Michael Roberts worked in the City of London as an economist for over 40 years, where he “closely observed the machinations of global capitalism from within the dragon’s den”. Since retiring, he has written several books — The Great Recession: A Marxist View (2009); The Long Depression (2016); Marx 200: A Review of Marx’s Economics (2018); and jointly with Guglielmo Carchedi, World in Crisis (2018). He has published numerous papers in various academic economic journals and articles in leftist publications. He has also recently published Engels 200, a book on Engels’ contributions to Marxism.
This interview has been edited and condensed for clarity.
Andrew McWhinney: Welcome, Michael. Thanks for joining us, and happy belated birthday, as well.
Michael Roberts: Thank you, yes! A commenter on my blog sent me a message saying: “How old are you, Michael? You seem old. You’re still hopping around, are you?” So I’m still old and hopping, Andrew.
AM: Beautiful. Josh and Tommy, if you want to take it away, feel free to hop on with a question.
Josh Messite: So how did you first become a Marxist?
MR: Right, that’s what a few people ask. Well, I come from a middle class, really middle class — I don’t know, in the US, you call “middle class” what we call “the working class,” in the old, Marxist technical category, but now, of course, it’s necessary for the bourgeoisie to completely remove the term “working class” in America. So in America you have, I presume, the “upper” class, the “middle” class, and the rest of the riff raff.
But I come from what used to be called the middle class. My family were either doctors or scientists. My father was a scientist, my mother was an art teacher. We came from an educated area in the suburban part of London, so you couldn’t imagine a more middle class area and upbringing. Although somewhat different, because my father died very, very young — for me, I was only five when he died of cancer, so we were brought up by my mother, and we were estranged from the rest of the family. In some ways, as is the case with every individual, things are always different — the path, the story, the historical chances and changes — which mold your behavior or attitudes and beliefs.
From a very early age, I was brought up in a semi-bohemian household. Although all my fellow students ended up being accountants and economists, and just had perfectly normal middle class occupations, by the time I was reaching the age of 15, I was certainly politically an animal. At the age of 15 I considered myself a conservative, and thought it was good that we should maintain society in the way it was. At the age of 16, I became a Labour Party supporter; in UK terms, that meant I thought that we should have gradual change to a better society for everybody. By the time I reached college, I had been studying works of history, economics, and other things from a Marxist point of view, and by the time I got to university, I considered myself a Marxist. So at the age of 18 I was a Marxist, and then I entered the milieu of the university — not very keen on university politics, student unions, and all that. Much more interested in going into the town or the city, outside the university, and getting into contact with the organized sections of the working class in the labor movement.
So I came to Marxism, I would say, through a combination of two things: an intellectual discovery — I wasn’t a “horny, toiling worker” who became aware of the experiences of being exploited in the factory or the workshop and so on — combined with an attitude at home of bohemianism, certain opposition, not really supporting the status quo. Those are things that happen in different ways to different individuals. But that’s how it came about. Also, from the very beginning, I had been studying economics, which back in those dark days was rather an odd subject for schoolkids to do or even for university people to do, to some extent. So you’ve got the combination of somebody who was interested in the economics of society, and somebody who came to the discovery of historical materialism and Marxism. Particularly, I would think, Josh, historical materialism, because what struck me was how the materialist conception of history explains the history of human society so much more effectively than any other theory — kings or queens, weather, population demographics. Historical materialism is really a powerful analytical tool for us to understand the nature of human society. And it remains so.
Tommy McGlone: I think that brings us neatly to our next question. So you talked a lot about how your work is based in historical materialism, which we love to hear, but while a lot of readers will be familiar with your work, for those listening who haven’t read your work, how would you describe its focus?
MR: It starts with, as I said before with Josh, a conviction that historical materialism explains society and the development of human society so effectively compared to any other way of understanding the conception of history. But we need to go beyond that, and because I already had an interest in how human organization functions on an economic level, buying, selling, and all the rest of it. You need to delve deeper into that, to understand the way in which society developed on an economic basis — whether it’s a slave society, a feudal society, or a capitalist society. Of course, once you read Marx and Engels, you realize that they, too, recognized that it wasn’t good enough to have, as it were, a “philosophical” understanding of the contradictions of society, the “negation” of society. You have to go beyond Hegel, you have to look at the material processes going on, and, in particular, the economic foundations of those processes.
From the very beginning, at least in my story of Marxism, it was to look at the economic foundations and to try to understand what we could call Marxist political economy, or Marxist economics. But the “pure” Marxists would say you shouldn’t use the word “economics” because that’s a bourgeois capitalist word. Well, for shorthand, and I’m a bit slapdash, “political economy” and “Marxist economics” — that will do for me.
There is one key principle of Marxist economics: the law of value. This is basically saying that our societies are run on the basis of exploitation, and, in particular, in a capitalist society, it’s run on a certain form of exploitation. You go to work, and you get a salary or a wage, you get some money for however many hours that you work. But actually, you produce more in terms of value that the owner of your work, your employer, gets when they set it on the market either as a service or as a physical product. So there is an unequal exchange taking place between what you as a worker earn in wages and what the owner of the means of production — the factories, the office, the intellectual patent, whatever it is that they control and own — can sell for, which is more than what they pay you in wages. Although it seems to be an equal exchange, it’s an unequal one. That fundamental point is the law of value. What goes on under capitalism is production for profit, to make a profit out of you, rather than production for people’s social needs. And there’s a fundamental contradiction between social needs and individual workers’ needs and the profit going to the capitalist. That contradiction — the fundamental law of value — is the most important thing to understand as differentiating Marxist economics from other economic theories or approaches to the understanding of human society.
