Andrew Kliman, October 21, 2013
Whole Lotta Mistakin’ Going On
A Reply to Taaffe, Walsh, and the Executive Committee
of the Socialist Party (England and Wales)
Husson First
6. Taaffe and Walsh feel entitled to reject any evidence that fails to confirm their preconceptions.
There is a word for this: dogmatism.
For example, they reject my evidence that U.S. corporations’ rate of profit failed to rebound after
the recessions of the mid-1970s and early 1980s on the grounds that my graphs
appear[ ] to have no connection with real trends in the US (or world) capitalism. … In
particular, [they do] not indicate any recovery of profitability after the turn by the
capitalist class to neo-liberal policies in the early 1980s, linked to financialisation,
globalisation, an assault on workers' incomes and rights, etc.
In contrast, they endorse Michel Husson’s graph that depicts a rising “rate of profit” on the
grounds that the
trend in the rate of profit reflects trends in the real US economy …. [T]here was a partial,
but steep recovery of profitability in the 1980s (the period of neo-liberal policies).
In other words, they reject evidence that the rate of profit didn’t recover simply because it fails to
confirm their preconception that the rate of profit did recover. There is no difference between
their method—to use their favorite term—and the method of rejecting evidence for evolutionary
theory on the grounds that it is not evidence that God created human beings a few thousand years
ago. Again, this method has a name: dogmatism.
7. Ironically, Taaffe and Walsh accuse me of having a “dogmatic theory.” But this is just
meaningless invective, because there’s no such thing as a dogmatic theory. Dogmatism has
nothing to do with what one claims. It is a method of argument––the method of appealing to a
premise that is not to be questioned, i.e., a dogma—whether the dogma one appeals to is the
myth of creation or the myth that neoliberalism was a smashing economic success.
8. Taaffe and Walsh write, “Marxists should start from analysis of trends in the real world rather
than abstract statistical constructions.” They want readers to believe that my analysis of the
causes of the Great Recession in The Failure of Capitalist Production overlooked “trends in the
real world” such as the “turn by the capitalist class to neo-liberal policies in the early 1980s,
linked to financialisation, globalisation, an assault on workers' incomes and rights, etc.” But I
overlooked none of these things, and my analysis started with real-world trends. Only after
devoting a whole chapter to them did I turn to the rate of profit (the so-called “abstract statistical
construction”).
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Andrew Kliman, October 21, 2013
The difference between Taaffe-Walsh and myself is rather the following. They dogmatically
assume that neoliberalism was an economic success in its own terms, and that it must therefore
have caused the rate of profit to rebound. However, I investigated these matters.
9. I found that neoliberalism in the U.S. was not an economic success, even in its own terms. The
failure of neoliberalism to reverse the fall in U.S. corporations’ rate of profit went hand-in-hand
with its failure to reverse the other trends listed below. All of these trends began under
“Keynesianism” and persisted under neoliberalism:













Fall in GDP growth (globally)
Acceleration of debt crises (globally)
Acceleration of banking crises (globally)
Fall in corporations’ rate of productive capital accumulation (in U.S).
Rising gap between potential and actual GDP (in U.S.)
Fall in growth of industrial production (in U.S.)
Fall in growth of industrial productive capacity (in U.S.)
Rise in average duration of unemployment (in U.S.)
Rise in share of workers dropping out of the labor force (in U.S.)
Fall in growth of rate of workers’ real hourly compensation (in U.S.)
Rise in borrowing relative to GDP (in U.S.)
Rise in income inequality (in U.S.)
Deterioration of public infrastructure (in U.S.)
10. In light of the failure of neoliberalism to reverse any of these trends that began under
“Keynesianism,” it is hardly a surprise that it also failed to reverse U.S. corporations’ rate of
profit. To the contrary, its failure to reverse the fall in the rate of profit helps to explain why it
failed to reverse the other trends.
The relationship between the fall in the rate of profit and the fall in the rate of accumulation––
growth of productive capital investment is especially important, because productive investment
is the main thing that drives growth of output and income. In my book, and in a more detailed
follow-up study written with Shannon Williams (“Why ‘Financialization’ Hasn’t Depressed U.S.
Productive Investment,” available at akliman.squarespace.com/writings), I show that the entire
fall in U.S. corporations’ rate of accumulation is attributable to the fall in their rate of profit, not
to neoliberalism or financialization.
11. Taaffe and Walsh have nothing to say about any of this evidence. Although they want readers
to think that I overlooked real-world trends which indicate that neoliberalism was a smashing
economic success, the fact is that they are the ones who overlook real-world trends which
indicate that it was not.
12. But what about the dramatic rebound in the “rate of profit” that Husson presented and that
Taaffe and Walsh endorse? The answer is that it is an “abstract statistical construction” that has
little to do with a rate of profit in the normal meaning of the term. As the term rate of profit is
normally used in the business world, and as Marx used it, it refers to businesses’ profits as a
percentage of the amount of money they invested. The “rate of profit” that Husson presented and
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Andrew Kliman, October 21, 2013
that Taaffe and Walsh endorse is a very different animal, because it includes as profit various
kinds of income that are not profit, and because it does not express the income as a percentage of
the amount of money invested.
