Two Depressions, One Cause? Michael Roberts on 1873, 1929, and the Rate of Profit

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Speaker: But, but I think the
fundamental Marxist thing is that

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what matters in a capitalist economy?

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Profitability.

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Capitalists won't invest
unless it's profitable.

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So what you get is a tendency for the
profitability of capital to fall over time

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as capitalists compete and try to expand.

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This is a fundamental law of, if you
like, the contradiction within capitalism.

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It can only come from human labor.

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Let's think about it.

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Uh, if nobody worked tomorrow and the
machines were there, the factories

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are there, and AI is there, and you
still can't… still need somebody

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to look after the data centers.

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If nobody, human labor was
involved, what would happen?

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Everything would collapse.

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There would be no value created.

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It's, machines don't create value.

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What they do is they help human
beings to create more value, but

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they don't produce value themselves

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Marshall: And that's what I want … And
that's what actually I wanted to guide

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you through because, again- Mm … I feel,
I thought if we look … I wanna look

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at the three periods in a, in a little
bit of depth just so I can understand,

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A, you know, beginning with the panic
of 1873, what were some of the critics?

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And then how would you, how would
you, would you say that Marx

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would have explained actually what

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or the correct framework
in, in your opinion.

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I'd like to understand kind of like what
some of the, you know, the counter opin-

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the counter opinions were- Yeah … at
that time and why they were off base.

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And beginning with 1873,
what was the, kind of the

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characteristics, if you don't mind?

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Just a little bit of historical- Mm

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background to what, what led up
to that, and then what were, what

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were the main, the mainstream
economists… A- and others, by the way.

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You talk about, you know, you, you
come up with … You, you don't just

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talk about mainstream economists.

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You talk about, uh, uh,
neoliberal econ- economics.

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You talk about a lot of different

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There's a lot of different, uh-
Yeah … varying opinions on this.

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So if you don't mind, Michael, it would
be helpful to kind of walk through

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so we can understand the range of, of
views for each one of these periods

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t- and then taking us up to today.

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Well,

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Michael: let's look at
the- But beginning with

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Marshall: 1873

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…
Michael: late 19th century
depression, as I call it.

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Yep.

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The counterargument to that,
that it wasn't a depression.

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That's what some- Right … people say.

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That, uh, actually, there was
still growth, that, uh, uh, incomes

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went up, so the arguments go, and
that really this was not a period

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which you can call a depression.

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There, uh, that's the main
a- counterargument to it.

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Uh, there are th- secondary arguments.

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Yes, it was a depression, but it was
not the reason you Marxists give.

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It was a different reason.

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Uh, they would argue that because,
um, uh, because money was tied

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to the international gold, gold
being money internationally.

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And because gold was in increasingly,
uh, in short supply, it drove down

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the ability of economies to grow
because there wasn't enough gold.

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The gold standard was operating.

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That's another theory.

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Uh, but the main one is that
it wasn't a depression, that

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it was, there was still growth.

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And the- And this was the Austrian
school eco- economist at that time,

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that were- The gold one … Yeah, the
Austrians said there was no depression,

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that, uh, it was generally okay.

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And if there was any decline, it was due
to the fact that, um, uh, there, there's

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been excessive debt s- uh, spent in the
previous period which had to be unwound.

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But on the whole- Mm … they deny it.

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They denied that there was a depression.

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All I can say, uh, as I say in the
book, I explain that… Well, first

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of all, contemporaries at the time,
in the 1870s, 1880s, were pretty

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convinced that there was a depression.

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And I also cite a number of important,
um, scholars who looked at the growth in

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industrial production and trade and so
on, particularly in the case of Britain.

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Because we have to remember, Marshall,
that in the late 19th century, the

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big economy was the UK or Britain.

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It wasn't the United States.

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The United States was coming up.

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Mm-hmm.

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Germany was coming up,
France was coming up.

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But Britain was the, what we like to
call, the hegemonic economic power.

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Nowadays, in the late 20th
century, and now it's been the US.

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But, uh, and then it was the UK.

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And if you look at the data on the
UK, the UK was doing really badly.

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It was slowing down sharply.

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Uh, wasn't always going into a slump,
but it would… not recovering very much.

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We had a very, a lower trend growth
than we had the previous period.

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And I give the, the data
on this to show this.

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So I think the arguments that it wasn't
a depression can be convincingly defeated

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by looking at the data, particularly
in the case of the UK, and the scholars

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who wrote it since then pointing
that out in very much, uh, in detail.

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And the other point is that, well, if
it's, if it was a depression, you've got

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the wrong argument for the depression.

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It wasn't caused by that.

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Uh, it's caused by currencies,

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Marshall: it's caused by gold.

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A monetary event, you mentioned-

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Michael: Yeah,

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Marshall: yeah … uh, at that

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Michael: point.

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Yeah.

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But, but I think the fundamental Marxist
thing is that what matters in a capitalist

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economy, profitability Capitalists
won't invest unless it's profitable.

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Mm-hmm.

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If profitability is going up … What
do I mean by profitability?

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So if I invest $100, uh, million
in machinery, plant around the

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world, and I employ a load of
workers, I spend 100 million.

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I wanna earn more than 100
million, otherwise I'm not

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gonna continue production.

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So next, in the first year, I
want at least get some- making

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profit over that 100 million.

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Maybe I can spread out the cost of
that over, by borrowing over a period

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of time, but I've gotta make a profit.

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It's gotta be profitable.

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And if it starts not being profitable,
then I'm gonna start not spending

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that money on new machinery or
maintaining the existing machinery or

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laying off workers, closing down this
particular s- factory site or so on.

