In response to Nicolas D Villareal’s letter regarding my article on the deteriorating US economy and the AI/Everything bubble,^[1] I thank him for highlighting the importance of providing “analysis of political economy… geared towards the most general audience possible”, which is what I obviously aim to do. His criticism is equally welcome – scrutiny can only help to sharpen, clarify and, where necessary, correct the argument.

I am happy to take constructive criticism on the chin, but I think Nic’s reflexes may benefit more than mine on this occasion. My response is (I’m sure, eye-rollingly) long; but hopefully the importance of why I’ve answered so thoroughly becomes clear as you read on.

Debt

It should go without saying among economists that an accelerating rate of debt accumulation “does not necessarily entail an impending crisis” because, as I think Nic is implying, the rise of debt plays a major role in staving off a recession, since debt obviously extends economic activity either where the realisation of profit is lagging or because real profit just isn’t being made.

I did not argue that a crisis is imminent, however, nor base that argument primarily on the debt problem. I argued that the crisis is already unfolding based on recession-associated levels of job losses; unemployment time that is 30% longer than in the run up to 2008; record high bankruptcies outside of an official recession; protracted falling productivity growth; and negative or flatlining GDP growth in the majority of US states.

A ‘total collapse’ of capitalism may or may not be impending – I explicitly say at the end of my article that the struggle for socialism will be unavoidably long – but a deep recession, as I said, “appears to be underway”. If it is somehow staved off yet longer through more debt accumulation, the depth of the crisis will only be deeper when it finally hits.

Most people have, of course, already in most regards, apart perhaps in terms of technological consumption, experienced declining living standards since 2008, while GDP has been growing absolutely, since capital accumulation has depended more and more on transferring public funds into private profit, including via bailouts, ‘austerity’ measures, and corporate tax cuts. Even if GDP per capita has tended to rise – even for say the poorest 60% of US households when the top 40% are excluded from the calculation – that is a poor measure for a real-world analysis when the quality and affordability of goods and services have so obviously and sharply declined. Not to mention that people are having to work harder for longer to keep food on the table and their employers solvent.

Pointing secondarily to the debt of course adds context to the extent of the crisis. While a stronger economy is obviously more likely to be able to sell debt more readily than a weaker one, high and accelerating debt levels are not a sign of economic strength, since sufficiently high levels of productivity and profitability lower the need to borrow.

Nic says “there is no certain level of debt at which everything will suddenly collapse” but again I did not say that there is. Having said that, perhaps this is only true in terms of our capacity to calculate or predict such a level. There must be some “certain level” at least within some certain range. To suggest that there is not is to make the unserious claim that the economy can accumulate as much debt as it likes without ever having to worry about the consequences. That means by definition that a certain level of relative debt will become too much to bear. Indeed, in any honest estimation, the total amount of private and public debt combined is already unrepayable, leaving the economy looking like a game of Jenga: public wealth, the real foundation of a functioning society, is pulled away to fill in the gaps in the top-heavy private superstructure. Extraordinary debt levels rise in place of an extraordinary underproduction of profit – a self-evidently mounting problem for a system dependent on profit-making. A profit-dependent system cannot go on underproducing profit

As in Hegel, a critical threshold of mounting quantity generates decisive qualitative change. A ‘certain’ straw will be one too many on the back of a camel. A few studies have found that interest rates tend to be higher in economies with higher debt, particularly once debt has surpassed 90% or 120% of GDP, depending on which study you read. The US economy is in a situation where it has to take on more debt to pay old debt that is coming due, and it is now having to do so by borrowing new debt at interest rates that are significantly higher than the rates that were paid when the old debt was issued. That obviously means the annual deficit is tending to widen and the overall debt pile is tending to rise at an accelerating rate. Lenders to the US [federal] state therefore have increasing cause for concern about the US’s capacity to pay interest and repay loans. As such, lending to the US is getting riskier and so lenders are tending to demand higher rates, doubly compounding the problem because an increasing portion of issued debt goes unsold, reducing the size of the state’s budget.

The US state then either has to increase taxes, making (at least some) workers and businesses poorer – an expression of partial collapse (or total collapse for those who go broke as a result). Or it can cut spending elsewhere, from education and food stamps, for example; or from subsidies that keep certain businesses afloat: again, an expression of collapse for those affected. The last option – and of course all three are continually leaned on to various degrees – is to have the Federal Reserve lend the difference into existence by buying government debt from banks and corporations. (They could just print the money without buying debt, of course. Things haven’t gotten that desperate yet; and in such a case hyperdeflation might be considered the better of two extremely bad options.) Expanding the money supply though is likely to devalue money’s purchasing power if real output does not keep up with demand – including the value of debt lent to the government in the past, since the same amount is paid back with money that is now worth less; and the fixed rates agreed mean yields are devalued as well. That’s effectively a government default through inflation – a partial collapse for the income and living standards of lenders; again making their willingness to buy debt lower along with the US’s credibility. (An expanding money supply is not the only factor in a currency’s devaluation, of course. Nevertheless, the US dollar has lost 98% of its purchasing power since 1971, during which time the broader M2 supply has increased by around 3,400%.)