JM: That leads into a question we had on the difference between Marxist economic conceptions and more mainstream, bourgeois economic conceptions — could you explain the difference between the specifically Marxist conception of profit and the standard, textbook definition of profit?
MR: Mainstream economics, which is basically what we call “neoclassical” economics, is based on the idea that prices are really determined by how much enthusiasm there is on the part of the individual to buy a particular product. This is called the “utility” or the satisfaction they get out of that product, and the price will vary according to the level of that satisfaction. For example, you might want to buy one automobile for $10,000, but if you don’t need another automobile, you’d be reluctant to spend another $10,000 on it, so the value of that automobile falls depending on the demand the individual has for it — how many units they’d want of this particular thing. If you look at it from the production side, the producers of the automobiles keep producing until the point is reached where there is no profit to be gained by producing another vehicle. In mainstream economics, there is no “profit” — if we’re in an equilibrium, the consumer gets their product and their satisfaction, and the producer gets the sale of their product, and at the margin there’s no real “profit” taking place. “Profit” becomes something which exists either due to an imperfection in the market, maybe the producer can control the market or control the price because they’re a monopoly or so on, or maybe the consumer or retailer can depress the price because they’re a monopsony. So you can gain a “profit” that way, but if everything’s flowing freely, people are buying and selling freely, then there will be no profit at the margins, supply will equal demand, and that will be the end of the process.
This is demonstrably rubbish. Quite clearly, profits are being made. Every day we read in the newspapers that Amazon’s made a billion, Tesla’s made a billion more, everybody’s making billions. Companies are racking up profits and presenting their earnings and results on a quarterly basis so the banks and other institutions can invest in their stocks. So profit is being made, and this does not make any sense! You’ve got this wildly stupid position in mainstream economics, which is basically saying that there wouldn’t be any profit in these companies once it’s all freely moved forward to a certain point and a certain margin, or if there was no monopoly. But clearly that’s not happening at any point in the process of economic transactions. Profits are being made, those profits are being reinvested, either in new machinery, more financial assets, buying back your own shares, trying to expand or take over another company, or even, sometimes, paying more wages to the workers. Those profits are being used to get more profits.
The fundamental point of Marxist economics is that this is an economy which produces things for profit — profit clearly exists, we can measure it, and we can also learn, depending on the level of that profit, just how healthy this capitalist economy is. Because if profitability begins to fall, that’s bad news for capitalist entities and production. That’s the key thing that they worry about — whether they’re making more profit, sustaining their existing profit, or it’s falling.
It’s very interesting to note, Josh, that if you look across mainstream economics, and, for that matter, what you might call “heterodox” economics — which is those people who don’t agree with mainstream economics, Keynesians, or sometimes what they call “Post-Keynesians” — you look for what they have to say about profit: absolutely nothing. What everybody agrees, mainstream and Keynesian, is that profits are not relevant to understanding what’s going on in the economy. Mainstream economics says it’s to do with productivity at the margin, Keynesian economics says it’s to do with how much people are buying, the level of demand. But neither of them will say it has anything to do with the profitability of capital as such, or the level of exploitation of the workers, because that’s what it really boils down to. They don’t want to consider that this is a society and an economic organization based on the exploitation of the many, for the few. Because that is something which is not really acceptable in the eyes of those people who wish to preserve the status quo.
Yes, the heterodox people will say “well, things are unjust, there’s too much inequality, there’s reckless behavior by banks, we need to regulate that and control that,” but they don’t want to change the actual way in which the system works, which is production for profit. Joseph Stiglitz, who’s a big American heterodox economist on the Left, has written two books now in which he says that what we must do is “change the rules of the game,” because the rules of the game have been distorted since the Golden Age — which no doubt existed in his mind — when everything was fairly equal and the rules of the game were right. But they’ve been distorted by the monopolies, by the rich, and so on. They’ve changed the rules, so it’s not fair, the game’s not fair anymore.
My position is that we don’t want this game! It’s not a question of the rules — this game of production for profit is what is wrong, and that is the fundamental distinction between a Marxist view of the economic situation and the others.
TM: Since we’re on the topic of the difference between bourgeois economics and Marxist economics, how would you distinguish Marx’s labor theory of value from that of David Ricardo?
MR: Well, it’s a very important question, Tommy. We’re getting down to some of the details of how Marx and Engels came to the view that they did. They started off by reading what were called the classical economists of the time, which was the early 19th century, people like Adam Smith, David Ricardo, James Mill, Thomas Malthus. These were, as you like, the “rockstar” economists at the time, insofar as we can give an attribution to economists as being rockstars. But they were the ones who were regarded as taking the science of economics forward the most, in particular David Ricardo. Both Ricardo and Adam Smith took a very important view, which was dropped later on by mainstream economics, which is that value is really set by labor, by how much labor-time goes into something.
