Sunday, July 9, 2017

Chris Dillow — The crisis of positive-sum capitalism

Zero-sum capitalism results in a falling rate of profit that eventually lowers investment and productivity. Neoliberalism is zero-sum capitalism and the eventuality has manifested. Time for the pendulum to swing back toward positive-sum capitalism, where the capital and labor share the benefits? There are tradeoffs involve with both zero-sum and positive-sum, as Dillow observes. This is a reason for the pendulum swinging over time.
Is capitalism a positive-sum or zero-sum game? The answer is: both: Smith and Marx both had a point. However, the extent to which it is either varies from time to time....
Stumbling and Mumbling
The crisis of positive-sum capitalism
Chris Dillow | Investors Chronicle


Andrew Anderson said...


Automation dooms that prospect (except for the relatively few humans that will still be needed) so asset redistribution seems a moral imperative given that automation is and has been financed with the legally stolen* purchasing power of the workers and general citizenry. And not just asset redistribution is needed but a UBI to prevent an impoverished citizenry from selling the newly distributed assets just to live per the example of the post Soviet Union.

*Since what is in essence the public's** credit but for private gain has, to a large extent, been used to finance that automation.

**Due to extensive government privileges for private credit creation.

Auburn Parks said...

What evidence is there for.the claim that profit rates are falling? Corporate profits as a % of Gdp are near all time highs the last time I checked. Since that is the starting principle for.the logic that "zero.sum.capitalism (whatever the hell.that garbage term means) leads to.falling investment and productivity" we can logically disregard "falling rates of.profit" as the cause of.the lower productivity rates and investment.

But hey what do I know I'm just some fringe character only involved in sophistry and only Tom has all.the correct definitions and framing of history.

Tom Hickey said...

What evidence is there for.the claim that profit rates are falling?

See Michael Roberts, The profitability of Marxian economics, The profitability of crises, Debating the rate of profit, The US rate of profit 1948-2015 and It’s a long-term decline in the rate of profit – and I am not joking!

Auburn Parks said...


Ok so none of that has anything to do with the current level of corporate profits in the US and neoliberalism (aka "zero-sum") capitalism.

Matt Franko said...


"Estimates call for Q2,’17 operating earnings record; fun starts Friday $C, $JPM, $WFC, then 74 issues for 7/17-21, 190 7/24-28, 126 7/31-8/3"

New record coming up....

Auburn Parks said...

But Matt I thought that neoliberal capitalism is destroying corporate profits exactly like marx predicted because its zero sum or something.

Matt Franko said...

Auburn, Those people just know how to make munnie.. .. they are ruthless...

Tom Hickey said...


That's a narrow take. It's trends that count rather than single periods.

Tom Hickey said...

When the profit rate is high, firms tend to investment and there are many entrants. When profit rate is low, then firms buy back shares and entrants decline.

The recent trend has been a higher historical ratio of buybacks to new investment, and new domestic entrants in developed economies lag too. New entrants from emerging markets including imports are putting pressure on domestic firms, and domestic firms in developed economies see a more favorable profit rate in FDI in emerging nations. That gap may be narrowing, but it has a long way to go.

The result is "secular stagnation."

It's true that corporate profits may be increasing but it is from investment but financial maneuvers like buybacks, and cutting back the wage bill domestically and investing abroad.

Thus the capitalist core is depending on the periphery for growth.

BTW, I am not claiming that Michael Roberts is correct. I am not in a position to know, being neither an economist or up on the data. But he makes a reasonable case and while an economist he lives and works in the real world rather than academia.

peterc said...

Hi Auburn. I've come into this discussion very late, and haven't read the arguments on both sides.

Marx's 'law of the tendential fall in the rate of profit', expressed in a nutshell, is that there is a tendency, during a phase of accumulation, for the 'organic composition of capital' (constant capital divided by variable capital, c/v) to rise. Other factors remaining equal, this puts downward pressure on the rate of profit r:

r = s/(c + v) = (s/v) / (c/v + 1)

where s is surplus value and s/v is the rate of surplus value. If c/v increases, then r will fall unless s/v rises sufficiently to offset the effect.