This scenario is what market watchers expect to happen because this is the only way things can go unless the US government just decides not to pay what it owes. In that case lenders would lose their loans and the US government its ability to borrow, at least to the same extent, drastically shrinking its budget and its ability to support private capital through the bailouts, subsidies, grants, etc the latter is so (increasingly) reliant on.^[2] And so hedging against a massive devaluation of the US dollar has become the order of the day.

Gold has raced past its inflation-adjusted record set in January 1980 – by some 40% – and silver, having more than trebled in two years to a nominal record, hasn’t been far behind. In 1980, US inflation peaked just two months later at 15%; and the Fed’s interest rate peaked at 19% in May 1981. This scenario is what we may be heading into again now, only to an evidently greater degree. Government debt-to-GDP in 1980 was only 30%; and interest rates of 5% today already ‘feel’ more like what 15% would have done in 1980 since households have much more debt and higher expenses relative to income. On 30 January, the price of gold and silver suddenly dipped (by around 20%, to the level they had been a week earlier) – possibly because of rising expectations that Trump is going to take control of the Fed and lower both its interest rate and level of spending – so we may soon find out. With the volatility of all markets these days, though, we should not be surprised if there’s another surging upturn, especially if the Fed’s falling rate or a spike in oil prices does catalyse higher inflation.

Inflation would bring the ratio of the debt and debt repayments down but most people would of course get significantly poorer – an expression of at least partial collapse. Even if (some) wages catch up to inflation, savings will be eroded in the meantime.

Higher rates may be taken advantage of by transferring money out of production and into lending – if profit rates or margins are lower, as is likely – which then weakens the actually productive economy, upon which real wealth depends.

Banks and loans

As Nic points out, banks have had higher reserve requirements since 2008, and compared to the ratio of loans to ‘safe’ cash (government debt) “while rising is still at historic lows, lower than at any time between 1973-2008”.^[3]

Nic is looking at things upside down here. A high level of loans to bonds would signal a relatively high amount of profitable investment opportunities in production – people and businesses seeking loans to invest with the expectation of gaining a larger return, with banks in agreement and therefore permitting such loans. A low level then signals the opposite. Indeed, the figure trends up before every recession and peaks in 2008, since a recession is a process of devaluation that then makes investment more affordable; and inflation and interest rates were trending down throughout that period. Now the debt that that period of falling rates relied on has accumulated to a level that is catalysing a trend for inflation and interest rates to rise. A greater proportion of money is being invested in cash and financial debt – and a lower proportion of debt being invested in commodity production – drawing a yield only parasitically, creating no new value; only centralising existing value into fewer hands.

Nic asks, “those losses caused by Tricolor going under sound quite large, but what is $10bn compared to the $2.9tr in cash reserves held by the banking system [i.e. at the Fed]?”

Tricolour is of course only a canary in the coalmine at this stage. But doesn’t the fact that none of that $3tr could be put towards saving a company worth a measly $10bn ring alarm bells? Profitability is what matters most. A fair part of that $3tr is an expression of overaccumulation; of surplus capital that cannot be profitably invested.

This has been a common error on the Left since Marx died: not orienting analyses around his theory of overaccumulation is the critical mistake most Marxists and socialists make.

What’s more, the US government is pressing ahead with deregulating banks again so that they can have lower reserve requirements and invest the difference – public money stored in the banks – in Treasuries and therefore push down interest rates, helping to slow down the government’s debt and therefore likely pulling down the cost of borrowing and investing in general. Just as in the case of the deregulation enacted in the run up to 2008, the government is obviously taking such a move out of desperation – it cannot simply be handwaved away as bad policy by a bad government. The tendency for the government to move more and more ‘rightwards’ over the past 50 years is itself symptomatic of a deteriorating economy and a therefore increasingly desperate, parasitic capitalist class.^[4]

Theory

Nic says I only “gesture” at a theory of Marxist economics. I obviously cannot in every article go to great lengths to prove the labour theory of value and exactly how the successive approximation of abstract mathematical schemas reveals the inevitability of capitalist breakdown. I’ve done that in my books and summarised the theory in certain articles,^[5] albeit admittedly by explaining the schemas developed by Marx and Henryk Grossman rather than carrying out a novel example. What my work focuses on is collating a very comprehensive array of empirical economic data – characterised by Nic as “cherry picking” – to see if these already established theories do in fact play out in practice, in real-world capitalism.

So I summarise the theory as concisely and clearly as I possibly can, without getting too technical or jargony, as you’d expect for an “analysis of political economy… geared towards the most general audience possible”.

