The Failure of Capitalist Production

This is the opening of an interview with Andrew Kliman, about his new book, The Failure of Capitalist Production. Read the whole thing here.

Jacket image for The Failure of Capitalist ProductionDuvinrouge: Can you tell me what the key message of your new book, The Failure of Capitalist Production, is?

Andrew Kliman: The Great Recession was waiting to happen. There were unresolved problems in the system of capitalist production that had been building up over a third of a century. The rate of profit fell and never recovered in a sustained manner, which resulted in persistently sluggish investment and economic growth, which in turn resulted in rising debt burdens. And these problems induced governments to solve them or paper them over with policies that made the debt build-up even bigger.

DVR: Your book is full of statistics and as we know interpretations of statistics can be very different. It would appear that your choice of historical cost as opposed to current cost is crucial. Please can you explain the difference?

Accountants can value assets at their current cost or at their original cost when they were acquired. The latter is usually called their “historical cost.” Both methods have their place. But one thing you can’t do is compute the rate of profit, i.e., the rate of return on investment, by dividing profit by the current cost of the capital assets. It’s not wrong to do this; it’s impossible. What you wind up with just isn’t a rate of return on investment. What the assets are currently worth is simply not the same thing as the amount of money that has actually been invested in them. To measure the latter, you have to take their historical cost and subtract depreciation.

DVR: You only look at US data, does this mean you can’t be sure that profit rates have fallen worldwide?


AK: Well, research I’ve done on rates of profit of U.S. multinationals’ foreign subsidiaries, only some of which is reported in the book, has led me to conclude that the worldwide rate of profit of all corporations, not just U.S. corporations and their subsidiaries, probably trended downward between the early 1980s and the Great Recession. U.S. subsidiaries’ rates of profit fell in the great majority of the 20 countries in which at least 1% of U.S. foreign investment is located. Also, the fall was very broad-based in terms of industrial composition—it wasn’t the case that subsidiaries’ rates of profit fell because, for instance, the manufacturing sector took an especially hard hit. I also found evidence that globally-operative forces, not only country-specific ones, tended to depress the rate of profit in a large majority of cases. When you put these facts together, it’s not easy to believe that there was something unusual about U.S. subsidiaries and corporations in the U.S. that caused their rates of profit to fall while the worldwide rate of profit was rising.

DVR: Is it your argument that the growth in debt is a consequence of the falling rate of profit?



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