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I'll start trying to cut costs to
try and maintain, uh, profitability.

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And if that doesn't work, then there'll
be a certain point, if, especially

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if everybody's in the same situation,
not just one capitalist company, but

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all the major capitalist economies
or capitalist companies are now

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in trouble, then you get a slump.

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That's why you get a slump.

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You get a slump- And you- Yeah, because
profitability drops to the point where

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capitalists can't see them gonna make a
profit, so they've gotta lay off workers,

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close down their factories, uh, but buy
each other out to, as it were, to in-

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increase the, uh … Get rid of the weaker
people so that they're in a position to

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take advantage, uh, of that situation

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Marshall: And, and, and I wanna, I wanna
definitely kind of hold that thought

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just in terms of the ra- the falling rate
of profitability 'cause you, 'cause you

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raised that point throughout the book.

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Yeah.

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And it was hard for me to under- to
quite get a handle on whether or not

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that was the causative effect or that
was just the outcome of the other

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distortions to the market that led
to… Like, in other words, is, is

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that what caused the depression or is
that actually just what you observe?

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Is that phenomenology at the end
of the, uh, at the end of the, the

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end stage of this depression cycle?

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It's

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Michael: a very good point, Marshall,
because that, that's exactly s- arguments

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against, uh, um, this law of the
tendency of the rate of profit to fall.

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Just to explain to viewers that-
Please … Marx came … In the third,

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volume three of Capital, uh, that's where
you can find it if you wanna read it.

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By the way, viewers, it's not
difficult, volume three, to read.

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It's quite interesting, so.

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Volume one's tricky, but volume
three is relatively easy.

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In there he explains that,
um, the basic contradiction of

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capitalism is to try to increase
productivity to get more production

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out of the workers for less cost.

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But over a period of time, in order
to do that, because capitalists are

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competing with each other all the time
to do this, it's not one capitalist.

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Everybody's trying to compete and get
an advantage over the other, get better

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market share, better profit, and so on.

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Then they … How do they do that?

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The best way to do it, I mean, they
can make work- their workers work

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harder or they can do all kinds of
horrible things to their workers.

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But the main reason is to introduce
a technology and machinery which is

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more effective in productive, uh,
ex- expansion than somebody else's.

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So if there's a new technology comes in,
that capitalist takes advantage of it.

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He gets an advantage in profitability
'cause he can sell his goods, uh,

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at the market price and its cost
are letter- less, so he's make- than

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the others, so he's making a profit.

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But if everybody then starts using
the machine, which inevitably

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happens, we call it diffusion.

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Like in AI- Mm … if everybody starts
using AI, then the profitability of AI,

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uh, which doesn't exist at the moment,
but if it did, starts to get to fall away.

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So what you get is a tendency for the
profitability of capital to fall over time

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as capitalists compete and try to expand.

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This is a fundamental law of, if you
like, the contradiction within capitalism.

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Because capitalism is a system
of production for profit It won't

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produce unless there's profit.

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If profitability starts to fall,
it will start considering not

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producing or investing anymore.

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That's the way around.

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There are some people argue and
say, "Well, if the capitalists don't

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invest and don't consume anything,
profits fall for everybody else."

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So they put it round the other way and
say, as you said, "Profitability is the

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result of a ca- collapse in investment."
I don't, I, I don't … theoretically

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and empirically, I don't … I
think we can refute that argument.

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Mm. That it is the way that Marx
said, "When profitability and

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profits fall, then investment
falls, and then you get the slump."

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It's that way around.

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And is this what- And we
can show it empirically.

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Marshall: And is this what you call the
organic composition of capital data?

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Is that, like, what's-

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Michael: Yes … involved

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Marshall: in that?

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Michael: So you've got a rate of profit.

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So if I invest 100 million, if I'm
investing more and more in machinery

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as opposed to labor, it doesn't say
I'm reducing my labor force, but I'm

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invest- putting more and more money into
factories, machines, et cetera, which are

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not people, uh, then I've got an increase.

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That's what Marx called, uh, the
natural process of capitalism.

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It's, uh … he called it
an organic composition.

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It's an organic process.

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The capitalists competing with each
other to take advantage will inevitably

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invest more and more in technology.

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That's what made capitalism
dynamic in many ways.

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It dramatically took it forward.

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But it has an Achilles heel.

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It has this contradiction that in order
to do that, eventually a situation

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arises where there's so much invested
in machinery that there's not enough

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profit being made to compensate for that.

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Why?

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Because Marx argued that mostly
profit comes, profit must

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come from human labor power.

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It can only come from human labor.

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Let's think about it.

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Uh, if nobody worked tomorrow and the
machines were there and the factories

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are there and AI is there and you still
can't, still need somebody to look

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after the data centers, if nobody, human
labor, was involved, what would happen?

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Everything would collapse.

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There would be no value created.

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It's … machines don't create value.

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What they do is they help human
beings to create more value, but

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they don't produce value themselves.

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That's the fundamental point
of Marx's value theory.

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So he's saying if, if, uh, uh,
investment is going more and more

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to machines relative to labor, then
there's a tendency for the profitability

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overall to start, uh, falling.

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It could take a long time.

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It could take 20 years.

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It's not the ultimate decider of
a slump because that will depend

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on whether profits in total
start to fall for capitalists.

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Mm. Because they can go on for some time
with a lower rate of profit, and they can

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keep expanding and getting more profit.

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But eventually, uh, what Marx called
the absolute point will come where

228
00:11:53,195 --> 00:11:55,335
that, uh, s- slump will begin.