I say, “In summary, making profit of course requires growth (of commodity production) which, via innovation that speeds up production, tends to result in the devaluation of commodities.” This is fairly easy to understand – people have seen the prices of computers, phones and all manner of gadgets, for example, fall as their production has expanded and sped up. This process therefore “tends to result in less profit per commodity”; the bit most people probably don’t really think about but which is intuitively obvious when one stops to consider it, since (as neuroscientists emphasise regarding how people actually learn things) they can associate it with what they already know – that prices fall with advancing technology and capacity. If prices approach zero, it’s obvious that profit is increasingly impossible to attain.

The rate of return therefore tends to fall and investment opportunities dry up, resulting in tending-to-worsen surplus gluts of money capital and in lieu speculation.

Nic then says that the theory I do gesture at does not even hold up because “under neoliberalism there has been no such secular decline in profit rates and cyclically it has only begun to stagnate rather than fall at any speed that would be comparable to previous crises. It is not good practice to attribute such and such empirical phenomena to falling profit rates without actually checking direct measures of profit rates to see if they’re falling.”

Nic in his letter only cites one set of data to back up this claim; the net operating surplus of the US private sector.^[6] This data is quite a loose rate of profit proxy as it measures profit share in national income rather than profit earned on capital invested.

Nevertheless; if we take 1979 as the albeit arbitrary start of ‘neoliberalism’ and split the years up into decade averages, the inflation-adjusted growth rate is -0.19%, then 0.7% for 1989-99, then 0.74% and 1.37%; and lastly 1.6% since 2019. So it’s not clear where Nic’s conclusion that neoliberalism “has only begun to stagnate” in its latter period comes from – according to the data he cites it has continually moved away from stagnation and is moving into its strongest period yet, suggesting it can only go from strength to strength (as liberals would have us believe).

To say that I have not checked profit rates is a rather silly bad faith assumption (especially given my notoriety for obsessing over empirical data, the thing he’s criticising). I’m sure Nic must have looked at other sources on profit rates, including ones that I’ve often cited, such as in my books, one of which Nic mentions that he’s read.

Many studies on rates of profit from the likes of Michael Roberts, Esteban Maito, and Deepankur Basu have shown that just as with Marx’s theory, empirical reality shows that the general rate of profit does indeed tend to fall (progressively, as Marx says), not just in cycles but historically towards zero.^[7] Obviously different studies take up slightly different methods and come up with varying data; but they all ultimately show the same tendency.

Roberts, for example, reports (in a post at the end of 2022) that the US rate of profit “has fallen [by] 27% over the period 1945-2021”. It fell in 1965-82 (in percentage points) “from 23.2% to 13.5%” but recovered to 17.5% in 2006. “After that, the rate of profit falls gradually, but in a series of booms and slumps, in what I call the period of the Long Depression, to 16.3%.”^[8]

It seems then that the overall US rate of profit has indeed remained almost flat during the latter period of neoliberalism. Has capitalism miraculously arrested the problem that predicts its eventual downfall?

It is important to stress that the US rate of profit has still never recovered to anything like its pre-1965 postwar peak, which itself was likely lower than in certain periods over the previous century when the ratio of labour to capital production was obviously higher. More tellingly, Roberts also compares the US rate of profit for the whole economy against that of non-financial capital. In the former after 1997 the trend line is more or less flat. If anything it tends to rise, slightly, owing to an increase in the financial sector’s net surplus as a share of total corporate net surplus from below 10% in the 1960s to a then-peak of 23% in 2020. In the non-financial example the rate clearly trends down from 17.2% in 1997 to 11.5% in 2020.^[9]

So the rate of profit is lower in what we can call a proxy for the real/productive economy, and higher when we add financial corporations that prey parasitically on the real economy. This outcome makes perfect logical and theoretical sense because ‘financialisation’ is symptomatic of and a counter to falling returns in commodity production. The rate of profit in commodity production tends to fall, so money tends to be diverted into government bonds and other financial assets instead, syphoning a yield from existing value without creating new value. If this course of action is not taken, money loses its value against inflation faster because it is not being ‘put to work’ at all; or, indeed, we get deflation and depression.

In the data Nic cites, as with any rate of profit chart, the rate goes up and down. Which means that when the rate goes down, capitalists (and their state) have to take action to halt that decline and secure an about-turn. Indeed, the chart he provides looks busier in the period since 2000 than in the period preceding it. Nic recognises this: “Certainly, the measures required to prevent the fall of profit rates under neoliberalism themselves may be contributing to these phenomena. For example, in order to prevent higher investment rates and therefore rising depreciation costs as a share of value, financial rent seeking has become the primary pursuit of the US bourgeoisie.”

Financial rent seeking, however, has not risen to prevent depreciation. It has risen because investing the money in commodity production would be unprofitable, as a natural consequence of greater, faster production; or if we want to get a bit more technical and jargony, because the ratio of labour to capital has tended to fall, resulting in a relative fall of labour time available to convert into surplus value and profit. Financial rent-seeking has increased investment absolutely relative to the rates that would have been achievable without it; because investment rates obviously fell before the rise of financial rent-seeking and some portion of financial profits will have been reinvested in production, especially when the prices of production have fallen, albeit at a falling rate because of the falling ratio of labour to capital; not directly because of the financial rent-seeking itself.