If you think about it, it’s really self-evident, as Marx said. Why is an automobile $20,000 and a ballpoint pen $2? Obviously it’s not just to do with the fact that some people would want to spend $20,000 on a car and only $2 on a pen. Saying that still doesn’t explain anything. The point is that a pen takes way less time to produce in labor-hours than an automobile does. Fundamentally, that’s the difference between the two prices. The automobile’s price is fundamentally set by the amount of labor-time that goes into the factory, its raw materials beforehand, and then the hours spent by the workers, compared to the amount of labor-time that goes into the production of a ballpoint pen. The labor theory of value says that this is the way we should try to measure or value things. Why ought we value things? Well, if you have economic transactions going on, and people are buying and selling with each other, or going to work for a certain value, you need to know those values. And the only way in which society can understand that process is through the idea of how much labor goes into it. Productivity of labor is the key to the development of society. And measuring the value of anything, at least in a capitalist economy, when we’re trying to price things, the only way we could do that effectively is by looking at how much labor-time goes into it.
Ricardo and Smith agreed. That’s how they saw the process. The difference between them and the Marxists is that they weren’t prepared to accept the idea that there was unequal exchange going on in the labor process between workers and capitalists. That was something that was going too far for them. One of the reasons that the labor theory of value was dropped by mainstream economics was that Ricardo and Smith’s position tended toward the view of recognizing that clearly workers were producing everything that was worth any value, and, more than that, they weren’t getting the full return on the value of the hours they were putting in for the capitalists. The private ownership of the means of production and the ability to employ the mass of people who had nothing else but their own labor-power to sell were ideas which were going too far for Ricardo and Smith to consider.
Therefore, there came a distinction. Ricardo then got into a position where he was basically saying that everything is measured by the value of labor-time —fair enough — but also that the price of a commodity exactly equals the value of labor-time going into it, which isn’t the case. There is competition going on between the capitalists; they are competing over the amount of value that is being produced by workers, and through the process of that competition, and depending on how efficient they are, some capitalists steal value from other capitalists (but all that value is ultimately coming from the workers). So there’s a difference between the price of production in the market and the actual value of the labor-time.
Those are two ways in which Marxist economics disagrees with Ricardo. First of all, there is surplus-value. There is exploitation going on in the labor process. Ricardo and Smith don’t agree with or notice this. And more importantly, because of the competition between capitalists, there tends to be a differentiation between the price of products on the market and the value of labor-time going into them. That process of differentiation leads to the movement of profit and capital as a result, because that’s what capitalism is about: it’s about exploiting workers and competing with each other to get the biggest share of the profit.
JM: If we could shift to a more touchy subject… you’ve taken up a position on the law of the tendency of the rate of profit to fall that some find controversial — particularly followers of Michael Heinrich and Paul Sweezy. Why do you think it’s worthwhile to defend this element of Marxist crisis theory?
MR: Well, this is a very important point, Josh. Obviously, this is something that some of my critics say: “It’s all Roberts ever talks about, ad nauseam” — and partly I’m sure that’s true, really, in a way. But because the majority — well, we’ve just discussed how the mainstream and the heterodox economists don’t consider profit at all, on the whole — but most Marxists, looking for an understanding of the contradictions in capitalism and crisis and so on, also don’t really accept the law of the tendency of the rate of profit to fall. The majority of Marxists. That was certainly the case up until the middle of the 20th century and even later. If we took a vote of Marxist economists — those people who consider themselves Marxist economists — I don’t think I’d get a majority for the law of tendency of the rate of profit to fall as being a fundamental and ultimate cause of crises under capitalism.
So, it’s a minority view. Why is it a minority view? Well, there are lots of different reasons. Historically, there’s a very good reason: most of the socialists in the late 19th century, those who adopted Marxism, had not read Volume III of Capital. For your readers, if they don’t know, Marx’s law of the tendency of the rate of profit to fall is primarily expounded in a few chapters of Volume III of Capital. But it hadn’t been published in any language until 1895, so quite a number of “top Marxists,” if you like, of revolutionaries and so on, had not read Volume III, and didn’t grasp its connection with Volume I, to which I think it is closely connected. I urge people to read my short book on Marx, Marx 200, which outlines the three key laws of Marx’s economics. There’s the law of value, which we’ve discussed, the law of accumulation, and the law of profitability, as I call it, and I think they’re all linked together and lead you to a better understanding of the process that’s going on in capitalism which leads to regular crises.
So that’s one reason, historical. Another reason, I think, is that there was a pressure to accept the idea that rather than profit being the problem under capitalism, it has to do with Keynesian demand, too much or too little demand, or inequalities, or financial fragility, and so on. These are theories which, in my view, come from mainstream or heterodox economics: not accepting the idea of profitability and exploitation, and looking for other reasons why there are crises in capitalism. Particularly in the postwar period, in the Golden Age where capitalism seemed to be doing fine, the idea that there was a possibility of a crisis based on lack of profit seemed pretty unlikely. There was a tremendous pressure on people — like we’ve just mentioned — to adopt a more Keynesian point of view.
