-valuenorvalueandis entirely howeverproducesneither Financialactivity to a conceptof value is notonly idea without recourse this To define parasitic. non-Marxist of much conventional falls short but on perfectly nigh impossible, bankerandUK FinancialServicesAuthority Evenformer Chairman, understanding. this when he said much of the truth of some AdairTurner, banking recognized reason financial useless." The has been why activitycannot "socially activity accumulation setslimitsoncapitalist increasewithout itself, end,andwhyitsgrowth thatitdoes notproducevalue.Ifbankscreatedvalue,theenormous is, precisely, statesupporttheyhave receivedso farintothecrisisshouldhaveresolvedit.In thecrisis,northefailureof thebestsolutionbourgeoiseconomists short,neither someyet-to-be-defined haveso farcomeup with,canbe explainedbysubstituting and for Marx's distinction betweenthe"real"andfinancial economy, pre-existing and labor. between distinction productive unproductive superior as Brenner, forproductive Nordoes ithelpto substitute activity manufacturing tocrisis, does.Inunderstanding whoalso rejectsvaluetheory, tendency capitalism's between"tangible"goodsandservicescannot Smithian distinction thisessentially takeus far:as Marx(1963: 158) clearlyexplained,a usefulserviceproducedfor the"real sale can be a bearerof valuejust as well as a physicalgood. If neither value are substitutes for nor sector, capitalism's producing economy" manufacturing ifwe acknowledgethatservicescan and do createvalue,on whatbasis can itbe - ignored maintained thatbanksdo not?On thebasisofMarx'sowncleardistinction - betweenactivitiesthatcirculateexistingvalue literature in thefinancialization notvalue-creating is a "costofcirculation, andthosethatproducevalue:theformer fromsurplus-value, is simplya deduction labour"(Marx1981: 432) andits"profit sincetheyaredealingonlywithvaluesalreadyrealised"(Marx 1981:438). thatitis, in fact,at work,can be seenin the is necessary, Thatthisdistinction "Main to Street"versus"Wall Street,"LarryElliott's references press'sconstant world" notionofa "fantasy" economy(2007) orAlainLipietz's(1985) "enchanted for more "value now call financial offinance. Evenimpeccably bourgeois journalists creation"andless "valueextraction" (Hoffman 2010). Economy WorldReview ofPolitical This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions RECESSION" THEORY INTHE"GREAT VALUE ANDCRISIS 41 in capitalism is an ever-present "Financialization" because,as Marx possibility A ofvalueanditscirculation. is dividedintotheproduction noted,capitalist activity in this have classes ofparasitic landlords, usurers, historically participated variety ormafiosi orjustplainfraudsters andotherextortionists, economists monarchs, totapflowsofvaluewithout usedthisseparation andhavehistorically contributing and suchas tax-farming ofvalueredistribution, Whilesomeforms toitsproduction. suchas groundandresource orvanished,others, havediminished tribute payments in increased significance. Indeed,"financialization" today rent,have,ifanything, - notjust housingrentsbut of rent boundup withthemonetization is intimately ofcapitalinthethird activities rentsfromtheincreasingly mineral world, predatory in of commodity as is evidentfromtheincreasing speculation recent importance from absent are financialization forms of These Lapavitsas'account largely years. and Bina see "financialization" as frommostaccountsof Dachevsky2008; (though Harvey2003).3 However,notall formsof parasiticactivityare thesame.Financialactivityis itis. ofcapital,anda verypeculiarcommodification basedonthecommodification LikethelaterKeynesandPolanyi(1944),whoalso spokeofcapitalas a "fictitious Marxrecognizedthatcapitalassetswerenotproduced,and had no commodity," or value. In consequencetheir"price,"theinterest costofproduction rate,is not all other Unlike intrinsic value. their commodities with as by produced governed oftheir thedivergences whosesupplyanddemandonlydetermined commodities pricefromtheirvalue,capitalhadno valueandthus rateofinterest... Whatis calledthe"natural" rateofinterest. ...thereis no"natural" limits tothe no "natural" Thereare therateestablished byfreecompetition. [is]simply so andfluctuations, doesnotjustdetermine rate.Where interest divergences competition all determination forces whereitsreciprocally ceases, thatina situation balance, acting lawlessandarbitrary. issomething whatistobedetermined (Marx1981:478) inherently In additionto the bank