If the rate of profit has been maintained, overall, in the period of neoliberalism, it has also been achieved via a significant reduction in the number of corporations and banks, as I pointed out; concentrating capital into fewer hands, restoring the mass of profit and capital accumulation for the winners at the expense of the losers; and generating economies of increasing scale. That trend is obviously unsustainable – the final merger we must be trending towards cannot be privately owned, because the exchange of ownership would be obsolete.

Not to mention that the US’s overseas investments and trade arrangements mean that the US is constantly draining value out of and away from countries where it is created, pushing down their rate of profit. Indeed, Basu et al. found that the ‘world rate of profit’ declined strongly during the 2010s – during the latter part of neoliberalism.^[10] The US may have maintained its rate of profit overall, but it has done so by suppressing the rest of the world’s. Again, another source of its income is being bled dry.

Because of the falling rate of profit, the private sector and capital accumulation are increasingly dependent on bleeding the public dry: by privatizing the state and state funds; bleeding governments dry through interest on debt, and through bailouts, subsidies, etc; by raising income and consumer taxes; by replacing workers with cheaper, faster machines; having inflation rise faster than wages; having the public invest in the stocks, where their money naturally tends to accrue to the richest investors; and via rehypothecation, where private banks lend your money out at higher interest rates than they pay you.

All this and much more has been done just to tread water. Maintaining this average level of profitability on a growing amount of capital has depended on turning the economy into more and more of a ponzi scheme – making the vast majority of the population increasingly poorer in order to sustain the profitability of private corporations and the consumption of rich capitalists and landlords.

With so much increasing dependence on debt and the plundering of the public, the real profitability of private enterprise has been hidden.

This process is obviously unsustainable: the wealth of the vast majority is not a bottomless reservoir and so capitalists are draining dry their own ‘back up source’ of reproduction as well as their primary one: they are disincentivising working for a wage.

So it is silly to point to one trend line on one chart and say that the theory in this case does not apply. That one chart or trend line may look OK in the period concerned; but GDP growth, labour productivity growth and R&D growth have all fallen decisively across the neoliberal period; and the quality of human life – the loneliness epidemic, the explosion of chronic illnesses, and so on – has evidently continually declined.

Nic concludes that, “All of this is to say, empiricism and the sensuous realities of market movements are not the basis for genuinely Marxist analysis of political economy. What is required of us is a rigorous theoretical practice which duly processes each of these facts based on a scientific theoretical framework.”

Marx though obviously needed empiricism for the basis of forming a theoretical framework. He then investigated empirical observation by using the method of successive approximation: abstract schemas (mathematical patterns) that simplify the process of capital accumulation are made less and less abstract by reintroducing elements of capitalism originally left out, testing the results from the abstraction against more realistic versions of the social system. Just as with the maximum abstraction, the more complex schemas deliver the same theoretical conclusion: capital overaccumulates and the rate of profit falls – to an increasing degree – confirming the empirical reality that had motivated Marx to begin his investigation. Nevertheless, complex schemas are still naturally quite abstract.

With the advantage of another 130-odd years of data, we can test Marx’s theoretical conclusions against empirical reality and vice-versa – and conclude that empirical reality rather compellingly backs him up. That is the work that needs to be done most pressingly, for Marx (and Henryk Grossman, his best defender) have already provided the scientific theoretical framework.

Nic’s scientific framework does lead him to believe that neoliberalism and the US’s domination of the global economy “would not survive the next crisis”, adding that,

It certainly would be nice if socialism was the natural outcome of such a collapse. But more likely, and indeed more in line with Marx and Engel’s [sic] theories, would be the emergence of a new, more authentic state capitalism similar to that practiced in China, which would be capable of increasing investment rates to an extent to actually threaten the reproduction of the capitalist class (where the old state capitalism failed).

Is the investment rate in China high enough to threaten the reproduction of its capitalist class? A high investment rate becomes a problem when prices and then profitability fall – but a 0% investment rate would obviously be even worse. Which is to say that it is the tendency for investment rates to fall overall that increasingly threatens the reproduction of the capitalist class.

Again, the struggle for world socialism is obviously going to be prolonged and topsy-turvy (even if I do expect a socialist advance to achieve more in less time compared to the gains of, say, 1917–89, given how much more advanced science and automation are today, among other factors). The economic crisis spurs the rising aggression of the dwindling capitalist class, which in turn compels labour to fight back, increasingly so. We should therefore expect to lose ground before we gain it, of course, in a back and forth series of intensifying losses and wins. I thoroughly expect the ruling class to get increasingly fascistic, a tendency we have already obviously witnessed.

