Sorens on Overaccumulation
Via Bill Grennon, by private email. Jason Sorens of the Free State Project recently made a thought-provoking comment about my pamphlet "Austrian and Marxist Theories of Monopoly Capital: A Mutualist Synthesis."
Sorens' statement on profit rates is meaningless to me unless I know the duration of the sub-periods over which they're averaged out. I'd certainly find it incredible if profit rates were constant from the boom to the bust phase of a business cycle, or if the profit rate at the depth of the Great Depression or the depression of the 1890s was the same as during periods of prosperity.
The boom-bust cycle itself was arguably the result of overproduction. Certainly leading big business figures saw it that way from the 1890s on, as recounted by William Appleman Williams and other revisionist historians. The depression of the '90s was what spurred the concurrent rise of imperialism and corporate liberalism as the defining movements of the 20th century.
That "constant" profit rate includes a considerable survivor bias. A depression destroys many businesses and greatly devalues capital stock, followed by the massive consolidation of capital from failed enterprises and renewed profitability of the cheapened capital for its new owners.
The "constant" profit rate also includes the effects of government policy to subsidize the rate of profit on overbuilt industry--including the Bretton Woods system, and the Cold War arms race to utilize the excess capacity of heavy industry built during WWII. Even the Marxists concede that the tendency of the falling rate of direct profit is countered by the rise of new sectors of the economy (like the rise of the automobile-highway complex in the mid-20th century, and the tech boom of the '90s).
It's not technically true, by the way, that the theory of overaccumulation is limited to Marxists and neoclassicals. The Austrian theories of inflationary malinvestment and crackup boom show considerable parallels to left-wing theories of overaccumulation, although the former probably overemphasize the effects of central banking and manipulation of the money supply at the expense of other government measures promoting overaccumulation.
Incidentally, in the same thread Sorens recommended what sounds like a tantalizing book: Capitalists against Markets: The Making of Labor Markets and Welfare States in the United States and Sweden, by Peter Swenson. According to the Amazon review:
Well, the only problem with that theory is that, empirically, there never were any "crises of overproduction." Profit rates have remained roughly constant over the last 200 years, contrary to both Marxist and simple neoclassical theories (declining marginal productivity of capital). Prices (not profits) did decline from 1870-1914, but that was due to the hard money constraint of the gold standard combined with rapid productivity gains.
Sorens' statement on profit rates is meaningless to me unless I know the duration of the sub-periods over which they're averaged out. I'd certainly find it incredible if profit rates were constant from the boom to the bust phase of a business cycle, or if the profit rate at the depth of the Great Depression or the depression of the 1890s was the same as during periods of prosperity.
The boom-bust cycle itself was arguably the result of overproduction. Certainly leading big business figures saw it that way from the 1890s on, as recounted by William Appleman Williams and other revisionist historians. The depression of the '90s was what spurred the concurrent rise of imperialism and corporate liberalism as the defining movements of the 20th century.
That "constant" profit rate includes a considerable survivor bias. A depression destroys many businesses and greatly devalues capital stock, followed by the massive consolidation of capital from failed enterprises and renewed profitability of the cheapened capital for its new owners.
The "constant" profit rate also includes the effects of government policy to subsidize the rate of profit on overbuilt industry--including the Bretton Woods system, and the Cold War arms race to utilize the excess capacity of heavy industry built during WWII. Even the Marxists concede that the tendency of the falling rate of direct profit is countered by the rise of new sectors of the economy (like the rise of the automobile-highway complex in the mid-20th century, and the tech boom of the '90s).
It's not technically true, by the way, that the theory of overaccumulation is limited to Marxists and neoclassicals. The Austrian theories of inflationary malinvestment and crackup boom show considerable parallels to left-wing theories of overaccumulation, although the former probably overemphasize the effects of central banking and manipulation of the money supply at the expense of other government measures promoting overaccumulation.
Incidentally, in the same thread Sorens recommended what sounds like a tantalizing book: Capitalists against Markets: The Making of Labor Markets and Welfare States in the United States and Sweden, by Peter Swenson. According to the Amazon review:
Capitalists Against Markets challenges the conventional wisdom that welfare state builders took their cues from labor and other progressive interests. Instead, Peter Swenson argues, pragmatic social reformers looked for support not only from below but also from above, taking into account capitalists interests and preferences. With original theory and surprising historical evidence, Capitalists Against Markets illuminates the political conditions for greater economic equality and social security in capitalist societies.
posted by Kevin Carson | 1:12 PM
2 Comments:
It is a serious error to regard Austrian cycle theory as an "over-production" theory. It is a mis-allocation theory.
The fact that many businessmen thought over-production caused cycles is no more evidence that it is so than is the fact that many politicians believe the State is a vital part of society evidence that the State is such.
"It is a serious error to regard Austrian cycle theory as an "over-production" theory. It is a mis-allocation theory."
I didn't say that it was an over-production theory, but rather that Austrian cycle theory and leftist overaccumulation theory show significant parallels. And as I understand it, the kind of mis-allocation that Austrians typically associate with an inflationary economy is the choice of more "roundabout" production methods. The latter, at least for me, bears considerable resemblance to "overaccumulation."
"The fact that many businessmen thought over-production caused cycles is no more evidence that it is so than is the fact that many politicians believe the State is a vital part of society evidence that the State is such."
True; but whether their assumption was correct or not depends, in part, on the validity of arguments I made in the two following paragraphs of my post. As I see it, their error was not in seeing the boom-bust cycle as at least partially the result of over-accumulation; it was in seeing over-accumulation as the spontaneous result of the free market. I'm sure you've seen Stromberg's article on state monopoly capitalism, arguing (from an Austrian perspective) that government cartelization of the economy promotes overaccumulation and overproduction.
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