Nicolas Villarreal continues to accuse me of publishing only “pure empirical analysis”; and that I “[fit] these facts into theories so as to construct narratives [I’m] familiar with”, which “cannot challenge one’s pre-existing notions”. I suspect the people who have taken up Marxism as a result of reading my work would disagree. As far as narrative goes, people can decide for themselves: do all these facts back up Marx or not? If you want to say the empirics only coincide with Marx, you can, but you’d be living in denial.

Nic makes an incredibly bold claim. “My contention is that we have seen a departure from the logic of capital in neoliberalism, and this is the reason for the stable, not falling, profit rates, in neoliberalism,” he says, opposing Marx’s “assumption” (and finding!) “that falling profit rates were the result of the internal logic of capital.”

Marx was wrong!

Are we seriously trying to claim that the incredible technological innovations of the past 50 years have not tended to result in the devaluation of commodities and therefore less profit per commodity?

Are we seriously trying to claim that declining profit rates did not result in the recessions – during neoliberalism – of 2000 and 2008-09?

Nic may wish to blame the pandemic and lockdowns for 2020, but US GDP growth in Q4 2018 slipped to 0.7%. Turkey and Argentina experienced negative growth in 2018 and Germany and the UK hit 0 in Q3. The economy was already tottering. The profit rate has since “recovered” but do you, dear reader, feel richer or poorer now? The counter-tendencies that capital pursues in order to recover profitability have likely made you poorer and/or more indebted – an obviously unsustainable recipe.

Yet Nic contends that there is “certainly no reason to assert that the rise in financial speculation, including crypto and gold the past few years, was the result of falling profit rates”.

No reason!

For Nic, debt does not largely arise to counter falling profitability. Which means that an economic system not dependent on exchange, money and profitability could equally find itself steeply indebted. Apart from the fact that, in a system without money, no one owes anyone else any money.

Nic says that Maito’s rate of profit graph shows a flat rate during the neoliberal period up until 2009. Look further back: you could easily say the same about the period from roughly 1890 to 1920 and then 1940 to 1970. Each ‘flat rate’ period of stagnation is lower than the previous one, drawing a rough visual outline of a series of downward steps.

But by Nic’s thinking, we departed from the logic of capital during Keynesianism and the early 20th century as well. Perhaps it never existed at all!

The rate of profit has only held up across the neoliberal period due to a host of counter-tendencies – outlined in my previous letter – that have amounted to an enormous concentration of capital in fewer and fewer hands, just as in Marx’s analysis of the logic of capital. But just as Keynesianism’s stagnation was followed by an enormous slump to a lower level of stagnation, so too will neoliberalism’s stagnation slump to a yet lower level.

Investment rates

Nic repeats the claim that I only vindicate Marx through the observation of overaccumulation and falling profit rates, without “the observation of the whole chain of causality that Marx outlines as the specific causes of over-accumulation and falling profit rates”. Again, anyone who has read my books knows this is not the case. Perhaps flogging straw men to death is more fun than it looks.

Reese suggests that financialization has occurred because profit rates have fallen due to classically Marxist reasons: that the ratio of labor to capital has fallen, even though he acknowledges that investment rates have fallen. Unfortunately, these two things are incompatible. Let us recall some basic facts about economics: the capital stock and its depreciation are determined by previous investment, and investment is always some share of surplus…. Since Marx assumed rising capital intensity and organic capital composition from competition-driven productivity gains would drive down the rate of profit, Marx's tendency for the rate of profit to fall is exactly identical to a tendency of the investment rate to rise. Indeed, if we examine the rate of profit data and investment rate data together, we see that the huge decline in profit rates coincided with a precipitous rise in investment rates, and that the rise of neoliberalism entailed a reversal in the rise of investment rates, which correlated with the minor secular recovery in the rate of profit.

This isn’t right. Marx not only assumes but finds that investment rates tend to slow down as the overall mass of profit and capital rises. The profit rate tends to slow down, and so there tends to be less relative profit available to reinvest. The graph Nic points to to prove his point only shows us an absolute growth in the monetary value of investment, not an investment rate. Nic even says “Investment rates are not, as Reese suggests, going to zero, at least in terms of gross investment,” making his point moot. Again, gross investment is not the same as the investment rate.

In my previous letter I said that “GDP growth, labour productivity growth and R&D growth have all fallen decisively across the neoliberal period” along with the quality of human life. Nic calls this “motivated reasoning” but these are all, quite obviously, measurable facts that again back up Marx’s theory of capitalism’s inevitable decline.

