Marx after Minsky: Capital Surplus and the Current Crisis
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Minsky’s theory of financial instability helps clarify how Marxist theory can explain the highly financialised capitalism of today, and the crisis which started in 2008. The advanced economies currently have high realised profits in the productive sector and lagging rates of investment. Shareholder pressures encourage corporate strategies which focus on stock-market ratings and M&A operations, less on productive investment. Tax evasion and the build-up of reserve cash piles by corporations have contributed to a global surplus of what Marx called loanable capital. This surplus has been augmented by the increasing inequality of personal wealth ownership and, in the international economy by, large current-account surpluses. The results include: huge profits for the financial system; low interest rates; recurrent boom and bust in asset markets; the fuelling of huge increases in household and government debt; and the combination of instability and stagnation which results from an excess supply of loanable capital.
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Argitis Georgios, Evans Trevor, Mitchell Jo & Toporowski Jan ‘Finance and Crisis: Marxian, Institutionalist and Circuitist Approaches’ fessud 2014 Working Paper No. 39, available at: <http://fessud.eu/wp-content/uploads/2013/04/Finance-and-crisis-Marxian-Insitutionalist-and-Circuitist-Approaches-WP-39-1.pdf>
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Ertürk Ismail, Leaver Adam & Williams Karel ‘Hedge Funds as “War Machines”: Making the Positions Work’ New Political Economy 2010 15 1 9 28
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Froud Julie, Sukhdev Johal, Leaver Adam & Williams Karel Financialisation and Strategy: Narrative and Numbers 2006 London Routledge
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Goda Thomas & Lysandrou Photis ‘Contribution of Wealth Concentration to the Subprime Crisis: A Quantitative Estimation’ Cambridge Journal of Economics 2014 38 2 301 327
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Jagannathan Ravi, Kapoor Mudit & Schaumberg Ernst ‘Causes of the Great Recession of 2007–9: The Financial Crisis Is the Symptom not the Disease!’ 2009 nber Working Paper No. 15404, available at: <http://www.nber.org/papers/w15404.pdf>
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Lapavitsas Costas Profiting without Producing: How Finance Exploits Us All 2013 London Verso
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Lewis Michael The Big Short: Inside the Doomsday Machine 2010 Harmondsworth Penguin Books
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Minsky Hyman P. The Financial Instability Hypothesis: A Restatement 1978 Thames Papers in Political Economy, Minsky Online Archive, Levy Institute of Bard College
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Minsky Hyman P. The Capital Development of the Economy and the Structure of Financial Institutions 1992 NY. Levy Institute of Bard College Working Paper No. 72, Annandale-on-Hudson
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7
Marx 1981, pp. 612–13.
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8
Marx 1981, p. 706.
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9
Crotty 1986, pp. 300, 306.
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10
Minsky 1978, p. 4.
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11
Marx 1976, p. 236. Itoh and Lapavitsas note that these two sentences were added by Marx to the text of the third German edition of Capital Volume 1, published in 1883. In the Penguin edition the translator wrongly states that it was Engels who added this passage to the third edition. Marx’s comment reflects the fact that, after the major crisis of 1857, there had been a number of financial crises in the 1860s and 1870s in Europe and the United States which had only a limited impact on the industrial sector. For further exploration of Marx’s analysis of monetary crisis, see Itoh and Lapavitsas 1999, pp. 123–5 and 166–8. Their comment on this rare lapse by the Penguin translator is on p. 270.
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12
Marx 1976, p. 236.
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14
Marx 1976, p. 236. Marx’s term bank-notes is approximately equivalent to modern bank cheques.
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15
Marx and Engels 1987, p. 379.
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16
Marx 1981, p. 615.
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18
Marx 1981, pp. 326–7.
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19
Marx 1981, p. 326.
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20
Marx 1981, p. 327.