Marx argued that a rise in c/v, over time, due to accumulation, would eventually cause r to fall to the point that a crisis ensues. The functional role of crises, in Marx's theory, is to cause a collapse in capital values (reduce the prices of the elements of c, and so reduce c/v). This causes c/v to shrink and, other factors remaining equal, revives the rate of profit.

There are a few points to notice. One is that, below full utilization of capacity, it is possible for v to be increased relative to c via fiscal policy (limiting the impact of accumulation on c/v). But this reaches its limit at full capacity utilization. A second point is that fiscal policy can be used to reduce the prices of elements of c. This happened, for example, after WW2 when the government essentially gifted capital equipment to the private sector, selling capacity developed within the public sector during the war. Arguably, a similar thing happened when the USSR broke up, with capacity developed in the state sector privatized on the cheap. A third point is that government and capitalists can - and do - constantly try to increase s/v through union bashing, removal of worker protections, austerity, etc., to increase the profit share in income.

(continued below)

peterc said...
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peterc said...

(continued from above)

The same basic argument can be gleaned from Kalecki and presented in price terms. The rate of profit can be expressed as:

r = P/K

where P is total profit (before its division into retained earnings, dividends, interest, rent, etc.) and K is the capital stock. The expression can be written:

r = (P/Y)(Y/K) = pq

where Y is total income or output, p is the profit share in income and q is the output to capital ratio.

For given distribution (a given profit share P/Y), an decrease in the output to capital ratio puts downward pressure on the rate of profit. As already noted, the effect can be attenuated by: (i) increasing Y more than proportionately to K through a more intensive utilization of capacity (full capacity utilization minimizes the impact of accumulation on q); (ii) using policy to make capital investment cheaper (limiting K in price terms); (iii) policies to screw workers so as to raise the profit share in income.

If, over time, a rise in K is not offset by factors (i)-(iii), the rate of profit falls and, in Marx's view, results in a crisis that involves a collapse in K (in price terms and to some extent in physical terms) and revival of the rate of profit.

Marx's argument makes sense to me, but I would point out that a revival of the rate of profit in itself is not sufficient to ensure a revival of investment and economic activity. For activity to revive, firms need to believe that the surplus created in production can actually be realized in exchange. From a broadly Kaleckian/Keynesian standpoint, this requires autonomous expenditure (most likely from government).

In other words, I think the revival of the rate of profit may be a necessary condition of recovery, but not sufficient. Two things seem to be required: revival of r and autonomous expenditure.

My own view is that, in principle, government expenditure can drive capitalist activity provided the rate of profit remains above some minimum level acceptable to capitalists (whatever that minimum level is). But it may be that profitability cannot be maintained above this low bar if capitalists resist the necessary collapse in capital values necessary to reduce c/v.

This need not be a problem for society or the economy -- as opposed to capitalists -- provided government continues to drive demand through its autonomous expenditure. But if the demand is increasingly directed toward not-for-profit activity, then it would basically mean a move beyond capitalism to socialism or something else. (This would be a good thing IMO, as well as being consistent with Marx's theory.)

AXEC / E.K-H said...

Zero-sum capitalism
Comment on Chris Dillow on ‘The crisis of positive-sum capitalism’

You say: “Is capitalism a positive-sum or zero-sum game? The answer is: both: Smith and Marx both had a point.”

False answer. The correct answer is NEITHER because the profit theory is provable false since Adam Smith/Karl Marx.#1 And this 200+ years old blunder makes that economics will not even appear in a footnote of the history of sciences, or at best as a cautionary example.

In order to see this one has to go back to the most elementary economic configuration, that is, the pure consumption economy which consists only of the household and the business sector.

