Re: Re: The rate of profit and recession

[Rakesh Bhandari <rakeshb@xxxxxxxxxxxx>]

> Fred, Jim and Charles,
>
> In the late  90's we kept hearing from CEOs, primarily in the US,
> that the reason inflation was contained was as a result of
> increasing competition from offshore companies, in part because of
> 'globalization' of production and increased overinvestment
> (increasing excess productive capacity) in countries like China, in
> part because of the rising value of the USD.  Thus the rising wages
> could only be justified by increased productivity  which we now
> realize was not nearly as great as was reported at the time.  Thus,
> the inability to realize the increased costs (realization as per
> Charles) would lead to falling profits would it not.  What then is the
> root cause of the falling profits?

I think Professor Phillips is suggesting here that unit labor costs
were higher than had been reported which coupled with the severe intl
price competition resulting from global excess capacity has led to
falling profits.

This combines the class struggle thesis of profit squeeze with a neo
Smithean thesis of internationalized over-competition as a root cause
of declining profitability.

The former thesis has been criticized for using profit/wage ratios as
a proxy for the rate of exploitation by Shaikh and Moseley; the
latter overcompetition thesis was directly criticized by Marx himself.

Excess capacity and the global competition to which it gives rise are
the effects, rather than the causes, of a retrenchment in investment
which is itself caused by diminishing profit prospects which thus
remains to be explained.

The explanations which are consistent with the labor theory of value
include a falling rate of profit caused by rising OCC and/or rising
U/P labor ratio or a fall off in the level of investment demand that
equals total potential supply because of a perceived shortage of
living labor which is the only source of value added. Fred M prefers
the former explanation; I am suggesting that the latter can be ruled
out.

Rakesh

ps may I recommend to Professor Phillips Professor Anwar Shaikh's
Introduction to the History of Crisis Theories. In US capitalism in
Crisis, ed. Bruce Steinberg. 1978.