lendingforinterest,financialactivityalso includes such as shares,bonds, capitalizationof periodicincomesthroughinstruments witha "whollyillusory"value(Marx 1981: 597). futures, securities, mortgages, new makessenseiftakennotto referto someextraordinary "Financialization" activities these in which but to of occurringperiods frequently phase history, and agentstake Its instruments and theirmarkets, and instruments, proliferate. have bonuses bankers' forms. replacedcouponmay Today, varying historically value of the to butintheiressentialrelation theyarenodifferent production clipping, whichMarxandEngelsor indeedVeblenandKeynesidentified fromtherentiers betweenfinanceand in theirday: Lapavitsas'denialof a causal interconnection no longerexist,recallsthosewhomMarx on thegroundsthatrentiers production, anddistributed 2.1 Produced WRPE Journals WRPE.plutojournals.org byPluto This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions RADHIKA DESAI ANDALAN FREEMAN 42 werenotwage-workers becausetheywere deridedforsayingthatpiece-workers thanthehour. paidbytheitemrather The TRPF and financialization Lapavitsas' announcedaim is to constructa "morecomplex"accountof the inwhichcausation"runsinboth of"finance"and"realaccumulation," interaction directions" (Lapavitsas2010: 17). It willbe recalledthathe is criticalofexisting financialization forfailingto showwhyproduction on problemslead to writing findmuchliterature onthereversecausation He does,however, financialization. causes problemsfortheproductivesector.Interalia it on how financialization "if financial that the design,beneficialeffects systemhad an appropriate argues are"thebasis on whichthe Sucharguments wouldfollowforeconomicgrowth." theintroduction of havesupported WorldBankandothermultilateral organisations 2010: the World the world" across market-based 16).Though (Lapavitsas practices betweenfinance andproduction for oftherelation Bankmayuse thisunderstanding literature non-Marxist thereis considerable itsownnefarious progressive purposes, causes in the detailtheproblemsfinancialization whichexploresin considerable - thoughits"defiationaiy bias" is perhapsthemostimportant. sector productive to someorall oftheseandgives One can onlypresumethatLapavitsassubscribes themèqualweighttothe(yettobe provided)accountofhowproduction problems causefinancialization. For such an account,the expectantreaderwaits in vain, even though,his - perhapssomeresidual toeven-handedness something notwithstanding, aspirations Marxism ensuresthatLapavitsas'conceptionof thefinancialsectorturnsout Whereas"industrial to be largelygovernedby theproductive. capitalsupports thatserveitspurposes,""[t]he of financialcapitalsand structures theemergence ofcapitalist financeareultimately structure, practicesandoperations composition, "the offinancial of the determined accumulation," capital profits by requirements extends inproduction" and"thefinancial valuegenerated ariseoutofsurplus system and sustainsaccumulationin a varietyof ways,suchas mobilisingidle money rates,andso on" (Lapavitsas2010: 16). liquidity, equalisingprofit capital,creating and financein which betweenproduction Giventhisview of therelationship theonlyway the latteris determined by the formermoreor less completely, oftheindependence offinanceinrelation Lapavitsascan salvagesomeconception can thatthecausationordetermination andsalvagesomepossibility toproduction, "runbothways,"is toresorttohistory: form ofeconomic isanancient Inbroadhistorical forMarx, financial terms, activity, capital toprimitive accumulation. areimportant while financial Capitalist development processes it financial thatindustrial turning capitalto itspurposes, capitalsubordinates implies Economy ofPolitical WorldReview This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions INTHE"GREAT RECESSION" ANDCRISIS THEORY VALUE 43 thefinancial intoa subsidiary sectorofthecapitalist Nonetheless, system economy. It can thus take of financial character retains someoftheancient, capital. pre-industrial returns to extract toward real stance a destructive, accumulation, continuing predatory fortheanalysis Thisisanimportant isindifficulties. valuecreation evenwhensurplus point 2010: offinancialisation. (Lapavitsas 16) stance"offinancetoward"realaccumulation" This"predatory is, forLapavitsas, of production by superiorto theWorldBank,conceptionof thedetermination finance.However,Lapavitsashas yetto explainhow thereversedirectionof orcausationworksinordertoarriveathis"morecomplex"account