229
00:11:55,345 --> 00:12:00,325
So that's … we … Marx's view
is that profits and profitability

230
00:12:00,325 --> 00:12:01,815
drives investment in a slump.

231
00:12:02,265 --> 00:12:04,405
Investment doesn't drive profits.

232
00:12:04,765 --> 00:12:06,985
It's, it's the consequence of profits

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00:12:08,229 --> 00:12:11,269
Marshall: And you in the book, you,
you talk about this, these ideas

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00:12:11,359 --> 00:12:14,779
or this, this concept of counter,
counter tendencies, if you will.

235
00:12:14,959 --> 00:12:14,989
Yes.

236
00:12:15,029 --> 00:12:18,139
And so, so just to focus on, on your…

237
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just what you were talking about
right now, I mean, essentially in a

238
00:12:20,639 --> 00:12:26,439
very simplistic way, if indeed, uh,
the, the, all the labor is taken out

239
00:12:26,439 --> 00:12:28,879
of the system, then there's nobody
to buy the products regardless-

240
00:12:28,889 --> 00:12:29,789
Yeah … of whether the… Right, right.

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00:12:30,159 --> 00:12:34,069
But then, and, and we're gonna continue
on when we talk about the next period,

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00:12:34,079 --> 00:12:36,399
the, the 1920s, you kind of make…

243
00:12:36,619 --> 00:12:41,429
There starts to become another, uh,
tactic that the capitalists deploy,

244
00:12:41,429 --> 00:12:45,709
as you discuss in the book, to seek
some kind of a global, a globalized

245
00:12:45,709 --> 00:12:50,029
version or an arbitrage- Mm … if you
will, to either have other people work

246
00:12:50,029 --> 00:12:52,779
cheaper or… And I wanna go through
that, but I think that it's important-

247
00:12:52,789 --> 00:12:56,349
Yeah … to understand for people that if
the fundamental argument is that, um…

248
00:12:56,389 --> 00:12:58,919
And here, and I'm not here to, to,
in any way, shape, or form to argue

249
00:12:59,199 --> 00:13:01,809
the, the theory per se, but it's just
more to understand how it operated.

250
00:13:01,919 --> 00:13:02,099
Yeah.

251
00:13:02,129 --> 00:13:05,519
You know, you make some very good points
about the fact that, well, they had

252
00:13:05,519 --> 00:13:09,159
so mu- they had ways that they were
gonna try to, to turn back this tide-

253
00:13:09,229 --> 00:13:10,079
Michael: Yes … if you will.

254
00:13:10,339 --> 00:13:13,269
There's counter tendencies
or counter, counter factors.

255
00:13:13,269 --> 00:13:17,049
In, in this volume three of Capital
game, there's a whole chapter by Marx

256
00:13:17,049 --> 00:13:20,529
saying, "Well, it's not straightforward.
If it was just, uh, machines being

257
00:13:20,529 --> 00:13:24,839
expanded and labor falling away, then
the rate of profit would go down like

258
00:13:24,839 --> 00:13:29,305
a-" Fast like hell and you would, uh,
be, you'd be in permanent refreshing.

259
00:13:29,815 --> 00:13:32,155
But of course, there are counter factors.

260
00:13:32,155 --> 00:13:33,185
Capitalists can counter that.

261
00:13:33,195 --> 00:13:34,125
How do they counter that?

262
00:13:34,325 --> 00:13:38,135
Well, they can ex- they can
employ more workers, uh, because

263
00:13:38,185 --> 00:13:39,625
then that would get more value.

264
00:13:39,795 --> 00:13:42,565
They can also make
workers work longer hours.

265
00:13:42,795 --> 00:13:44,405
That's another way in
which they can do it.

266
00:13:44,785 --> 00:13:48,845
They can increase the intensity
of work, and also the introduction

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00:13:48,845 --> 00:13:54,345
machines will tend to raise, um,
the rate of, uh, exploitation of

268
00:13:54,345 --> 00:13:57,885
the workers because they're getting
more out of them for the same wages.

269
00:13:58,175 --> 00:14:04,655
So the, that way they can increase the
ratio of profit to wages to compensate for

270
00:14:04,655 --> 00:14:06,985
this tendency for profitability to fall.

271
00:14:07,185 --> 00:14:08,195
That's the fundamental one.

272
00:14:08,205 --> 00:14:11,835
The other one is perhaps they can
get a machine which is 100 times

273
00:14:11,835 --> 00:14:15,565
cheaper than the last machine, so
they massively reduce their costs.

274
00:14:15,565 --> 00:14:18,285
I mean, this is the argument
about AI, that we don't need all

275
00:14:18,285 --> 00:14:20,395
these machines 'cause it's all
gonna be done by others, but…

276
00:14:20,735 --> 00:14:22,405
Or, or it's intangibles.

277
00:14:22,405 --> 00:14:23,205
You just software.

278
00:14:23,205 --> 00:14:24,145
You just need software.

279
00:14:24,445 --> 00:14:27,885
Uh, we, that's another discussion, but
the point is that we can reduce the

280
00:14:27,885 --> 00:14:30,175
cost of machinery, uh, dramatically.

281
00:14:30,175 --> 00:14:34,395
So this rising organic composition
of capital actually falls, so

282
00:14:34,395 --> 00:14:35,805
the rate of profit stays up.

283
00:14:36,165 --> 00:14:38,405
Marx explains all these
counteracting factors.