The pure consumption economy is defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (Qm≡C-Yw, Sm≡Yw-C) and from this follows IMMEDIATELY that Qm=―Sm.#2

The equations say: It always holds Qm+Sm=0 or Qm=―Sm, in other words, the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Put bluntly, monetary loss is the counterpart of monetary saving and monetary profit is the counterpart of monetary dissaving. This is the most elementary form of the Profit Law. The pure consumption economy clearly is a zero-sum game.

Profit for the economy as a WHOLE has NOTHING to do with productivity, the wage rate, the working hours, exploitation, competition, innovation, capital, power, monopoly, monopsony, waiting, risk, greed, the smartness/stupidity of capitalists or any other subjective factors. Total profit/loss is in the most elementary case OBJECTIVELY determined with the accuracy of two decimal places by the change of the household sector’s debt.

The balances of the business sector, the household sector, the government sector and the foreign trade sector are interrelated as follows Qm≡-Sm+I+Yd+(G-T)+(X-M), and this is the Profit Law for an open economy (X-M) with a government sector (G-T) and with business investment I and distributed profit Yd.

Let Yd, I, X, M be zero for the moment, so Qm≡-Sm+(G-T). Then, the counterpart of an increased public deficit (G-T) is either increased saving of the household sector Sm or increased profit of the business sector Qm or some combination of the two. In the past decades the US households increased their debt, that is, they were dissaving, i.e. Sm was negative (―(-Sm) gives +). So, BOTH the private and public households ran deficits. From the equation above follows that this boosted monetary profit Qm TWICE. And this is exactly what has been observed and criticized as a catastrophic deterioration of the income distribution.

When the pivotal concept profit is not properly understood the rest of the analytical superstructure of economics falls apart and there is NO USE AT ALL to stumble and mumble about capitalism as zero-sum game.#3

Egmont Kakarot-Handtke

#1 For details see ‘The Profit Theory is False Since Adam Smith’

and ‘Proﬁt for Marxists’

#2 For the complete verbal and graphics supported description of the pure consumption economy see ‘How the intelligent non-economist can refute every economist hands down’

#3 For the far reaching implications of zero-sum see ‘Mathematical Proof of the Breakdown of Capitalism’

Tom Hickey said...

Nice summary, Peter. Thanks for providing it.

The way I understand Marxians today wrt to MMT is that without government, capitalism will fall victim to the falling rate of profit. This can be delayed by neo-imperialism and neocolonialism. But the overall tendency is toward a paling rate of profit when capitalism is left to itself, as capitalists demand, bolstered by neoclassical economics and neoliberal political theory.

If government is added, as in the MMT analysis, then if government contributes positively using fiscal policy, either of two conditions follow: Either government acts in favor of capitalism and the result is crony capitalism and government capture with gifts to capital, or else government acts in a way contrary to "pure"capitalist principles by mandating more symmetrical distribution through policy, which is a move away from capitalism toward socialism, that is, a mixed economy, e.g., under social democracy or democratic socialism.

The major difference between the Marxian and MMT analyses is that for Marxians, the chief factor is falling rate of profit and for MMT (Post Keynesians) the chief factor is lagging demand from wage reduction or increasing workers' debt unsustainably in aggregate.

I think that both would agree that as the rate of profit falls, then capital turns away from productive investment toward expected higher returns from financialization. The big gains that went to ownership after the crisis were chiefly from financialization.

AXEC / E.K-H said...
This comment has been removed by the author.
peterc said...

Good points, Tom. I'll just add that Marx argued there is no such thing as a permanent crisis under capitalism, by which he meant if capital values are allowed to collapse in the crisis, then this will revive the rate of profit and satisfy a precondition for a new phase of capitalist accumulation.

AXEC / E.K-H said...

Tom Hickey, peterc

Note that capitalism breaks down ― NOT for social reasons but for mathematical reasons.*

Egmont Kakarot-Handtke

* See ‘Mathematical Proof of the Breakdown of Capitalism’