determination in whichcausation"runs of "finance"and "realaccumulation," oftheinteraction in Lapavitsas' of production And here,despitethecentrality in bothdirections." What diverts financialization. what causes he cannot account, capitalfrom explain a merepsychological Is financialization valuecreation intovaluecirculation? folly Or theoutcomeofwanton,willfulcapitalistbehaviorormisinformed regulation? itself? is itan outcomeoftheprocessofcapitalistaccumulation can be explained: Lapavitsasrejectstheonlytermsin whichfinancialization Marx's value theoryand the associated distinctionbetweenproductiveand notonlyby Marx's labor.The fundamental supported explanation, unproductive is butcentraltoKeynes'ownperspicacious analysis,is thatfinancialization theory into causedbythedeclineintherateofprofit financial, capital speculative, driving atleast, inwhich,apparently forms ofactivity ofnon-value-creating andotherforms of Brenner's can be had. We notethatthisis also theimplication higherreturns TRPF the on spurious of Marx's account historical since, havingrejected analysis of it historical version his own he ends (Desai 2010). up reconstructing grounds, Only on thisbasis can financebe clearlyseen as a branchof the sphereof whichonlysellsandre-sellsvalueproducedelsewhere; circulation, onlythendoesit it do is appropriate all can not create new does makesensethatsincefinance value, labor;onlythencanonesee, grab a partofthevaluethatis createdbyproductive toproducenew failure as Marxistsnowadaysdo not,thatwhileproduction, barring a zero-sum is finance valueortorealizeit,is a positive-sum game. necessarily game, fromthefallingprofitrateis, to separatefinancialization The entireattempt at obscurantist. notmerelyfutilebutdownright Whyis itattempted consequently, all? Because "Marxists"haverejectedMarx'stheoryofvalue andputa spurious is the in itsplace.Whattheylose in translation interpretation generalequilibrium thereis no reasonto criticalfactthatlaboris theonlysourceofvalue.Otherwise, of theMadoffvariety maintainthatmerchants, bankersor evenplainfraudsters withthehugeeffort bother cannotcreateit.Inwhichcase,whyshouldthecapitalists value at all, andjusttakethemucheasierpathof creating involvedin production thattheproceedsoffinanceare a meredeductionfrom in finance?The argument WRPE2.1Produced anddistributed Journals WRPE.plutojournals.org byPluto This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions ANDALAN FREEMAN RAD HIKADESAI 44 butcannotestablish whichLapavitsasacknowledges theproceedsofproduction, has no otherlogicalbasis. theoretically, Why Does the ProfitRate Fall? whenfreedfromthe Marx'sderivation oftheTRPF is clear,simpleandirrefutable hold. From the value that it cannot producedeachyear logically disproven prejudice conditions a portion mustbe invested accumulated as longas capitalist prevail. The stockofcapital- measuredinvalue- thusincreasesas longas accumulation incontrast, is limited ofprofit, bythesizeoftheemployed proceeds.Themagnitude is determined laborforce,preciselybecauseitsmagnitude bythelaborinput.The rateof profit therefore falls,risingonlywhena crisisslaughters enoughcapital - as intheUS forprivateinvestment valueorwhenthestatemassivelysubstitutes theSecondWorldWar(see Freeman2009a) andtransfers necessary capital during balancesheet. ontoa non-capitalist expenditure fortheUS economyinthepostwarperiodis empirically A fallingrateofprofit to statistical clear.Denialscan onlybe madeeitherresorting sleightsofhand,for therelevantpostwarperiodfrom1974 insteadof the exampleby demarcating obviouspeakof 1947,orbyspiriting assuming awaythepastvalueaccumulated, ofeverynewmachine thattheinvention wipesoutthecostshistorically miraculously inbuyingtheexistingones(Kliman2010b). incurred Criticsresolutelyignoreboththefactsand thetheorybecause theirtheory substitutessome othermagnitude,not determinedby labor time,forvalue. The "MarxismwithoutMarx"tradition "physical (Freeman2010b), substitutes without the whilst 1998), (see Keynes" Wray "Keynesians (use-values) quantities" false conclusion to the lead These substitutions substitute theoretically money. andconstantly can indefinitely andinflation thatproductivity respectively growth removethelimitssetbyvaluebasedon sociallynecessarylaboron themagnitude of profits. However,as bothMarx and Keynesrealized,and as historyrecords, theinexorable growthof a magnitudegreatenoughto counteract productivity accumulationand theTRPF