And now we have, generally, I’ll say the majority of Marxist economists have an “eclectic” view of crises. They would say: “well, yes, profit is part of the process, inequality is part of the process, lack of demand is part of the process, financial fragility is part of the process, they’re all part of it. Sometimes a crisis is caused by a property slump, sometimes it’s caused by an oil price boom, sometimes it’s caused by inequalities and a stock market crash.” My reply to that is, well, on the surface that’s true. But is there no underlying, fundamental cause which produces recurring and regular crises in capitalism? If we don’t have a theory of an underlying cause, we don’t have a Marxist theory of crisis. If every crisis is different and has a different cause, then there is no fundamental cause which can explain crises that are regular and recurring. And when they’re regular and recurring, that implies that there is some sort of underlying cause.
Marx’s law of the tendency of the rate of profit to fall, I think, provides us with the basis of understanding that as capitalism expands and accumulates (and as capitals compete with each other), it tends to invest more and more in machinery and technology relative to what it invests in labor. If, as we’ve just discussed, labor is the only source of value, then the value being created is less and less relative to the amount of investment that the capitalists are making as they compete with each other. So there’s a tendency for the rate of profit to fall; it doesn’t always apply. Those who read my blog can see the figures and they can see it’s not always a straight line down, it goes up and down and all over the place in line with counter-tendencies, which Marx talked about, but when we do get into a position where there’s a sustained fall in profitability, and then there’s a fall in the total mass of profits, there’s always a slump.
Only about three months ago, I once again looked up all the crises since 1945, in America and elsewhere — the major economies — and every time, one year before the crisis, profitability begins to fall, and quite often the mass of profits actually goes down, and you get a slump in investment, and a slump in consumption. The opposition view is that the cause is a lack of spending, a collapse in consumption, or a financial crash. Every time, if you look at all those crises, consumption didn’t actually fall very much before these crises happened. What fell was business investment: capitalists stopped investing, they went on an investment strike. Why did they do that? Because they found that their profitability was not coming through as strong as they’d hoped, and in fact was beginning to fall, so they stopped investing, they stopped buying new machinery, they stopped buying more materials, they eventually laid off their workers, and then there’s a consumption fall — if workers don’t get paid and they’re unemployed, then you get a consumption fall.
In the current COVID pandemic, if the US government and other governments hadn’t given a paycheck to everyone struggling through the last six months, there would’ve been a massive slump and increase in unemployment because of the shock of the collapse of business investment in production. This time, in COVID, it’s not being caused necessarily by a fall in the rate of profit, although that was happening; it was being caused by this need to close down production completely because of the health risks to millions around the world.
TM: To continue with this line of questioning about the tendency of the rate of profit to fall, what lessons should political organizers — I would say explicitly Marxist political organizers — take away from the tendency? What should people do with this information once they get their hands on it?
MR: Well there are two things, I think, Tommy. First, you should be checking, all the time, what is happening to the profitability of capital and the mass of profits. Because that’s your key indicator for what’s going on, in the economy that you live in and globally. Now, of course, getting the data right and having it available so you can make a judgment is the struggle of any science. I can tell you that when we try to measure the rate of profit, six other Marxist economists say I’ve got it wrong and I tell them they’ve got it wrong. So we’re all arguing about — just like scientists do, in my view — trying to get the right data, to get a clear result, to either confirm or refute what we’re thinking. But what’s happening to the profitability of capital in any economy is crucial, and it’s the best indicator for everyone to see what is going on. So that’s why you need to analyze it all the time.
The other important thing about the law of the tendency of the rate of profit to fall is that it is telling you that there is no way out for capitalism by some sort of economic policy except for a short time, for a brief period. Because it’s saying that even if the government spends a load of money, like it is now, and it hands out paychecks, tries government spending, as long as you have an economy which is still predominantly a capitalist one — big companies producing for profit — then that’s what’s going to happen, eventually you’ll go into another slump as profitability goes down. Only in an economy where profitability doesn’t dominate could you be in a position to avoid crises. That’s what the law is telling you.
It’s very important with regard to alternative theories — think about the Keynesian theories that workers don’t get enough wages or consumption is down, and they say: “Okay, let’s pay workers wages! Much, much more! Let the government spend money and boost consumption!” and that should end crises forever, shouldn’t it? Well, that was the view in the 60s, with the Keynesian theory, but it did not — crises came back with a vengeance, and of course there’s a very good reason why paying workers more won’t solve the problem, because that means less profits for the capitalists. And if we have a capitalist system which only works on the basis of profits, that will only squeeze the situation even worse. As Marx said, one of the key indicators sometimes that you’re going to have a crisis is when wages go up, because it means that profits of the capitalists are being squeezed further, and that will force them to act in a way which will try to reduce those wages and that employment.
So theories that suggest that we can solve it within capitalism are only available as long as you don’t accept the law of the tendency of the rate of profit to fall. That law is the most effective and convincing way to demonstrate — as Marxists attempt to do — that capitalism cannot meet the needs of people and will continually go into a series of crises, one after the other. At the moment, every eight to ten years or so we get a slump. If you look over the last 60 years, the growth rates of most capitalist economies are slowing quite severely. We’re now talking about, even before the pandemic, 2 percent growth rate maximum in the major economies, and 3 percent to 4 percent in the other so-called “emerging” economies. That’s well down from the average rate we used to have in the 60s, 70s, and 80s. And then, if you measure the rate of profit against the rate of GDP growth of these countries, there’s a very close correlation. So that increases my confidence that this is the indicator that we have to look at.