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23
Roberts 2011, p. 10. In support of his position Roberts has sometimes cited an econometric study, Granados 2013. This is a careful study of the theoretical debate about the relationship between profits and investment, and draws on us data to test empirical hypotheses. Roberts is not accurate in reporting its conclusions and they do not provide the decisive confirmation which he claims. Tapia Granados tests whether Keynes and Kalecki are right in arguing that investment has a strong influence on profits as against Marx and Wesley Mitchell who claim the reverse. Granados found that profits accounted for 44 per cent of the variation in subsequent investment, but investment did not correlate with later profits (p. 251). Thus Marx-Mitchell were vindicated against the opposition. But a finding that profit-levels on earlier investment accounted for only 44 per cent of variation in later investment, leaves a great deal of scope for the remaining 56 per cent to be determined by other factors – and this is what is denied in Roberts’s mechanistic formulation. Figure 1 (p. 249) in Granados shows a marked post-2001 divergence between profits and investment – and it does not cover the period after 2009 when the difference widened even more.
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24
Kliman and Williams 2014.
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25
See Kliman and Williams 2014, Figure 10. In Table 3 they show that the share of net investment in after-tax profit for us corporations averaged 106 per cent in 1981–6, 59 per cent in 1986–2001, and only 34 per cent in 2001–7. Strangely, they conclude that because the ratio was quite low (52 per cent) between 1949 and 1971, the long decline in this ratio since the early 1980s cannot be due to the effects of neoliberalism or financialisation. Rather, they argue, the cause of this fall in the rate of accumulation must be a fall in the rate of profit. They write: ‘The entire [sic] fall in us corporations’ rate of accumulation between 1948 and 2007 is attributable to a fall in their rate of profit rather than to a diversion of profit from investment’ (p. 22 of 26). ‘This finding’, they insist, ‘is not particularly surprising. That the rate of profit is a key determinant of the rate of accumulation is a staple of much economic thought, and indeed the relationship between them is perhaps the main reason the rate of profit is of economic importance’ (p. 22 of 26). They thus reach a conclusion which is directly at variance with their empirical data.
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26
Crotty 1993, p. 20.
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27
Marx 1981, p. 501.
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28
Marx 1981, p. 374. The other parsons were Thomas Malthus and Thomas Chalmers.
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29
Bezemer 2010, p. 679. As other pioneers, Bezemer lists Say, Schumpeter and Kalecki. The classical political economy of Adam Smith and Ricardo was organised round a concept of circulation, but much less rigorously specified than the balance-sheet accountancy which Quesnay, Say and Marx developed. Marx criticised Say for arguing that supply creates its own demand, thus eliminating the possibility of general as opposed to sectoral crises. What Say had overlooked was that money from the sale of commodities could be hoarded rather than spent. But Marx accepted the balance-sheet implication that every sale implies a purchase; every debt implies a lender. These may seem no more than tautological – but such identities are the foundation of double-entry book keeping which is at the heart of capitalist calculation. As Bezemer notes (p. 682), there are analogies here with the conservation of energy in physics. In Marx’s value theory the tracking of quantities of value through a series of different forms and transformations is central. See Mirowski 1989, pp. 178–85, for an interesting discussion of Marx’s value theory in relation to nineteenth-century advances in thermodynamics – though here Mirowski wrongly presents Marx as a Ricardian.
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30
Bezemer 2010, p. 679. Bezemer has a list of the small number of people who made a correct call on the onset of the subprime crisis in the us. He notes that most of them were using a balance-sheet approach. For example Wynne Godley, who from about 2000 was warning of the build-up of an unsustainable debt situation in the us housing market. In this period Godley was working at the Levy Institute, then, as still today, the main centre in the us for Minsky-influenced research. Bezemer could also have mentioned the small band of contrarian hedge-fund investors who made many billions of dollars by placing large bets that a deep crisis in us housing finance was approaching. Their adventures are vividly recounted in two entertaining and instructive books, Lewis 2010 and Zukerman 2010.
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31
Bezemer 2011. Thus he suggests that a balance-sheet accountancy approach does not conflict with agent-based explanations which stress herd behaviour in financial markets. Variants of such explanations – and associated themes of non-linear amplification – can, and should be, built into Marxist accounts of financial instability.
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32
Kliman 2012, pp. 102–22.
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35
Bakir and Campbell 2010, Figure 4, p. 332.
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36
Goldman Sachs 2009, p. 2. The main exception was Germany in which a post-1980s profits rise was derailed by the impact of reunification in 1989.