284
00:14:38,635 --> 00:14:43,415
In a country, if you could ex- ex-
export more and get profit out of

285
00:14:43,685 --> 00:14:48,515
other people's poor wages and poor
conditions and bring that profit back,

286
00:14:48,515 --> 00:14:52,165
then in your own national country,
you can also com- counteract this,

287
00:14:52,165 --> 00:14:56,575
uh, effect, uh, through, um, foreign
trade and through foreign investment.

288
00:14:57,035 --> 00:15:02,835
But the, all these counteracting factors
have limitations, and the general law of

289
00:15:02,875 --> 00:15:07,695
the tendency to fall, uh, uh, exercises
its power over a period of time.

290
00:15:07,695 --> 00:15:10,315
So you can have a period
when profitability rises.

291
00:15:10,325 --> 00:15:15,435
Mm. Uh, for example, from 1850 to 1873,
before this long depression, there was

292
00:15:15,435 --> 00:15:20,895
quite a sharp rise in profitability
in all the major economies of, uh, uh,

293
00:15:20,895 --> 00:15:24,595
Europe and the Unit- even, and the United
States after the Civil War as well.

294
00:15:25,035 --> 00:15:26,685
Uh, but that came to an end.

295
00:15:26,755 --> 00:15:29,615
Then you can see a down
wave in profitability.

296
00:15:29,725 --> 00:15:32,785
In the book, I discuss up
waves in profitability and

297
00:15:32,795 --> 00:15:33,845
down waves in profitability.

298
00:15:34,355 --> 00:15:38,215
So then we get an up wave from the
1890s up to the First World War,

299
00:15:38,665 --> 00:15:40,155
uh, which continues for a while.

300
00:15:40,155 --> 00:15:43,865
Then we have this down wave during the
Great Depression, as you call it, of the

301
00:15:43,865 --> 00:15:47,195
1930s, which is only resolved by a war.

302
00:15:47,585 --> 00:15:51,635
And then we have what, in our, uh,
lifetime, or at least in mine, maybe

303
00:15:51,635 --> 00:15:57,245
not in yours, Marshall, we come to the
golden age of the period from about 1946

304
00:15:57,265 --> 00:16:01,415
to '64, when there's a massive increase
in production, particularly in the US.

305
00:16:01,785 --> 00:16:03,525
Profitability was very high.

306
00:16:03,845 --> 00:16:07,165
Uh, we call that the golden age because
for capitalism it was a golden age.

307
00:16:07,165 --> 00:16:11,935
They can even afford to make concessions
to workers that, uh, pay them more wages

308
00:16:11,935 --> 00:16:14,065
and so on because they were doing so well.

309
00:16:14,225 --> 00:16:18,731
But That nasty old law of
profitability eventually operated.

310
00:16:19,101 --> 00:16:24,401
By the mid-'70s, we had a recession
in… The first big one in 1974, '5.

311
00:16:24,701 --> 00:16:28,201
And then we had a very sharp fall
in the profitability of capital

312
00:16:28,241 --> 00:16:29,391
in all the major economies.

313
00:16:29,801 --> 00:16:33,841
We have documented this, not just
me, but lots of Marxist scholars have

314
00:16:33,841 --> 00:16:39,311
documented, and even, even the Federal
Reserve has documented this fall in the

315
00:16:39,311 --> 00:16:45,191
rate of profit from the mid-1970s or
even earlier to nine- the early 1980s.

316
00:16:45,261 --> 00:16:49,921
This was a dramatic fall, which led to
a complete change in the whole situation

317
00:16:50,251 --> 00:16:54,981
of the capitalist economies of the
West, and a completely different set

318
00:16:54,981 --> 00:16:57,131
of policies from the 1980s onwards.

319
00:16:57,181 --> 00:16:58,951
The golden age, uh, was over.

320
00:16:59,341 --> 00:17:03,221
But that, the point here is
that it's profitability that

321
00:17:03,221 --> 00:17:04,831
drives these different waves.

322
00:17:04,931 --> 00:17:08,891
These waves will vary according
to, um, what's the underlying

323
00:17:08,891 --> 00:17:11,661
forces on the organic composition
of capital, which we talked about,

324
00:17:11,661 --> 00:17:13,661
and the counteracting factors.

325
00:17:14,041 --> 00:17:19,761
Uh, and that is the long-term view of
how capitalism works in, in, in my view.

326
00:17:20,031 --> 00:17:24,171
And I think it is not just my view,
but I think it is Marx's view.

327
00:17:24,561 --> 00:17:28,271
Um, and just to remind, just to add
a little bit here, Marshall, that-

328
00:17:28,551 --> 00:17:33,321
Please … uh, Marx, Marx died in nine…
1883, uh, just to let people know.

329
00:17:33,321 --> 00:17:37,991
So if you like, he died in the
middle of this first depression

330
00:17:37,991 --> 00:17:39,831
of the, of the late 19th century.

331
00:17:40,241 --> 00:17:40,471
Marshall: Mm-hmm.

332
00:17:40,481 --> 00:17:44,711
Michael: Uh, he made some comments about,
in his writings at the time, about, uh,

333
00:17:44,711 --> 00:17:47,081
the s- the slump of the 1870s and so on.

334
00:17:47,421 --> 00:17:53,995
But Engels, who was his close colleague
Did write a number of works about

335
00:17:53,995 --> 00:17:55,635
the nature of this depression period.

336
00:17:55,645 --> 00:17:57,465
He mentioned that this
was a different period.

337
00:17:57,755 --> 00:17:59,265
This wasn't just boom and slump again.