JM: Do you think that the decline in the rate of profit and the inescapable relationship between rising wages and lower profits precludes the possibility of a return to postwar social democracy? Because that’s become a very popular position on the Left, in both the UK and the US, with Corbyn, with Bernie, with proposals like the Green New Deal. Even if those movements are able to take power, do you think they would almost be doomed because of the dynamics of capitalism? That robust social democracy just couldn’t work in our situation?
MR: I think what tends to happen is these social democratic movements, even the more left-wing ones — I mean, by the standards of British social democracy in the postwar period in the last half of the twentieth century, the Corbyn position was pretty left-wing. Certainly the mass of his supporters considered themselves socialists. Now, maybe the policies that were being proposed were nowhere near enough to achieve what they had in mind, but that’s what they think. And maybe that applies, if you like, to the Sanders wing of the American Democrats and the whole layer of people in America, the young people who want to see socialism, as they understand it, and perhaps as they think we understand it. But they still don’t have a clear idea of what’s going on under capitalism or what program is needed to do that, what activities and strategy are necessary to achieve that.
But that’s the argument that takes place in the political movement all the time. I think the answer to that is that in crises, often these social democrats come into power. Not recently, as we seem to have populist reactionaries, but you can have social democrats come to power. Yet they’re immediately in crisis, because capitalism must be in crisis, so capitalists apply tremendous pressure on them to meet the demands of capitalism rather than the demands of the followers from which they’ve been elected. That’s a tremendous pressure, which historically we’ve seen over the last 100 years or more, leading to the collapse of these governments, and either a situation which leads to revolution, occasionally, but more often leads to the return of reactionary governments.
More on an economic plane, though, think about this: why was social democracy so strong, say, in the postwar period, the 50s, 60s, and 70s? It’s because the profitability of capital in major economies was relatively good, pretty high after the Second World War. They were able to make concessions to the labor movement — they didn’t want to give them, but they were pushed to do so, and so a lot of people got social services. In Britain, for example, we have the National Health Service and various other things, and that was through the pressure of the labor movement. The ruling class and the capitalists knew if they didn’t make these concessions, they’d be in real trouble and in danger of losing power altogether.
So, social democratic governments appear to be successful. I just read a book by Thomas Piketty, who’s a French economist — he’s written a second book called Capital and Ideology last year, which is 1200 pages long, and I can’t compute at that length. But in that book, basically all he is saying is: “Why has everything become unequal? What happened? Why did the social democrats appear to stand for equality, social equality, and all the rest of it, and now they just stand for equality of opportunity or education?” And he says, “Oh, it’s because the social democrats were so successful! Everyone became better off and then they no longer needed an ‘equal’ position.”
I don’t think that was the case. I think the reason why the social democrats got thrown out and lost power to neoliberal governments from the 80s onwards, was because the crisis of capitalism was so serious, with falling profitability particularly in the 1970s, that the social democrat program of a mixed economy, of consensus between workers and capitalists, no longer worked. Capitalists couldn’t accept it — they couldn’t afford it! They had to get rid of that. So we’ve seen, for the last 30 years, a gradual removal of all the gains made in the 50s and 60s in the welfare state — not just particularly in Europe, but also insofar as you have it in the US, the same thing.
We’ve seen the collapse of the trade unions — which are a bastion of social democracy — and all of those situations have collapsed, and social democracy has failed. Can it be restored? Well, there is one possibility: that is if you accept the idea that maybe, if capitalism has a serious enough crisis that it depresses the level of costs so much that it’s putting workers out of jobs, introducing automation and robots that can dramatically increase the profitability of capital, then they can have a new lease on life for ten, fifteen, or twenty years, like they had in the 50s and 60s. In that situation, they might be able to make concessions, in which case the social democrats — the party and ideology of concessions — can revive itself perhaps, in a progressive way, with some improvements for the average worker.
In some ways I would like that, because I think if we could restore some strength and confidence in the labor movement, we’re well-positioned to struggle when capitalism gets into crisis again — because it will! At the moment everything is very depressed. Workers are crushed, unions are crushed, everybody’s just trying to make ends meet, they’re not thinking about dramatic changes. Yes, there are young people radicalized looking to make change, but the bulk of workers and their families are just trying to make ends meet, really, and they don’t feel confident that the unions can do anything for them. They don’t think the parties could do anything for them. So this is a very depressed situation, like it was — in my view — in the 1880s and in the 1930s. If that were changed by the situation, if capitalism had a new lease on life, that could also give a new period of confidence for new sets of workers in different industries than in the past: young workers in tech, in other areas that will be automated but will become very important and vital to capitalism.
But I don’t know. We still seem to be stuck in this depressed situation at the moment.
TM: So to sort of jump off that question with a related question about government intervention and the economy: do you think that central bank intervention has been more effective in staving off or limiting crisis than you expected? What reason do we have to believe they can’t simply prop up the economy indefinitely? What sort of limits are there on their ability to intervene?
MR: It’s an important question, Tommy. I think that what we’ve seen is that, well, the capitalists aren’t idiots, are they? They’ve seen crises in the past, serious slumps, they wish to avoid those serious slumps. How can they do that — without, of course, losing the position of capitalism as the dominant mode of production? Their economists and officials are looking for ways in which they can ameliorate the crisis and get through the crisis without a serious slump.