From his letter though Nic implies that a return to a more mixed ‘state capitalist’ economy is what’s coming, not fascism’s ultra-privatisation, nor socialism. It is not clear what makes China’s state capitalism “more authentic” than any other form of capitalism or state capitalism. Nic says state capitalism in the West “collapsed” and was usurped by neoliberalism. Perhaps I’m being pedantic; but I would argue that the US is and has long been state capitalist, since its capital accumulation has long been (and is increasingly) dependent on state subsidies, contracts and facilities. That the US military is the most powerful on earth is an expression of the US having the world’s biggest and most powerful state. If communism is the state withered away, then the US’s ultra-privatised economy is clearly the opposite. We are obviously much less free from the power of the state now than we ever were in the postwar period when the state owned more of the economy, because the material foundation of our existence – public wealth – is scarcer.

What is important to identify is that China’s capital is younger and therefore has not yet suffered from overaccumulation to the same extent. Arguably in that sense it is not as actually dependent on the state as US capital – it just benefits from its state to a greater degree because much more of the economy (compared to the US) is state-owned. There is more public wealth per capita. The reproduction of state-ownership puts the proceeds of production back into social not private investment; preventing overaccumulation and in turn the situation as in the US where productive investment declines as a share of GDP, which weakens production and supply chains and makes things more expensive, including the buildings, equipment, components and inputs that private enterprises need to purchase to make commodities.

Indeed, global capitalism, particularly north America and western Europe, has benefited immensely from the fact that the foundational part of China’s economy – including energy, raw metals, heavy industry, etc – has remained mostly state owned. The same was true of the Soviet Union and the relatively high postwar state ownership that emerged everywhere else, which capital needed in order to make the cost of the postwar rebuild affordable. That arrangement was not sustainable because although partial state ownership cheapened private production, the part of the economy that remained privately owned naturally went on to suffer from falling profitability as technology improved, production rose, and (still growing) state ownership limited the proportion of products that could be commodified and produced for profit. Capital’s aggressive turn against state ownership and social democracy and socialism – which together enabled higher investment rates than what followed – was therefore a matter of life and death for capital and the capitalist class.

Chinese socialism did not collapse to the same extent as Russian and eastern European socialism for several reasons. It is of course true that China was able to learn lessons from what happened there and therefore prioritised the defence of its political system. It introduced privatisation in a more controlled and slower manner; but this was aided by the US’s focus on the Soviet Union. By the time the state-owned enterprise of the Soviet Union and social democracy had been privatised, profitability had been restored to a level whereby the need to privatise a greater amount of China arguably became unnecessary. Not to mention the fact that as China became an industrial power, as mentioned, global capitalism benefitted from the part of the Chinese economy that remained state-owned.

My fear now is that China’s state ownership can no longer be tolerated. The deeper the profitability crisis, the more aggressive capital likely is. The US is focusing its aggression against state ownership for now on the weaker targets of Venezuela and Cuba, having already succeeded with privatisation drives in the previously mixed economies of Iraq, Libya, Syria and Ukraine. It is reluctant to take on China, which is in a stronger position than the Soviet Union ever was given its control of vital minerals; but I am not as sure as Nic seems to be that the present level of state ownership in China will survive. US, European and Chinese capitalists alike will all want to privatise China’s state-owned industry – because they need to.

In the article Nic references, on how “China is bringing an end to neoliberalism”,^[11] he claims that China’s high rates of investment have been achieved “by applying the discipline of capitalist competition in a novel way”, because high state subsidies “[lead] to extreme [domestic] competition within Chinese industry, forcing the investment to be utilized for production”, bringing down the costs of production; whereas industrialisation has usually been characterised more by protectionism. The sheer size of China’s economy plays a large role in enabling this approach, however, since that factor along with the advances enabled by socialism and state ownership gave it the capacity to become globally competitive and attractive for investment. In such a scenario there are bound to be more competitors than in a later stage of development when monopolies have naturally arisen from the needs of capital accumulation (and the fact that competition obviously produces losers). Certainly it helps a great deal that the state takes a leading role in deciding industrial policy and that it is led by engineers instead of lawyers – it can pull subsidies from one company or sector and allocate them elsewhere. But so can the US state: see for example, the bailouts; or Trump’s threats to take subsidies away from an insubordinate Elon Musk. The primary difference is the (st)age of capital accumulation, which changes the needs of capital accumulation. Older capital needs to feast on a greater proportion value to sustain lower margins, and rewidening lower margins requires that money capital is produced at the expense of productive capital.

Is China’s approach really ‘novel’ then? Possibly and probably in both relative and absolute terms, given the size and success of the Chinese population and economy; but in character only really in terms of having a Communist Party that has either settled for social democracy or is attempting to transition to communism via a necessarily concessionary turn. As discussed, capital everywhere is increasingly dependent on state subsidies and capital accumulation taken as a whole (globally) in the postwar era was very dependent on relatively high state ownership and therefore state-level industrial policy.