338
00:17:59,445 --> 00:18:02,085
This seemed to be a depression
that was gonna go on for some

339
00:18:02,085 --> 00:18:03,795
time, and he was frightened.

340
00:18:03,805 --> 00:18:07,965
He said that if this depression continues,
we could get to a situation where

341
00:18:07,965 --> 00:18:12,525
the major, uh, powers, you know, the
capitalist powers would start fighting

342
00:18:12,715 --> 00:18:17,825
over the available profits that were
in the, uh, the major economies, and

343
00:18:17,825 --> 00:18:19,735
that could lead to a serious world war.

344
00:18:20,005 --> 00:18:23,705
So he predicted the First World
War as a result of this depressing

345
00:18:23,705 --> 00:18:27,115
period, uh, causing the conflict
between the various major powers.

346
00:18:27,355 --> 00:18:31,665
So it has political, uh,
consequences in, in his thought.

347
00:18:32,605 --> 00:18:36,725
Marshall: And, and yet, and I just wanna
again just briefly go back to 1929, right?

348
00:18:36,735 --> 00:18:36,755
Yeah.

349
00:18:36,755 --> 00:18:40,665
Because at that point you're arguing that
prior to that, there was another one of

350
00:18:40,665 --> 00:18:43,195
these, quote-unquote, "recoveries," right?

351
00:18:43,195 --> 00:18:43,215
Yeah.

352
00:18:43,235 --> 00:18:46,805
In the, a- as a result of this,
these conditions that led up to

353
00:18:47,475 --> 00:18:51,895
1917, there was, as you, as you
previously argued today, war in

354
00:18:51,895 --> 00:18:56,265
this particular case was an economic
driver towards, uh, an improvement

355
00:18:56,305 --> 00:18:59,295
in the world economy, and then, then
comes along the Great Depression.

356
00:18:59,305 --> 00:18:59,325
Yeah.

357
00:18:59,505 --> 00:19:03,335
So, so starting with that, that,
that I'm gonna just use your label

358
00:19:03,335 --> 00:19:07,065
as the second depressionary event
that you, that stood out in the book.

359
00:19:07,075 --> 00:19:10,955
Because, 'cause honestly, Michael, you'll,
you know, you, you put together pretty

360
00:19:10,955 --> 00:19:15,555
much an, an unending and continuous
economic history of sl- I mean, if you…

361
00:19:15,735 --> 00:19:21,045
But, but you p- but in particular you,
you, you took these three periods, and you

362
00:19:21,045 --> 00:19:23,505
said that there was something different
about these particular three periods.

363
00:19:23,515 --> 00:19:23,535
Yeah.

364
00:19:23,575 --> 00:19:27,575
So if you don't mind, what was the
conditions that led during, for

365
00:19:27,575 --> 00:19:32,095
the pr- just in the lead up to 1929
that made that one a particularly, a

366
00:19:32,095 --> 00:19:33,695
particularly, you know, pernicious event?

367
00:19:33,965 --> 00:19:34,255
Michael: Right.

368
00:19:34,255 --> 00:19:39,695
Well, the, the basic underlying thing
was that the profitability rates in the

369
00:19:39,695 --> 00:19:46,185
United States and in Europe started to
fall in the latter part of the 20, 1920s.

370
00:19:46,525 --> 00:19:51,545
If you remember, if you read your school
books about the Roaring '20s, uh, was

371
00:19:51,545 --> 00:19:55,505
the period when there was a massive
growth, um, in production it would seem,

372
00:19:55,505 --> 00:19:57,205
and trade, particularly for the US.

373
00:19:57,575 --> 00:20:00,465
Uh, it wasn't so good in
Europe where there was major

374
00:20:00,515 --> 00:20:01,855
political struggles going on.

375
00:20:02,175 --> 00:20:06,095
But you had a period of, it, it
would appear, of, uh, upswing,

376
00:20:06,395 --> 00:20:07,935
uh, for the United States.

377
00:20:08,235 --> 00:20:13,205
And, um, but that, underlying it we found
gradually towards the end of the '20s,

378
00:20:13,735 --> 00:20:15,575
the profitability of capital was falling.

379
00:20:15,575 --> 00:20:20,875
So as we headed towards the end of the
1920s, at that time we had the stock

380
00:20:20,875 --> 00:20:23,645
market in the US had got out of control.

381
00:20:23,655 --> 00:20:26,583
It was- Hy- hypersonically taken off.

382
00:20:26,583 --> 00:20:29,443
It was in, uh, every… All the
investors thought everything

383
00:20:29,443 --> 00:20:30,883
was going to be, go on forever.

384
00:20:31,133 --> 00:20:34,993
They were investing, like, over and over
again into the stocks of these various

385
00:20:34,993 --> 00:20:36,833
companies and so on, and banks and so on.

386
00:20:37,303 --> 00:20:41,113
Uh, borrowing money hugely to
do so, all to make a profit.

387
00:20:41,143 --> 00:20:46,253
So what you've got is, uh, a increasingly
difficult position on the productive level

388
00:20:46,253 --> 00:20:48,203
in the economy itself and profitability.

389
00:20:48,453 --> 00:20:51,143
But in the financial
sector, it was euphoria.

390
00:20:51,343 --> 00:20:52,953
Everybody's pumping money in.

391
00:20:53,243 --> 00:20:56,823
Uh, it's a bit like now, uh, to
some extent, and they're pumping

392
00:20:56,823 --> 00:21:00,203
in, uh, huge amounts of money
in order to make more money.

393
00:21:00,213 --> 00:21:01,433
It's money out of money.