Back in the Great Depression of the 1930s, the officials of the administration before Roosevelt were in favor of what they called “liquidation,” which said: “let all the small companies, the weak companies, go to the wall. Let’s cleanse them out, cull them out (like the minks are being culled in Denmark). Clear them out so we can have new, fresh, green roots, the strong can take over and take the economy forward.” This process, which Austrian economist Joseph Schumpeter called “creative destruction,” is what they had in mind. Destroy the weak, and Schumpeter thought this would mean that young companies would come forward and replace them. But actually what it would mean is big companies would replace the small and go forward, and then capitalism would have a period of growth again once they cleansed the waste and garbage out of the capitalist system.
Of course, while they’re doing that, millions of workers go unemployed. But this time, in the 21st century, the capitalists are reluctant to go down that path. They fear that it wouldn’t work or they fear that it’d be so damaging that they could lose political control. So they’ve looked for other ways to ameliorate it, one of which is to just flood the economy with money. Now that sounds great, but I have noticed that my letterbox hasn’t been full of cash much! What that tells me is that most of this cash, this printing of money or creation of credit, has gone into the deposits of banks, and they have been told to go buy government bonds or other bonds in order to spread this cash into the economy, and this way the economy will get some demand growth and that will give companies the opportunity to maintain their workforce and so on.
What has happened is two things from the central bank monetary injections. First of all, it saved a load of small companies that otherwise would have gone bust. These companies aren’t making any profit, they’re barely surviving, they’ve got a lot of debt. But if to borrow is virtually 1 percent or less — very low levels of cost to borrow — they can borrow more money to pay for the debt they've got now and keep their workers on, more or less, without really growing or expanding. So you’ve got these companies called “zombie companies” — they’re the economic undead. These companies haven’t died, but on the other hand they’re not living or expanding. They’re just in a zombie state. And according to the latest figures, there’s something like 20 percent of companies in the advanced economies who are in this position; mostly small ones, but not all small ones. So what’s happening instead of liquidation is that we have zombie companies, which has meant that we haven’t had huge unemployment — in fact, unemployment before the pandemic was at all-time lows in most of the major economies.
And the other thing is that central bank money is not really going into businesses so that they can invest. It is either being hoarded by the big companies like Amazon and so on, they’ve got big huge cash hoards, or you’ve seen what happens with small companies, the money is just to keep them going, or it’s gone into speculation in the financial market. Huge, cheap borrowing means that the stock market has rocketed, the bond market has rocketed. So it’s gone into the financial sector instead of the productive sectors of the economy. So that is different from the 1930s — we currently have an economy which has not collapsed, but up until the pandemic, was completely sluggish, depressed, growing at very slow rates, 2 percent. Employment’s there, but most of that employment is on poor wages, temporary jobs, semi-permanent jobs, not really jobs that are going to give you skills which you can have a career out of. And there are hundreds of thousands, millions of companies just staggering along, not really disappearing. So there’s no creative destruction, and in fact there's this depressed state. That’s the difference, that’s what the central bank money injections have done. It’s not worked to revive capitalism. But it has stopped it from collapsing into a meltdown as we saw in the 30s.
JM: With regard to banks and finance capital, you’ve criticized the explanation of the current economic situation in terms of “financialization” and the shift away from the real, productive economy toward fictitious capital and finance capital. What issue do you take with that framework, and how would you explain the difference or divide between productive and finance capital?
MR: I think it’s an important distinction to make. I think Marx made this distinction that, as we’ve discussed, all the value in a capitalist economy comes from labor, going to work and producing that value. And that’s in what we would call the productive sectors of the economy. There are some sectors of the economy which don’t actually create any value. Finance doesn’t create any value. What does it do? It just redistributes the value that’s been created in manufacturing and industry and so on, and other services where there is value being created. Property doesn’t create any value. What does it do? It redistributes what people have earned from the productive sectors, either through getting a mortgage on a house or owning property and so on. These are redistributive areas. Insurance doesn’t create any value. It’s just insuring whatever else is being produced in the productive sectors, so it’s taking a cut out of that. So all of these sectors are taking a cut out of the total value produced in society, or the surplus-value controlled by the productive sectors.
But these sectors are necessary to capitalism, at least to a great degree — they need insurance, they need property to be redistributed, they need a financial sector in order to distribute credit and distribute the surplus-value being produced. Another unproductive sector, of course, is government. They need the government to control the population, to carry out wars, to make sure that the police are on the streets dealing with ruffians like yourselves. They need the state to protect property, above all, and to protect the system. Those are unproductive sectors, they don’t produce value, but they’re necessary. Other necessary things which are unproductive? Well, the health service, or education, insofar as they are in the state sector — in the private sector, they’re actually productive because they make profit for the capitalists. If they’re in the public sector, they’re unproductive for capitalists, which is likely why they like to privatize them. But they are necessary, because unfortunately we cannot get any value out of the workers when they drop down dead or get ill, or don’t have enough food. And if they’re not educated enough to do the job of turning on the camera for Zoom, then they’re no good to us. So capitalists need those unproductive services. So there’s the distinction between the productive and the unproductive.