Sure, the Chinese government could choose to pull state subsidies and thereby accelerate private monopolisation. But why would it while profit rates and economic growth are healthy? When it is outcompeting competition, as it must do to continue advancing? When profit rates fall to an unviable level and growth stagnates, then it would make sense to pull support – as China did with the private housing sector after the property developer Evergrande collapsed – and rely more on the economies of scale that come with the early-stage thrust of mergers and acquisitions (before that benefit is exhausted and monopolies stagnate because profitability tails off again). This is basically what has happened everywhere else, and monopolisation in the private sector in China has increased exponentially since 2008;^[12] just not to the same degree as in the US and elsewhere, precisely because of the younger quality of its capital.

Nic exposes the idealist – as opposed to materialist – character of his ‘scientific’ analysis when he says that the US looks likely to follow the UK in suffering from rising capital intensity relative to real GDP to hours worked, “a perfectly avoidable but suddenly inescapable catastrophe” [my emphasis. The UK’s capital intensity increased after 2008 and the increase in its labour productivity growth thus slowed down dramatically but continued to rise absolutely. What is the explanation for this having been ‘avoidable’? Nic only implies that bad choices were made. I would agree in the sense that if capitalists were rational humanists they would have responded to falling profitability and economic crises not by fighting aggressively for mass privatisation but by taking the rest of the economy under state ownership. The rationality of the capitalist, however, is to prioritise his own survival as a capitalist. If he does not, he is no longer a capitalist. The capitalists ‘chose’ to fight for the needs of capital accumulation – knowing that if they do not they would be destroyed by other capitalists. Some choice.

The UK suffered from a massive crisis of profitability and accumulation in the 2008 crisis, and so the capital intensity it had been operating at no longer sufficed. UK-based capitalists were therefore compelled to innovate (as cheaply as possible) in order to raise labour productivity – to make more commodities in less time – and export overaccumulated/surplus capital overseas in order to find profitable investment opportunities that did not exist domestically, thus lowering the ratio of labour to capital in two (intertwined) ways. Capital intensity was bound to tend to rise.

The US’s capital intensity is already higher than the UK’s pre-2008 level. Trump’s ‘promise’ of a blue collar revival has been followed by the loss of another 100,000 manufacturing jobs and investors are betting on automation and AI to reinvigorate profitability and growth, i.e. by cutting outlays on labor and speeding up productivity. Capitalism in essence has never worked any differently, only its ‘outer expression’ changes; for instance, in the postwar case after overaccumulation had been destroyed and the state had to take on the burden of the rebuild. China’s capital intensity is lower absolutely but higher relative to labour because state ownership enables it to innovate and automate faster while retaining a higher degree of decentralised, agile innovation – as in the case of DeepSeek versus Chat-GPT – freer from the barriers of falling profitability and overaccumulation.

China’s success is mainly down to the combination of a foundational economy that is state owned and the youthfulness of its private sector. Nic though says that its success is down to

“the specific political situation within China, where the Communist Party as an institution whose legitimacy resides in economic development reigns rather than the capitalist class… For the CCP [sic], the tradeoff between investment and capitalist consumption is an easy one[;] they don’t care about capitalist consumption at all but do care about the economic development from investment a great deal. And any attempt for the capitalist class to organize politically to undermine this dynamic is immediately shut down.”

Nic’s scientific framework is nowhere to be seen here. China succeeds because its leaders “care”. The silly implication is that the US’s leaders do not care to succeed – they want their empire to be usurped and they want to get poorer. Instead they “decided” [my emphasis] “to go backwards rather than forwards, ensuring that investment rates fell and with them global economic growth [rates]”.

Why then did the US invade and privatise all those countries if they did not care about capital accumulation and enriching themselves through the success of a powerful empire? Investment rates for US capital would have been higher without access to that expansion of territory? No – they are compelled by falling profitability to export their surplus capital and destroy anything that stands in the way. US capital is ‘senile’ and this is expressed in the deteriorating state of its political/capitalist class; but they still care very much about sustaining and reviving profitability – for if they do not succeed in that aim they go bankrupt and join the legions of the proletariat or lumpenproletariat.

Apparently China’s leaders do not care about capitalist consumption “at all” yet they have identified private investment, to whatever degree, as necessary for developing China and ensuring its capacity to provide a stable basis for its population. Which means they are compelled to care to some degree about enabling capitalist consumption, without which there would be no incentive for capitalists to invest in China. The capitalist class is indeed limited to whatever extent politically, but its economic organisation is itself a powerful form of political organisation, especially given how wealthy some of China’s capitalists are.

It is not particularly clear, but Nic seems to imply that the US’s road to Chinese-style or ‘authentic’ ‘state capitalism’ will be brought about because of “currency devaluations and debt crises” and “international markets responding to the rise of China”, by which he seems to mean that investing in China and Chinese assets will become increasingly more attractive than the US and US assets. The US must turn back from the “foolish aberration” of apparently choosing to slow down investment rates in order to keep international investors happy, and semi-deprivatised state capitalism is the only answer since productive investment rates can therefore rise via higher state subsidies. The US government of course took massive stakes in banks and auto and insurance conglomerates during the financial crisis; but only so that the public took on the cost of the rationalisation and restructuring designed to revive profitability – that is, the costs of redundancies and innovation. All have been returned to full privatisation. Any proceeds from the state’s stake in Intel are likely to be mostly redistributed privately, aiding the companies that rely on Intel products.