394
00:21:01,583 --> 00:21:03,263
It doesn't matter about any production.

395
00:21:03,263 --> 00:21:05,783
That's, that's what stock
market investors are like.

396
00:21:06,073 --> 00:21:11,343
But of course, uh, just like, um,
you can't, you can't do that if the

397
00:21:11,343 --> 00:21:15,423
foundations upon which your economy's
beses- based are beginning to crumble.

398
00:21:15,653 --> 00:21:18,283
And at a certain point,
it came to a collapse.

399
00:21:18,583 --> 00:21:21,163
I would point out that all the
economists of the time, the mainstream

400
00:21:21,163 --> 00:21:22,553
economists, thought it wouldn't collapse.

401
00:21:22,583 --> 00:21:27,903
They all thought it was fine, uh, and,
uh, made rather unfortunate statements

402
00:21:28,083 --> 00:21:30,843
that, for them, later on when it
became clear everything was absolutely

403
00:21:30,853 --> 00:21:32,133
fine, then we had the collapse.

404
00:21:32,343 --> 00:21:37,627
And of course, we had the 1929 stock
market crash Investors jumping out of

405
00:21:37,627 --> 00:21:42,637
windows because they've lost all their
money, and we had a huge, great crash.

406
00:21:42,987 --> 00:21:47,847
That, that crash then led on to a
period of not re- of depression.

407
00:21:48,347 --> 00:21:50,127
There, there was no
recovery from that slump.

408
00:21:50,497 --> 00:21:55,287
It was throughout the 1930s, masses
of unemployed people in queues, as

409
00:21:55,297 --> 00:21:59,097
you see in the pictures in the United
States and, and in Europe as well.

410
00:21:59,547 --> 00:22:05,877
And just sit- and out in the country,
and for the farmers wiped out, uh, with,

411
00:22:06,017 --> 00:22:09,037
with their crops gone and the Dust Bowl.

412
00:22:09,337 --> 00:22:12,717
And Grapes of Wrath is a novel
written by Steinbeck which

413
00:22:12,717 --> 00:22:14,377
describes the situation there.

414
00:22:14,667 --> 00:22:18,767
This was a horrendously depressed
period for the United States, but

415
00:22:18,767 --> 00:22:22,327
not just the United States, for
the other major economies at will.

416
00:22:22,647 --> 00:22:26,697
And they only came out of that when
the government intervened in the

417
00:22:26,697 --> 00:22:31,857
latter part of the 1930s, basically
to, to build a war economy, and

418
00:22:31,867 --> 00:22:35,657
that's the, the situation that took
place in that particular depression.

419
00:22:36,027 --> 00:22:40,027
But it, again, the fundamental point
was it was profitability started

420
00:22:40,027 --> 00:22:44,447
to downturn, and w- in the book, I
show you, give the figures for this.

421
00:22:44,447 --> 00:22:49,377
And I s- emphasize that because,
um, this book has got a lot of facts

422
00:22:49,377 --> 00:22:54,007
and figures in it, because I wanted
to convince people with facts and

423
00:22:54,007 --> 00:22:56,077
figures that the theory is correct.

424
00:22:56,347 --> 00:23:00,497
Because this theory of the tendency of
the rate of profit to fall that Marx

425
00:23:00,497 --> 00:23:06,287
expresses in volume three of Capital
has been disputed not just by mainstream

426
00:23:06,287 --> 00:23:09,987
economists who ignore it all together,
but, well, lots of people on the left.

427
00:23:10,307 --> 00:23:13,597
Socialists who consider themselves
socialists, they dispute this theory.

428
00:23:13,677 --> 00:23:14,787
They don't think it's correct.

429
00:23:15,167 --> 00:23:19,657
Uh, even Marxists dis- dispute the theory,
and have come up with alternatives.

430
00:23:19,667 --> 00:23:24,127
So I wanted to show that this was
correct, and that this theory can

431
00:23:24,127 --> 00:23:25,257
be backed up with the evidence.

432
00:23:26,177 --> 00:23:29,367
Marshall: Yeah, and, and just, just if
you can just explain to me, Michael,

433
00:23:29,377 --> 00:23:31,447
wh- where does the, the variance lie?

434
00:23:31,457 --> 00:23:35,837
Like in other words, d- don't the, the,
the rate of profit, you know, i- isn't

435
00:23:35,837 --> 00:23:39,537
there, is there an objective measure in
terms of numbers, in terms of earnings?

436
00:23:39,537 --> 00:23:43,737
Like, so where, where is, where do you
think that this… I- is it about the why?

437
00:23:44,247 --> 00:23:46,367
Well, like, where, where do you
think, where did, did this, uh,

438
00:23:46,407 --> 00:23:47,477
these disagreements come from?

439
00:23:47,477 --> 00:23:50,167
And if you can just give one or two
of the other perspectives- Yes … uh,

440
00:23:50,237 --> 00:23:53,077
during that time that, that, that
really, that take a different view.

441
00:23:53,077 --> 00:23:56,317
I wanna, I wanna just try to
understand why, what their, their,

442
00:23:56,337 --> 00:23:57,367
their argument is, essentially.

443
00:23:57,367 --> 00:23:57,397
Yeah.

444
00:23:57,397 --> 00:23:58,377
How would they dispute it?

445
00:23:58,677 --> 00:24:03,597
Michael: Well, the fir- I think the
biggest one amongst the left, uh…

446
00:24:03,647 --> 00:24:06,777
Well, first of all, let's say the
biggest one amongst the mainstream was

447
00:24:07,107 --> 00:24:08,957
that this was a series of accidents.