Getting back to your original question, there’s a view — and it really comes back to the earlier discussion we had — that the crises are not being caused by this profitability crisis that Michael Roberts and all those other idiots keep talking about. Can’t they see what’s standing in front of them? These huge banks, these huge financial institutions, which are acting in the most reckless manner. More than that, the productive sectors — the Amazons, big car companies, airlines, the industries — they’ve become more or less finance companies. They’re not really productive anymore, they’re just doing financial transactions, speculating on the stock market, trying to get interest from their loans, building up cash and so on. They’re a bit like the banks now, so there’s no distinction between the banks and the productive sector.
Now, there’s a certain truth in that. There clearly has been a merger between the financial sectors and the productive sectors in a way that we’ve never seen before, certainly on an international level and an imperialist level. But does that mean that therefore, to find the cause of crises, we should look at what’s going on in the financial sector and its instability, and forget about profitability of the productive sector? That’s where I stop short of agreeing with the financialization thesis. It is still the case that profit comes from the exploitation of workers in the productive sector, and then it gets redistributed. If that starts going down, it doesn’t matter how “clever dick” the financial sector is, or how much money you’re getting from interest — that will collapse eventually in the end. And on my blog I try to show that on regular occasions. Rather than use the term “financialization,” I prefer to use the idea that speculation is a “fictitious” capital — actually, it was Engels who first came up with that phrase — namely, that people are investing on the hope of getting more value by investing in stocks and bonds and other financial instruments. The idea that this is now the dominant way in which society runs is not correct, though it’s a big proportion. One figure: financial profits before the Great Recession of 2008 in the US reached 40 percent of total profits. That’s huge. That would demonstrate a large section of profits were being made in this unproductive sector. But it was still only 40 percent. So 60 percent still had to be made in the productive sector. Now the position is down to 25 percent for the financial sector. And then if you look at some of these big companies that are supposedly completely financialized, when you look at the money they get from financial sectors — interests, stocks and bonds — it’s actually still a very small portion. General Motors has a financial sector, but it doesn’t make its money from the financial sector! It still gets its money from selling cars. That’s its purpose. It’s not become a bank yet; it has a banking sector and does all that, but it’s not a banking institution. So the unity between the two sectors is not to the point where the productive sector is no longer relevant. That’s where I disagree. A lot of Marxists and leftists say “the financial sector is where the crisis is.” No. If we want to analyze where the crisis is gonna come from, it’s what happens in the productive sector.
TM: So to change tack a little bit and get back to our friends Karl and Friedrich, you just wrote a book called Engels 200. It discusses Engels’ contribution to the Marxist critique of political economy, particularly the study he published when he was 24 on the conditions of workers in Manchester — and there’s also a very good talk that you did that you did with Camilla Royle for Historical Materialism on Engels, I’d recommend everyone check that out — so would you mind talking a little bit about the influence of Engels’ work on Marx, who described himself as following in Engels’ footsteps, and also the ways in which Marx progressed beyond the foundation provided by Engels?
MR: I think poor old Friedrich Engels has been neglected and often condemned by socialists. Nobody really knows what Engels wrote — they hear all about Marx, they don’t know much about Engels. Some of the academic Marxists say you don’t need to know anything about Engels, because he distorted everything Marx said, and he had nothing useful to say, and he actually caused Stalinism to come about — that’s the more extreme version of that assessment. My book doesn’t go into those questions in great detail, but what it does do is just let Engels speak for himself. It’s a short book. What we show is that Engels, who became a close collaborator and friend of Marx in the 1840s, spent most of his time working as basically a senior manager for the capitalist firm in Manchester that his father owned. But he used all that money to keep Marx going down in London while Marx was in a state of poverty, that was the situation between the two of them. But before he ended up in the firm, before 1850, back when he was in his 20s and 30s, he was actually the first person to start to analyze capitalism from an economic point of view. He was the first Marxist economist. In the early 1840s he wrote a critique of the political economy of people like Smith, Ricardo, and so on for the first time; Marx didn’t do that until much later. In there, he outlines some of the basic points of Marxist economics. So if there was anyone who started with it, it was Engels who was the first Marxist economist.
Later on he wrote a really tremendous book called The Condition of the Working Class in England which describes the shocking social conditions that existed in the Industrial Revolution cities of Northern England, which were sprouting up across England, which was the epitome of industrial capitalism at the time, in the 19th century. That book not only discusses those shocking conditions, but also it looks at the labor process and shows how unemployment comes around periodically with cycles of crises and so on. So there’s lots of important economic points he makes. Then he spends the next 20 years, basically not writing very much. What he did do was write all Marx’s articles for The Tribune in America and so on, who was employing Marx as a journalist. Marx never had time for that, he was too busy doing God knows what — mostly in the British Library — so Engels wrote a lot of those articles and sent them across (to America). Because Engels was a bit of a military expert, he was able to talk about the American Civil War and who was going to win the battles and so on. He did that for a bit, but basically he worked in Manchester. Then he retired in 1870 and started his economic studies again. He developed a number of important ideas your readers ought to be aware of. First of all, he developed the idea that there are cycles in capitalism — that it is going to boom and slump and so on — and he tried to measure that in terms of the turnover of capital. He also explained much more clearly the law of profitability, which I’ve been talking about. And, most importantly, he edited all of Marx’s writings and manuscripts, which were hidden in a drawer when Marx died in 1883 — because only Volume I of Capital had been published then, and not even in English, only in French and German. Engels edited all the later works called Volume II and Volume III, Volume III containing the law of profitability, which I think is so important, and he defended those works against all comers who attacked them.