13. Husson’s U.S. “profit” data come from National Income and Product Accounts Table 1.16,
published by the Bureau of Economic Analysis (BEA); see Annexe 1 of Husson’s “La hausse
tendancielle du taux de profit,” January 2010, available at hussonet.free.fr/textes.htm. The
“private enterprise income” reported in this table, which Husson, Taaffe, and Walsh treat as
profit, includes the incomes of nonprofit institutions. It also includes the value of the “housing
services” that owner-occupied homes provide to homeowners (don’t ask). Will Taaffe and Walsh
please explain why they think that the incomes of nonprofit institutions and the “housing
services” that homeowners’ homes provide them should be counted as profit?
14. In addition, the “private enterprise income” that Husson, Taaffe, and Walsh treat as profit
includes the income––all of the income––of self-employed people (sole proprietorships and
partnerships). But as the U.S. Bureau of the Census (www.census.gov/econ/smallbus.html)
notes, “About three quarters of all U.S. business firms have no payroll. Most are self-employed
persons operating unincorporated businesses ….” Now, if they have no payroll, they have no
paid employees. And even when unincorporated businesses do have employees, the owners get
some of their income through their own work, rather than by exploiting their employees.
Consider, for example, small shopkeepers and plumbers who have one or two assistants. Will
Taaffe and Walsh please explain why they think that all of the income of self-employed people
who either have no employees or just a few employees should be counted as profit?
15. The Husson-Taaffe-Walsh concept of “profit” is not only peculiar but, to the best of my
knowledge, it is unique. And it has a huge effect on the results. Figure 1 shows the “rates of
profit” of U.S. corporations and unincorporated for-profit businesses (sole proprietorships and
partnerships). Profit is measured in basically the same way that Husson measures it, and the
denominator of the “rate of profit” is Husson’s exact measure.1
Note that while the “rate of profit” of the sole proprietorships and partnerships rose by almost
90% between 1982 and 2001, there was no sustained rebound in the case of corporations. Their
“rates of profit” in the troughs (low points) of 1992 and 2001 were a bit lower than in the trough
of 1982. From 1974 to 2007, the corporations’ “rates of profit” fluctuated a good deal, but were
basically trendless.
Thus, one main reason why Husson’s “rate of profit” rises dramatically under neoliberalism is
that he counts all of the income of self-employed people, including those with no employees, as
profit.
Unlike Husson, I exclude “business transfer payments” from profit (net operating surplus)
because available data for them do not list corporations and unincorporated businesses
separately. This is a very small item, so its exclusion has almost no effect on the results. I should
also note that my data, unlike Husson’s, incorporate the results of the BEA’s 2013
comprehensive revision.
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Andrew Kliman, October 21, 2013
"Rates of Profit" of U.S. Businesses, 1982-2007
percentages of 1982 values
220%
200%
180%
160%
140%
120%
100%
80%
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003
corporations
sole proprietorships & partnerships
16. Now, even if Taaffe and Walsh can somehow justify this procedure, which I doubt, the data
fail utterly to support their claim that the post-1982 rebound in the “rate of profit” is due to “the
turn by the capitalist class to neo-liberal policies in the early 1980s, linked to financialisation,
globalisation, an assault on workers’ incomes and rights, etc.” If this stuff was such an economic
success, why did it boost only the “profits” of self-employed people? Shouldn’t it have also
boosted the profits of “the big monopolies” at “the commanding heights of the economy” that
Taaffe and Walsh carry on about? And shouldn’t it have benefitted them especially? Or was
neoliberalism a strategy of the capitalist class to enrich small shopkeepers, craftspeople,
computer programmers, etc., but not the capitalist class itself? And exactly how do
“financialisation, globalisation, [and] an assault on workers’ incomes and rights” manage to
enrich self-employed shopkeepers, craftspeople, computer programmers, etc. but not the
capitalist class?
17. As I noted above, there’s also another reason why the “rate of profit” that Husson presents
and that Taaffe and Walsh endorse is not a rate of profit in the normal sense of the term: it is not
a rate of return on the money actually invested. Instead of measuring profit as a percentage of the
money invested in fixed capital assets, it measures profit as a percentage of what it would cost a
business to replace the whole stock of its fixed capital assets today. Unfortunately, Husson is not
the only person who misrepresents the latter measure by calling it “the rate of profit.” The “halfa-dozen other economists” that Taaffe and Walsh refer to misrepresent it in the same manner.
18. And this is why their U.S. “rates of profit” also rise during the post-1982 period, though to a
much smaller extent than does Husson’s “rate of profit”). When this error is corrected (and
depreciation is likewise counted as a fraction of the money actually invested rather than as a
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Andrew Kliman, October 21, 2013
fraction of the cost of the depreciated capital assets today), the rate of profit of U.S. corporations
clearly falls after 1982, as Figure 2 shows.2
Rate of Profit, U.S. Corporations, 1982-2007
percentages of 1982 values
150%
140%
130%
120%
110%
100%
90%
80%
70%
60%
50%
1948
1956
1964
1972
1980
1988
1996
2004
19. What we have here is not a measurement issue but a conceptual issue. If it were a
measurement issue, there might be some justification for suspecting that someone’s findings are
wrong because they differ markedly from those of “half-a-dozen other economists.” They and I
would be trying to measure the same thing, and there might be some justification for suspecting
that it is more likely that one person made a measurement error than that half a dozen people did.