Nic comes across as rather confused, saying that, “I point to this strange historical anomaly of neoliberalism’s investment rates and profit rates not to falsify Marx’s theories; indeed, I don’t believe it does that.” Nic previously said, in opposition to Marx, that “we have seen a departure from the logic of capital in neoliberalism”.

The crux of Nic’s argument is that investment rates have fallen because of increasing but avoidable capitalist consumption. “Profit is equal to investment plus capitalist consumption, which can exist whether there is growth or not and also means that the less capitalists invest the more they can consume, hence why neoliberal stagnation is primarily a political, not economic, challenge to the capitalist class.”

But growth and consumption can only exist without profit temporarily through plunder; from the transfer of existing value from one person or entity to another. Profit rates are falling and so the relatively shrinking survivors of the capitalist class are sustaining profit rates increasingly via this option. It’s primarily economic, secondarily political.

[A] high investment rate can present a problem for the capitalist class independent of profitability, for the simple reason that capitalists need to consume a certain amount to reproduce themselves as a class, as the more investment that’s required to reproduce a system of production, the less room for actual capitalists.

If a higher amount of investment were affordable – profitable – more capital would be produced and capitalists would get richer and consume more! Sure, capitalists could choose to consume less and reinvest the difference, and obviously this happens all the time. (Just as today’s worker has access to technology that Kings of the past couldn’t have dreamed of, everyone in an advanced communist society will be far wealthier than any capitalist ever was.) Every time a capitalist chooses to invest anything they are choosing not to consume it. But they have bills to pay and things to maintain, which is made increasingly difficult by the inevitability of falling profit rates and ensuing inflation as money is devalued like any other commodity. Capitalists do not go bust because they ‘overconsume’, but because of the internal logic of capital.

State capitalism

Nic says “The Chinese state did not step away from supporting real estate because of low profit rates, as China has supported many low or even negative profit rate industries in raw materials for decades as a means of developing the productive forces of the whole economy.”

But the State-Owned Enterprises that own raw materials obviously do not need to make a profit.

“Rather, China stepped away from [private] real estate because it had turned from a means of developing productive forces and increasing urbanization into a money pit of resources, where rapid depreciation of real estate projects was used as a means to secure ever more state support and thereby generate huge amounts of waste.”

Isn’t this effectively the same thing? Profitability nosedived and therefore became dependent on speculation and taxpayer subsidy.

“In other words, the name of the game has always been developing the productive forces, rather than maintaining a reasonable level of profitability.” Always? If that were the case it never would have been allowed to become a money pit.

On the UK’s “avoidable” crisis, Nic says,

“I mean that it was perfectly possible for the UK to have had a normal level of investment, given so many of its peers around the world were able to…. The US and UK are unique due to their role in capitalist imperialism; their level of de-industrialization was almost certainly so severe due to this structural role…. imperial surplus extraction cannot help but atrophy the domestic industrial base.”

Is imperialism a self-sacrificing endeavor? Again, Nic has things the wrong way round: imperialism is the result of falling profitability; surplus capital is exported because it cannot be invested profitably domestically.

“The importance of US and UK financial sectors and other forms of rent seeking in the global economy mean they are the primary benefactors of such imperial surplus extraction.”

But you just said that they “atrophy” from imperial surplus extraction. Which is it?

“It’s in this way that the US and UK collapse in investment rates was avoidable…. Had the US and UK renounced and participated [sic] in the global economy primarily by selling actual commodities, their domestic bourgeoisie would have persisted, albeit looking a little leaner, and with the eventual risk of future falling profit rates leading to another crisis of capitalist reproduction.”

They could have avoided a crisis, but it would have led to a crisis anyway! They should have just decided to sell commodities! Is it not obvious that they already tried that before and it led to a profitability crisis – so they had to do something else?

When faced with the problem of the reproduction of the capitalist class during the profitability crisis of the 70s, there was no pre-determined ‘right’ answer provided by history for the bourgeoisie.

But they did need to recover profitability, and there were certain things that had to be done: reduce spending on labour and public services; privatise utilities; rationalise; and so on.

The Marxist perspective here cannot be that it was all inevitable as an extension of the logic of capital, it is rather that any and all options taken are restrained by fundamental economic laws with their own tradeoffs, none of which can escape the inexorable logic of capital that forces capitalism’s economic development to lead to its own destruction, which I consider to be as irontight a scientific truth as Darwinian evolution or the second law of thermodynamics. Of course, this logic only operates on a structural, rather than empirical level.

Again, Nic contradicts himself. The logic of capital is not inevitable, but it is inexorable, subjected to fundamental and irontight economic laws!

- Ted Reese