Nic’s thesis unfortunately reeks of complacency and naivety. Turning to part-nationalisations has not stopped the capitalist state from leaving parts of the economy to rot in order to devalue surplus capital and labor, thereby helping to revive investment and profitability. The capitalist class will tend to continue with its privatisation drive with increasing aggression – turning public assets and funds into reservoirs for private consumption and throwing anything that’s been sucked dry on the scrapheap. Because this must be done by making the state a bigger and bigger customer of what the private sector sells, the private sector must increasingly mould its ‘business model’ to what only the state can afford to buy – weapons of mass destruction; complementing the requirements of capital to defend and expand its imperial assets amid intensifying competition on the world market. So while we may get more ‘state capitalism’ for a while, it is more likely to be an unproductive right-wing military Keynesianism than a semi-productive Keynesian social democracy.

That obviously puts China – which, given its productivity and lack of military aggression, I would classify as the latter – in the crosshairs of both capitalists at home and abroad. If the Trump administration is too reluctant to take on the might of China, then an even more desperate and aggressive section of capital will surely put itself forward, led perhaps by someone like Eric Prince or an American Hitler.

Despite its obvious might, China is vulnerable, and not only because the US has much more military experience and forward naval positioning (although the US’s ability to replenish ammunition and upgrade equipment is clearly waning). The politics of much of its (particularly younger) population is probably not in all honesty coherently socialist – significant privatisation is likely to have such an effect, as people adapt to their increasingly capitalist environment. The rising wages and savings of significant parts of its technically advancing workforce potentially creates a layer of ambitious entrepreneurs with plans to start businesses; something that could be compounded by offers of shares in newly privatised assets or individual ownership of privatised homes. Such offers helped to split the working class during the defeat of socialism and postwar social democracy.

Then there is the fact that China does have a rising overaccumulation problem, while its massive productive growth increasingly threatens massive deflation and falling profitability, which, without nationalisations coming to the rescue, would result in widespread bankruptcies, unemployment and currency debasement. Does the Party nationalise, or does it privatise and cut public spending? Until now it has done a bit of both, vacillating between the two options.

The Party seems to be heavily dependent on the influence of Xi Jingping, who has certainly led a fairly surprising and strong deprivatisation drive; although that appears to have gone into partial reverse in the past 18 months,^[13] perhaps because public stakes in private property were designed to stabilise the post-pandemic recovery. Profit as a share of overall revenue, furthermore, has risen consistently throughout that period.^[14]Xi does not appear to have any intention of taking the whole or even majority of the Chinese economy under state ownership, let alone begin a struggle for world socialism.

If it does intend to participate in a struggle for world socialism when the time is right, China is wise to keep its cards close to its chest. I do not envy the predicament the Party is in and I tend to think the approach it is taking is a manifestation of historical forces more than one driven by purely selfish and unforgivable opportunism. If China nationalises its whole economy, US aggression intensifies and China can no longer import and export to anything like the same extent. China could nationalise its whole economy and still suffer greatly if the rest of the world economy collapses. In the sense of being a country heavily reliant on state ownership, China is isolated and has not yet been able – or willing? – to prevent the decline of other mixed economies like Syria. China therefore depends on co-operation with capitalist countries and the ability to exchange monetary currencies.

It is often said that China opened up and liberalised ‘in order to develop the means of production’ and thereby make a socialist future possible; as if full public ownership is only capable of maintaining what it inherits from a fully formed and suddenly historically obsolete capitalism. The real reason of course was to tame the aggression of US imperialism, which therefore loosened or staved off sanctions that would have suffocated China’s ability to import and export.

Just as capital accumulation cannot survive without expanding privatisation, state ownership cannot survive without expanding deprivatisation. A static entity can only resist a dynamic one for so long. China might be pursuing this course to some extent: China Briefing estimates that state-owned enterprises account for about 65% of China’s total outward direct investment stock (in monetary terms); meaning that Chinese SOEs often acquire or take stakes in overseas private operations.^[15] State-owned overseas investment is not new, but the scale at which China is doing it is unprecedented. Could China simply end up buying-up bankrupt private enterprises across the world, inverting the US’s empire-building by means of taking over state enterprises? It's an interesting thought experiment. If capital can no longer afford to wage war by dint of exhausting itself historically, something like that scenario may not turn out to be as absurd as it presently sounds; although in reality is only ever likely to be part of the story at best.