But they and I are measuring two different things. They measure correctly what they wish to
measure, and I measure correctly what I wish to measure. So the issue isn’t which measure is
correct, but which is actually a rate of profit in the normal sense of the term––the sense
employed by businesses, investors, and Marx––i.e., a rate of return on the money actually
invested?
20. I think the answer is obvious. Moreover, in The Failure of Capitalist Production, I devote
nine pages to an explanation of why “profit as a percentage of what it would cost a business to
replace the whole stock of its fixed capital assets today” is simply not a rate of profit in the
normal sense of the term. If Taaffe and Walsh disagree, then they have to do more than dismiss
In other words, while the denominator of the “rates of profit” in Figure 1 is the current cost of
the stock of fixed assets (net of depreciation), the denominator in Figure 2 is their historical cost
also net of depreciation). And whereas the profit (net operating surplus) data of Figure 1 are
based in part on current-cost depreciation, those in Figure 2 are based in part on historical-cost
depreciation. The fixed asset and depreciation data used in the two graphs come from the BEA’s
Fixed Asset Tables 6.1, 6.3, 6.4, and 6.6.
2
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Andrew Kliman, October 21, 2013
my findings by pointing to the fact that other people offer us upward-sloping curves that they
call rates of profit. They have to explain the following:
(a) Why does “profit as a percentage of what it would cost a business to replace the whole
stock of its fixed capital assets today” qualify as a “rate of profit?
(b) U.S. corporations did not receive more profit per dollar invested in fixed capital assets.
The opposite was the case, as Figure 2 shows. So what, exactly, is the significance of the
fact that there was a (very slight) rise in their “profit as a percentage of what it would
cost them to replace the whole stock of their fixed capital assets today”?
(c) The entire difference between the rate of profit in Figure 2 and the corporate “rate of
profit” in Figure 1––and thus, the entire rise in the latter––is due to the fact that fixedasset inflation subsided. (See pp. 117–22 of The Failure of Capitalist Production.) So
exactly how does it count as evidence that neoliberalism was a smashing economic
success? In particular, how does it count as evidence that the “assault on workers'
incomes and rights” was a smashing success?
21. If Taaffe and Walsh come up with a legitimate answer to these questions, they’ll be the first
ones to do so. Husson and the “half-a-dozen other economists” haven’t done so. In a paper
published in Marxism 21 and in my book, I defended my rate-of-profit computations against his
critique and put forward a counter-critique like the one above. And what was his reply? “The
response by Kliman (Masters of words, 2010) does not seem to me to change the terms of the
debate on this point nor to fundamentally challenge the arguments I have advanced” (Michel
Husson, “The debate on the rate of profit,” International Viewpoint, July 2010,
internationalviewpoint.org/spip.php?article1894). That is all; Husson provided no argument to
support his claim that I failed “to fundamentally challenge the arguments [he] advanced.”
The following November, we were on the same panel at the 2011 London Historical Materialism
conference. Attempting to account for the fact that “my” rate of profit fell while “his” rises,
Husson said that I look only at non-financial corporations, which was a new one. When I pointed
out that my figures are for all domestic corporations, he then said that the issue was “boring” and
that it has “no political implications.” Taaffe and Walsh may also find the issue boring, but I
trust that they won’t resort to the “no political implications” dodge.
22. They charge that I “try[ ] to prove a consistent fall in the rate of profit since 1947!” This is
highly misleading. It makes it sound like I’m trying to force though certain results irrespective of
the evidence, which is not true. As I note in The Failure of Capitalist Production (pp. 8–9),
Prior to analyzing the data, I had no prior belief that actual rates of profit had failed to
rebound since the early 1980s, and I even wrote that “profitability has been propped up
by means of a decline in real wages for most [U.S.] workers” …which I believed to be an
unambiguous fact.
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Andrew Kliman, October 21, 2013
23. Taaffe and Walsh also write that “a dispute has raged on the internet over Kliman's figures.
He himself states: ‘Although these results are consistent with Marx's law[,] I would not wish to
claim they confirmed the law.’” This quote is taken out of context and it seriously distorts my
meaning. I was arguing that the standard method of breaking down (decomposing) movements
in the rate of profit produces results that are consistent with, but do not by themselves confirm,
Marx’s law of the tendential fall in the rate of profit. However, I went on to say, “As a test of the
law, and as an explanation of the observed movements in the rate of profit in the U.S. corporate
sector, the following decomposition analysis is much superior ….” (The Failure of Capitalist
Production, p. 133, emphasis added). And after presenting the second decomposition, I
summarized my findings as follows (pp. 137–8):
The results … indicate that that Marx’s law of the tendential fall in the rate of profit fits
the facts remarkably well. … The rate of profit fell because new investments of capital
persistently failed to generate enough additional employment of living labor to sustain the
rate of profit at its current level ….
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