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38
JPMorgan Research 2006, pp. 1 and 3. The G6, as defined here, includes the us, Canada, the Euro area, the uk, Japan and Australia. The phrase global savings glut was also used by Ben Bernanke in a widely-discussed lecture in March 2005. His conclusion was that the us was performing a valuable service to the rest of the world in running huge current-account deficits, and providing the world with a safe haven for the international reserves of China and other surplus countries by issuing huge volumes of Treasury bonds for them to buy as a way of holding their reserves. This consoling view of the beneficent role of the us was rewarded in 2006 when Bush appointed Bernanke as Chairman of the Fed.
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39
JPMorgan Research 2006, p. 4. Even in Japan ‘the surplus averaged 6.2 per cent of gdp in 2002–4 compared with an average deficit of 1.7 per cent in the preceding 22 years’.
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44
Bank for International Settlements 2006, p. 24.
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46
Moëc and Frey 2006, pp. 6–7. See also Ivanova 2012, pp. 9–10.
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47
Marx 1981, p. 638. In this section, Marx is dealing with the accumulation of money-capital as independent from the accumulation of industrial capital. See also Chapter 6 in Marx 1981, which deals with the effect of price changes on the revaluation and devaluation of capital – and associated patterns of release and tying-up of capital. Here, as an example, Marx traces in vivid detail the consequences of fluctuations in the price of raw cotton between 1845 and 1865. For Marx’s more extended account of the cheapening of the elements of constant capital as an offset to the tendency of the rate of profit to fall, see Chapters 13 and 14 of Marx 1981.
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49
Data from McKinsey Global Institute 2011, p. 2. Total assets fell briefly from $202 trillion in 2007 to $175 trillion in 2008 but have since recovered to a new record height of $212 trillion. If writing today, Minsky would also have stressed the money-manager role of hedge funds, private equity funds and sovereign-wealth funds.
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50
Minsky 2008, p. 3.
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52
See Minsky 1992. There are useful discussions of Minsky on money-manager capitalism in Wray 2008 and Dymski 2010.
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54
Marx 1981, p. 571. Marx’s rhetoric is wonderful. ‘. . . Resultat des Börsenspeils wo die kleinen Fische von den Haifischen and die Schafe von den Börsenwölfen verschlungen werden.’ Minsky notes that one of the main early forms of securitisation was the commercial bill of sale in nineteenth-century Britain. Marx has lengthy discussions of this form of fictitious capital.
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56
Lazonick and O’Sullivan 2000, p. 6. See Crotty 1993. Also Froud and Williams 2007, Froud, Sukhdev, Leaver and Williams 2006, and other publications by the cresc team at Manchester University.
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57
Milberg 2008, pp. 435 and 437.
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58
Stockhammer 2005–6, p. 197.
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59
Ibid. See also Stockhammer 2004.
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60
Milberg 2008, p. 439. See also Moëc and Frey 2006.
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63
Marx 1978, p. 569. In Marx’s own words: ‘Geldkapital werden, und zwar night mehr zu passivem und also Zukunftmusik, sondern zu aktivem, wucherndem (hier wuchern im Sinn des Wachsens).’ When money-capital is idle, it exists only as ‘music of the future’ – possible music, not its actuality.
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66
See Jagannathan, Kapoor and Schaumberg 2009. Also Ivanova 2011 and 2013.
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67
For a fascinating account, see MacKenzie 2006.
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69
Harding 2014.
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70
Plender 2014.
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75
Harvey 2010, p. 30.
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77
Plender 2014.
Marx after Minsky: Capital Surplus and the Current Crisis
In: Historical MaterialismSearch for other papers by Jim Kincaid in
Current site
Google Scholar
PubMed
Minsky’s theory of financial instability helps clarify how Marxist theory can explain the highly financialised capitalism of today, and the crisis which started in 2008. The advanced economies currently have high realised profits in the productive sector and lagging rates of investment. Shareholder pressures encourage corporate strategies which focus on stock-market ratings and M&A operations, less on productive investment. Tax evasion and the build-up of reserve cash piles by corporations have contributed to a global surplus of what Marx called loanable capital. This surplus has been augmented by the increasing inequality of personal wealth ownership and, in the international economy by, large current-account surpluses. The results include: huge profits for the financial system; low interest rates; recurrent boom and bust in asset markets; the fuelling of huge increases in household and government debt; and the combination of instability and stagnation which results from an excess supply of loanable capital.