448
00:24:08,967 --> 00:24:08,997
Uh-huh.

449
00:24:09,187 --> 00:24:10,717
Bad policy decisions.

450
00:24:10,997 --> 00:24:13,397
People, uh, governments
make wrong decisions.

451
00:24:13,397 --> 00:24:19,399
They put the interest rates up, the
bank too high, or they, uh- Introduced

452
00:24:19,409 --> 00:24:21,799
tariffs and blocked, uh, trade to go on.

453
00:24:22,089 --> 00:24:24,699
So they would say it was
political decisions made by the

454
00:24:24,699 --> 00:24:26,739
leaders which caused the slump.

455
00:24:27,109 --> 00:24:28,819
And so what do we learn from that?

456
00:24:28,949 --> 00:24:32,199
If that was correct, then all we
have to do is get the right decisions

457
00:24:32,209 --> 00:24:34,939
from the right political leaders,
and we won't have any more slumps.

458
00:24:35,129 --> 00:24:37,789
Although I have to say, since
the 1930s, we've had a few.

459
00:24:38,079 --> 00:24:40,849
So m- there's an awful lot, lot
of political leaders who are

460
00:24:40,879 --> 00:24:42,619
still wrong, if that's the theory.

461
00:24:42,919 --> 00:24:45,449
Then there's… amongst the
leftists, there's a different theory.

462
00:24:45,759 --> 00:24:50,809
Uh, first of all, there's financial,
uh, irregularity, a l- lack of, uh,

463
00:24:50,839 --> 00:24:52,499
control over the financial sector.

464
00:24:52,509 --> 00:24:55,829
It's out of control, and that … It
brings everything else down.

465
00:24:56,119 --> 00:24:59,279
Um, I mean, there's a certain
element of truth in that argument,

466
00:24:59,539 --> 00:25:02,709
but the question you have to ask
is, why did it get out of control?

467
00:25:02,759 --> 00:25:03,859
What's, what's driving it?

468
00:25:04,129 --> 00:25:09,099
And also, uh, sometimes if you reduce
the financial sector, if the economy in

469
00:25:09,099 --> 00:25:11,549
general is doing okay, there is no crisis.

470
00:25:11,549 --> 00:25:15,499
It just … You know, a few banks
go to the wall or a company that's

471
00:25:15,739 --> 00:25:19,939
got out of control falls away, but
not when the whole thing melts down.

472
00:25:20,189 --> 00:25:23,939
So there's something going on
beneath in the real economy which

473
00:25:23,959 --> 00:25:25,439
must have caused that situation.

474
00:25:25,439 --> 00:25:31,793
So financial, um- Uh, lack of control,
regulation, uh, is another theory

475
00:25:31,793 --> 00:25:33,543
which I don't think is, is convincing.

476
00:25:33,883 --> 00:25:37,083
The other main leftist theories,
and these are probably a bit more,

477
00:25:37,363 --> 00:25:40,233
is that, and it's often argued, and
particularly among socialists in the

478
00:25:40,233 --> 00:25:46,473
past, is that, uh, workers get wages
and they'd only get … They don't

479
00:25:46,483 --> 00:25:49,793
have enough wages to buy all the goods
that the capitalists are producing.

480
00:25:49,833 --> 00:25:53,173
The capitalists are producing
way more than wages can buy.

481
00:25:53,173 --> 00:25:54,093
So there's underconsumption.

482
00:25:54,703 --> 00:25:58,383
There's a lack of consumption, lack
of demand, so the capitalists find

483
00:25:58,383 --> 00:26:01,773
themselves unable to sell their goods
because workers don't have enough money.

484
00:26:01,813 --> 00:26:05,293
Well, uh, Engels answered this,
uh, back in the 19th century.

485
00:26:05,293 --> 00:26:06,983
He said, "That's always the case.

486
00:26:07,403 --> 00:26:10,393
Workers never have enough money to
buy all the goods the capitalists

487
00:26:10,393 --> 00:26:14,113
are, are producing." So that doesn't
explain booms and slumps at all.

488
00:26:14,113 --> 00:26:17,383
It just explains that workers don't
have control over their economy.

489
00:26:17,733 --> 00:26:20,713
Uh, that they're not in a position
to decide what the capitalists do.

490
00:26:21,143 --> 00:26:23,543
So where do the capitalists
get their profit if they d- if

491
00:26:23,543 --> 00:26:25,963
there's not enough wages earned by

492
00:26:26,143 --> 00:26:27,533
They get it from other capitalists.

493
00:26:27,953 --> 00:26:30,733
Most capitalists sell
goods to other capitalists.

494
00:26:31,063 --> 00:26:34,893
Uh, if you're sitting in this
room now, your headphones are on.

495
00:26:35,153 --> 00:26:36,963
Who made the ca- who made the headphones?

496
00:26:36,963 --> 00:26:38,973
Or who made the bits of
metal in the headphones?

497
00:26:38,973 --> 00:26:40,003
Who made the wires?

498
00:26:40,273 --> 00:26:42,533
Who made the, uh, sound system?

499
00:26:42,773 --> 00:26:45,363
All these are different capitalists, and
they're selling to other capitalists.

500
00:26:45,363 --> 00:26:49,253
They're selling to Zoom
or r- studios and so on.

501
00:26:49,563 --> 00:26:55,573
And then finally, maybe, uh, Marshall
has to pay some money, uh, uh, out of

502
00:26:55,573 --> 00:27:00,473
his wages to get the … He said, "But
the vast majority of the activity going

503
00:27:00,473 --> 00:27:04,663
on, and sales going on, is between
capitalists." So the system works.