Marx and Engels do not, as Nic seems to suggest, stop with state capitalism. The manifest character of capitalism and all social systems are always changing and fluid. A ‘state capitalist’ mixed economy must either progress towards and become communist – in which case we are actually discussing a transitional state socialism – or regress and reprivatise. As technology continues to advance – something capital accumulation itself propels and depends on, whether through private investment or public subsidy – the material basis for capitalism and private property tends to diminish and break down, making way for the communist basis it ‘inadvertently’ produces.

The possibility of world war resetting capital accumulation and falling back on social democracy again for a while of course cannot be ruled out. But the advanced stage of the automation revolution makes that very doubtful, along with the rising expenses of having to drill deeper and deeper for oil, upon which capitalism has depended for cheap production costs and the continual reproduction of exploitable labor time, given that oil is non-renewable and so producing more is always needed. Not to mention the possibility of world war resulting in the inhabitability of the planet (which would result in the destruction of private property and a non-human communism for whatever remains).

They should of course complement one and other, but using the empirics to convince humanity not to blow itself up might be more productive at this late hour than trying to explain the scientific theory.

Ted Reese

1. Reese, T., “Recessionary Territory: The US Jobs Market and The Looming AI Bust", December 24, 2025; Villarreal, N., “Letter: The Limits of Pure Empirical Analysis—A Response to Ted Reese”, Jan 13, 2026. https://cosmonautmag.com/2026/01/letter-the-limits-of-pure-empirical-analysisa-response-to-ted-reese/

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2. See Reese, T., “The Real Reason Your Taxes Are Rising Again”, grossmanite.medium.com, December 28, 2025 https://grossmanite.medium.com/the-real-reason-your-taxes-are-rising-again-capitalism-the-crisis-in-the-uk-30077a433111

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3. “Loans and Leases in Bank Credit, All Commercial Banks/(Treasury and Agency Securities, All Commercial Banks+Cash Assets, All Commercial Banks) | FRED | St. Louis Fed,” Stlouisfed.org, 2025, https://fred.stlouisfed.org/graph/?graph_id=1550587

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4. Reese, T., “The Shapeshiting Personification of Capital | How Politics Adapts to the Needs of Capital Accumulation”, YouTube.com/@Grossmanite, April 25, 2025.

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5. Reese, T., “The Importance of Henryk Grossman”, CosmanautMag.com, July 15, 2021.

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6. “Gross Domestic Income: Net Operating Surplus: Private Enterprises/(Consumption of Fixed Capital: Private+Gross Domestic Income: Compensation of Employees, Paid) | FRED | St. Louis Fed,” Stlouisfed.org, 2025, https://fred.stlouisfed.org/graph/?graph_id=1550590

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7. Maito, E., The Historical Transience of Capital: The Downward Trend in The Rate of Profit Since XIX Century, Universidad de Buenos Aires, 2014. https://mpra.ub.uni-muenchen.de/55894/1/MPRA_paper_55894.pdf

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8. Roberts, M., “The US rate of profit in 2021”, CADTM.org, December 20, 2022. https://www.cadtm.org/spip.php?page=imprimer&id_article=21270

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9. Roberts, M., “The US rate of profit in 2020”, The Next Recession, December 5, 2021 https://thenextrecession.wordpress.com/2021/12/05/the-us-rate-of-profit-in-2020/

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10. Basu et al., “World Profit Rates, 1960-2019”, University of Massachusetts Amherst, 2022; Roberts, M., “A World Rate of Profit: important new evidence”, The Next Recession , 22 January 2022.https://people.umass.edu/dbasu/Papers/world_rop_ROPE_Main.pdfhttps://thenextrecession.wordpress.com/2022/01/22/a-world-rate-of-profit-important-new-eviden

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11. Villarreal, N., “The Chinese Encounter”, October 15, 2025. https://nicolasdvillarreal.substack.com/p/the-chinese-encounter

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12. Wang, E., "A Reflection on China’s Merger Reviews – Key Messages from the Latest Five-Year Report and Insights from Economists", pymnts.com, 28 October, 2021.

    https://www.pymnts.com/cpi-posts/a-reflection-on-chinas-merger-reviews-key-messages-from-the-latest-five-year-report-and-insights-from-economists/

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13. Huang, T. and Veron, N., "China’s private-sector rebound continued in 2025, fueled by 'new economy'", piie.com, 20 January, 2026. https://www.piie.com/research/piie-charts/2026/chinas-private-sector-rebound-continued-2025-fueled-new-economy

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14. Huang, T. and Veron, N., “State-run firms still dominate revenue among top firms in China, but the private sector is growing”, Peterson Institute for International Economics, April 1, 2022. https://www.piie.com/research/piie-charts/state-run-firms-still-dominate-revenue-among-top-firms-china-private-sector

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15. Interesse, G., "Mapping China’s Outbound Investment (ODI) Shifts: Sources, Destinations, and Sectors", China Briefing, 16 September 2025. https://www.china-briefing.com/news/mapping-chinas-outbound-investment-odi-shifts-sources-destinations-and-sectors/?utm_source=chatgpt.com

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