occursonlyforshortperiods. law of competition, as theVolcker forcapitaliststhemselves, Inflation beyonda point,is intolerable in Moreover as Freeman Freeman shockdemonstrated 1998) livingmemory. (see the trend ofthe Kliman and (2010b) empirically, (1998) has showntheoretically, fromthetrendof the priceand physicalprofitratescannotdepartindefinitely assertsitselfin therealworld:itbringsus a rate.The lattertherefore valueprofit instrument validandhence,scientifically coherent, superior empirically theoretically crisisinliving forunderstanding thetruecausesandpossiblecourseofthegreatest from the of us and absent an instrument Marx, writings by bequeathed memory ofMarxists. thegreatmajority WorldReview ofPolitical Economy This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions INTHE"GREAT RECESSION" VALUE ANDCRISIS THEORY 45 Concluding Remarks of Marx's own Why,giventheexplanatoryclarityand theoreticalsuperiority so resolutely is "Marxist"politicaleconomymarching value-basedapproach, away betweenMarx'scritiqueandthegeneralequilibrium fromit?Giventheantithesis - theonea radicalcritiqueofcapitalism andthepoliticaleconomywhich approach theonebasedon ofmarket servedtolegitimize it,theothera celebration perfection; itbrilliantly ofvaluewhoseambiguities theclassicalobjectiveconception resolved, of a notion theothersubstituting (Clarke1991);. utility subjective deeplyideological toforms ofa temporal theotherbereft theonetemporalist, dimension, subscribing - thischoiceoftenseemssurprising firmwouldpermit no capitalist ofaccounting time. itforthefirst to thosewhoencounter In ourview,thisinevitablefailureis thelogicalconclusionof thejourneyof academicMarxistpoliticaleconomyawayfromMarxwhichKliman(2010b)terms that oftheMarxianschool."Isolatedfromthemassmovement "thedisintegration in at least sustainedit in the 1920s,Marxisteconomictheory, Anglo-American However,thereare academia,has practicallyabandonedhistoricalmaterialism. theoretical to examinetheunderlying manyscholarswho retainthe integrity mindsandmanyindependent issueswithfreshandunprejudiced politicalactivists againstthe"bankersconsensus,"in boththeNorthand theSouth, campaigning fromtheclassical thetheoretical whogenuinely seektounderstand corpusinherited Marxistforebears who stoodup to thissameconsensusinprevioussuchcrises. deserveandneedaccess totheclassical Thoseactivists, liketheirpredecessors, debate We inviteall Marxistswhosharethisaimtoan openandscholarly heritage. on thereal causes of crisis- in whichMarx's own theoryof value has itsown, place. recognizedandlegitimate Notes and intheFrench ofthecrisis "Marxist" 1. Somemight seea third Regulationist explanation major claim to make nospecial ofAccumulation theUSSocialStructures However, (SSA)schools. they toMarx's own of"Marxist" toassesstherelation Marxist. concerned theory Being chiefly being ofitsmerit isintended. ithere. Nodeprecation wedonotdiscuss ideas, initsproduction ofuse because crises a critical roleinresolving 2. Thestate major precisely plays without itproduces usevalues andbecause itprovides a market for values values, creating exchange intimes ofmassive state values. Theeffect canbeparticularly mobilization, spectacular exchange 40percent ofGDPwhilst wellover From 1942until 1946USstate asinwar. averaged expenditure this toenduntil isunlikely Thepresent toits1933levels. investment depression slumped private leaders fact isappreciated andacted onbypolitical 2009a). (Freeman areconnected iswell-illustrated rents andresource orground 3. Howtightly finance bythe capital for12percent accounted that BP'sshares oilspilldisaster theDeepwater Horizon revelation during ofmajor financial intheshare boosted nodoubt a share ofUK-quoted bythedecrease capitalization, that drove andthecommodity firms thanks tothefinancial crisis up commodity prices speculation after it. evenhigher 2.1 Produced anddistributed WRPE Journals WRPE.plutojournals.org byPluto This content downloaded from 130.179.16.201 on Fri, 06 Mar 2015 16:45:36 UTC All use subject to JSTOR Terms and Conditions RADHIKA DESAI ANDALAN FREEMAN 46 References 21. www. andWar," Online AsiaTimes Crunch ,June Risk, C.,andF.Dachevsky Bina, (2008)"Bubbles, 10). 09/06/20 1Dj06.html (accessed atimes.com/atimes/Global_Economy/JF2 NewLeft Review R.(2006)"Finance andtheFourth Dimension," 39,May-June. Blackburn, NewLeft Review Crisis," 50,March-April. (2008)"TheSubprime NewLeft Review 1-265. 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