504
00:27:04,673 --> 00:27:08,723
It doesn't need workers
to have, uh, enough wages.

505
00:27:08,953 --> 00:27:11,843
It just needs capitalists to be
able to make profit out of each

506
00:27:11,843 --> 00:27:13,653
other and workers in general.

507
00:27:13,923 --> 00:27:14,843
So that's the second.

508
00:27:15,053 --> 00:27:18,453
The final one, I suppose, is
that there's al- capitalists are

509
00:27:18,453 --> 00:27:20,053
always producing far too much.

510
00:27:20,093 --> 00:27:23,583
The … It's a bit similar to the other
argument, but they … It's nonstop.

511
00:27:23,593 --> 00:27:24,703
They, they, they're blind.

512
00:27:25,053 --> 00:27:28,013
Uh, they just keep producing, keep
producing, and then suddenly they go

513
00:27:28,023 --> 00:27:32,589
over a cliff, uh, and it all collapses
down Uh, so there's overproduction.

514
00:27:32,599 --> 00:27:34,709
So this is a theory of overproduction.

515
00:27:35,069 --> 00:27:38,309
My reply to that is, yes,
that's exactly what a slump is.

516
00:27:38,439 --> 00:27:40,919
There's overproduction, they
can't sell all their goods,

517
00:27:41,049 --> 00:27:42,239
they've gone down a cliff.

518
00:27:42,439 --> 00:27:45,999
But why was it going fine and
then they go down a cliff?

519
00:27:46,359 --> 00:27:48,709
What's … Why has that suddenly happened?

520
00:27:49,129 --> 00:27:51,689
Uh, why doesn't it happen all
the time then, if that's the- Mm

521
00:27:51,689 --> 00:27:52,439
if that's the argument?

522
00:27:52,719 --> 00:27:57,339
And that argument, again, I don't think,
doesn't give you a convincing explanation

523
00:27:57,659 --> 00:27:59,529
of this process of booms and slumps.

524
00:27:59,529 --> 00:28:01,649
It doesn't explain booms and slumps.

525
00:28:01,649 --> 00:28:04,759
It doesn't explain booms in that case,
or it doesn't explain slumps that

526
00:28:04,759 --> 00:28:06,609
come afterward, and then booms again.

527
00:28:06,959 --> 00:28:11,409
Uh, we need a … The, the theory must go
back to what Marx said was the key factor

528
00:28:11,429 --> 00:28:16,699
about capitalism, that capitalists only
produce and invest if they make a profit.

529
00:28:17,129 --> 00:28:19,549
So it's- Mm … profit that's
gonna belie behind everything.

530
00:28:19,589 --> 00:28:22,159
Profit lies behind everything,
doesn't it, in our society?

531
00:28:22,509 --> 00:28:23,519
Everything is profit.

532
00:28:23,759 --> 00:28:27,079
I mean, uh, uh, you wouldn't believe
this, Marshall, but if you read

533
00:28:27,079 --> 00:28:30,059
the mainstream economists, there's
no … All their theories of economics

534
00:28:30,059 --> 00:28:31,429
have no profit in them at all.

535
00:28:31,489 --> 00:28:32,219
There's no profit.

536
00:28:32,829 --> 00:28:37,339
Um, uh, the theories of neoclassical
economics don't refer to profit at all.

537
00:28:37,349 --> 00:28:40,869
They refer to factors of production
and returns on factors, but

538
00:28:40,979 --> 00:28:41,999
they don't refer to profit.

539
00:28:42,419 --> 00:28:47,289
The … Some Marxists also don't … They
say profits has massively increased,

540
00:28:47,719 --> 00:28:51,649
so- Mm … uh, so therefore they can't
be profit that causes, uh, the crisis.

541
00:28:51,649 --> 00:28:54,669
That's another argument
for … coming from, from Marxists.

542
00:28:54,979 --> 00:28:55,239
Well,

543
00:28:55,639 --> 00:28:55,769
Marshall: uh,

544
00:28:55,949 --> 00:28:56,049
Michael: it-

545
00:28:56,049 --> 00:28:56,069
Marshall: Yeah.

546
00:28:56,069 --> 00:28:59,309
And I think you use the terms
exogenous factors in the book, too,

547
00:28:59,309 --> 00:29:02,479
as well- Yes … of how they kind of
separate these, these influences into

548
00:29:02,539 --> 00:29:04,009
Michael: different things They're
nothing to do with capitalism.

549
00:29:04,009 --> 00:29:05,619
See, capitalism's a great system.

550
00:29:05,919 --> 00:29:11,089
It's just that either there's some bad,
bad decisions, bad people, bad regulation.

551
00:29:11,489 --> 00:29:12,929
It's … Or it's the finance.

552
00:29:13,129 --> 00:29:18,479
Everything's fine down in the world of,
uh, tech, down in the world of industry.

553
00:29:18,829 --> 00:29:21,349
Uh, that's all going
perfectly fine under profit.

554
00:29:21,619 --> 00:29:24,139
What's going wrong is that there's
a, sort of, lot of financial

555
00:29:24,139 --> 00:29:28,009
speculation going on with hedge funds
and, and we need to control them.

556
00:29:28,309 --> 00:29:31,049
But they're only speculating
because they know they can make

557
00:29:31,049 --> 00:29:33,889
money out of the others, and they
have to make money to do that.

558
00:29:33,899 --> 00:29:36,239
So it, it … You can't separate the two