And after he also made some startling insights into the nature of capital. We talked about “fictitious capital” — that term was invented by Engels: the idea that capitalists start to invest in stocks and bonds rather than productive sectors, and speculate, and they have these new big companies develop in the financial sector. And, the rise of imperialism — he said, what was happening now, in this depression in the 1880s, is that the capitalists are increasingly struggling with each other, and we’re going to see a battle: an imperialist battle over control in the colonies and the world between the major imperialist powers. And he said, this probably was going to lead to a world war — a conflagration we’ve never seen anything like, where millions will die. It will be a military war of major proportions, which may open up opportunity for revolutions afterwards. And of course, that was a very close and insightful view of what happened in 1914. So, a lot of things that Engels said have been forgotten, and we can learn from those now in addition to what Marx has said, and not just in the study of economics. I haven’t dealt with his view about the relationship between humanity and nature, where humanity came from —how it developed from an ape, if you like — that biological process, the changes in societies and nature in those societies. He deals most effectively with the role of women in society and how they were oppressed. And he also deals with the relationship between humanity and nature and what we see now in environmental destruction — COVIDs, plagues, all that. All of that is in Engels. Read it.
JM: There’s a popular notion that there’s now a “professional managerial class” (PMC), which often in actual use seems to be just a fancy term for the middle class. What do you think of the notion that this PMC is truly distinct from both the proletariat and the capitalist class, an in-between group, which also has an ambiguous relationship to the petit-bourgeoisie?
MR: It’s a theory that’s been around for a bit; it was back even before the Second World War. A view was expressed that the development of American capitalism and the development of big companies where the managers take over — we look now, with chief executive officers and their huge salaries, and the boards, the management and so on — are these the owners of the companies? Well, not really, because the CEO, he makes hundreds of millions, but he doesn’t actually own the company. Family companies don’t really exist; they’ve developed what used to be called joint-stock companies, or if you like, publicly-quoted companies, companies quoted on the stock exchange. And millions of people own shares in Facebook or Amazon, General Motors… but do these millions of people control the companies? Now the managerial-class theory says “no they don’t, the managers control the companies,” and the managers are virtually a separate class. They just pay perfunctory interest toward the shareholders — really, they’re running it for themselves, they’re buying their own shares, accumulating their own richness, and making decisions on the basis of what’s in their interest as the managers, and so on. Again, with all these theories, there’s a certain sense of truth in that — managers are making decisions in their interest and in their share options. But fundamentally, when it comes down to it, they have to deliver profit for that company and for the shareholders. And if they don’t deliver profit, the company will go down, the share price will collapse, and they’ll be out of their jobs, and also the company could go to the wall. So profits still rule.
Now the question is, does that mean that managers control the company, and somebody else controls the profit? Well, it’s a combination of both. If we look at the shareholding control of all the major companies, we can find that they are actually controlled by other major companies — one bank, say, has 8 percent of one company, and 4 percent of another company, and that bank, in turn, is controlled by maybe 2 or 3 other financial institutions. There’s a huge interlocking of companies. The Swiss Institute of Technology worked out that there were 700 companies in the world — just 700 — that controlled 56 percent of all the company assets in the world. That’s how concentrated and centralized it’s become. Now, the managers don’t control that; that’s controlled through this interlocking process of the shareholders, and the big institutions. So I don’t accept the answer that the managerial class is now a separate force any more than the capitalist state is a separate force from capitalism. The capitalist state has a certain independence and will do things that it believes are in the interests of capitalism — or maybe not in the interests of capitalism, as with the case of Brexit in the UK — but in the end, it has to do things that represent and support the capitalist mode of production and keep it in place, and keep the system going. And that’s the same thing that applies to senior managers. We’re not talking about middle managers — middle managers are just well-paid workers who think they are managers and different from the rest of us, but they’re not, really. They put in the hours and they hope for the best. But the senior managers, with their stock options and so on, are virtually interlinked with the capitalist system. They’re major shareholders too, but they still have to depend on maintaining the profitability of the companies of which they represent.
So there is an argument, which I believe falls to the ground when we think of it that way, that this professional management is actually a separate class and they're making decisions that are different from the interests of the bourgeoisie. There is a theory out from the French Marxists Gérard Duménil and Dominique Lévy who say that the old capitalist order is gone, and that the next period is one of managerial rule — the managerial class will take over and they will be making the decisions, and the old form of capitalism is gone. And this managerial rule, unfortunately, they say, is actually an improvement. Well, I’m not sure we would even accept it as an improvement, but also I don’t think factually, if you’re looking at it from the point of view of what’s going on in the world economy, that it is correct.
AM: Is there anything else you’d like to touch on or mention?
MR: I would say we’ve had a really bad year — when I say we, that’s the majority of people, of course… certain people are making billions, but they’re a small number. The rest of us had a really bad year. 2021 could be a really tough year as well, so it’s important that readers and the rest of us really try to understand what’s going on, and make sure that we can play a role in explaining what needs to be done in order to get a better society. Don’t give up the battle.