RE: Fred's comments

["Forstater, Mathew" <ForstaterM@xxxxxxxx>]

I think there are many Post Keynesian/Kaleckian types who do not ignore
profits. Even in a basic Keynesian framework, investment is determined
by the relation of the costs of finance and expected profitability,
explaining why investment doesn't take place when interest rates are low
(expected profits are even lower).  It may be true that some PK types
seem to emphasize the first word in the phrase "expected profitability"
more than the second, as Jim says, but still, profits are central to the
Minskian view, as a quick look at the Levy Forecast would show (if you
can afford it! the Forecast--which comes out of a different office than
the Levy Institute stuff--is quite expensive, catering mostly to
business/Wall St. firms.)

All that said, the Keynesian view also usually has interest rates high
at the end of the boom/start of the crash--flight to liquidity by firms
and banks.

Mat

-----Original Message-----
From: jdevine@xxxxxxx [mailto:jdevine@xxxxxxx]
Sent: Saturday, November 03, 2001 9:31 AM
To: pen-l@xxxxxxxxxxxxxxxxxxx
>Subject: [PEN-L:19284] Fred's comments


[for some reason, though I can receive e-mail, I can't get MS Outlook to
send mail under Windows XP on my new PC. I can't even get Eudora to run.
So I'm using an on-line mail service.]

"Fred B. Moseley" <fmoseley@xxxxxxxxxxxxx>writes: > ... This is the
answer
to your [Chris'] puzzle of several weeks ago - that Marx predicted high
interest rates at the peak of an expansion, but now we have low interest
rates.  The answer, as you say, is expansionary monetary policy, which
was
non-existent in Marx's day, but is widely used today. <

Actually, in volume III of CAPITAL, Marx sketches the path of interest
rates
in the business cycle. Even without expansionary monetary policy,
interest
rates fall after the business-cycle peak and the "scramble for cash"
crisis,
because there's a fall in the demand for loanable money-capital as
capital
accumulation slows.

> Expansionary monetary policy may make the crisis less acute, not by
reviving business investment (that requires a revival of the rate of
profit), but rather by lowering the interest burden of existing debts.<

lower interest rates also encourage asset inflation. Without the Fed's
repeated cuts this year, there would have likely been asset deflation in
housing and the stock market would have fallen much more than it did.
This
helps balance sheets just as falling debt burden does, so that that
economy's fall is slowed. This mechanism is "flaky," unpredictable, but
seems to work for awhile.

> But expansionary monetary policy cannot solve the fundamental problem
of
insufficient profitability (too low rate of profit).  That requires the
"liquidation" of large amounts of capital, through bankruptcies,
write-offs,
etc., as you have emphasized in other recent posts.  <

right. However, it is possible that _fiscal_ policy can help capitalists
realize a higher rate of profit, by raising capacity utilization rates.

> ... Marx's theory seems very much to be supported by what is going on
in
the world economy today.

yup.

in a different message, Fred writes:> But who else [besides
Marxists] recognizes the centrality of the rate of profit in the
behavior of the macroeconomy?  Who else even has the rate of profit as a
variable in their theory?  I hope there are some such neo-Keynesians
that  I have overlooked.<

the orthodox economists' blindspot about the rate of profit is amazing.
Some see it as technologically-determined, as "the marginal product of
capital [goods] determined by the [fallacious] aggregate production
function." Others calculate it -- see a recent issue of the US Commerce
Department's SURVEY OF CURRENT BUSINESS -- but largely ignore its role
in the economy, in affecting the rate of accumulation.[*] Old-fashioned
Keynesians talk about
the "marginal efficiency of capital" (or of investment), which seems a
cousin of the rate of profit, but then they overemphasize the subjective
expectations side of the concept, unmooring it from the objective world
of the rate of profit.

The old Cambridge-Keynesians (Robinson, et al) did emphasize the rate of
profit, though not exactly in a Marxian way.

[*] One exception here is Herman I. Liebling (1980. U.S. Corporate
Profitability and Capital Formation: Are Rates of Return Sufficient? New
York: Pergammon.) He argues that the rate of profit was low during the
late 1970s and needed to raised pronto. It's sort of an explicit
class-struggle-minded endorsement of Reaganism, using academic language.

in international solidarity,

Jim Devine jdevine@xxxxxxx

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