Louis Proyect: The Unrepentant Marxist

December 5, 2008

Doug Henwood, Anwar Shaikh, and financial crisis

Filed under: economics,financial crisis — louisproyect @ 10:06 pm

Doug Henwood

Anwar Shaikh

(Audio of Henwood/Shaikh talks is now available)

My first inclination was to approach last night’s talks by Doug Henwood and Anwar Shaikh as a kind of debate between a Marxist bull and bear. But after Doug began to speak, I was reminded of how serious the situation was. In just about every downturn in the American economy since the early 1990s, Doug has quite rightly identified them as temporary dislocations. With recent events, however, there was little to distinguish him from Anwar Shaikh, a New School economist who has virtually made the falling rate of profit and similarly gloomy topics his own.

Referring to his studies of past Wall Street past, Doug likened the capitalist economy to the Timex wristwatch advertising slogan of the 1960s-“It takes a licking and keeps on ticking”-that was typically spoken after watching a Timex working just fine after being sat upon by an elephant. In the world of capitalist economics, the 1987 stock market crash was one such elephant. After a huge drop, the market picked itself up, dusted itself off, and began to scale new heights.

Doug focused on the role of the collapse of the housing bubble in today’s financial crisis, citing Robert Schiller’s findings that housing prices have been quite stable historically. Until 1995, they remained about the same as they had been in the 1890s using adjusted prices. But from that point on, they began to skyrocket in the range of 100-200 percent. You can look at a graph of Schiller’s housing prices here. Clearly they were not sustainable.

Exacerbating the bubble were exotic instruments crafted by hedge funds and other financial institutions that packaged together and hawked shaky home mortgage not worth the paper upon which the securities were written.

Although I am obviously not in Doug’s league when it comes to explaining the capitalist economy, he made a point that I tried to make myself in a blog article about UAW concessions and Trotsky’s transitional program. Doug was at a loss to identify new engines of economic growth in the U.S. After the smokestack industries died out in the 1970s, they were replaced by high technology which no longer has the dynamic it once had. The lack of profitable areas of investment reminded him of what someone once said about growth areas in Great Britain in the 1980s and 90s: real estate and finance. That obviously is not a very good sign.

Here, by the way, is what I wrote along the same lines:

In distinction to the period of the sit-down strikes that rocked Detroit, Flint and other auto manufacturing centers, today’s domestic automobile industry is basically moribund. Smokestack industries, from steel to rubber and auto, were at the core of the American economy in the 1930s but that is no longer the case. When workers sat in at GM in Flint in 1938, the bosses organized armed attacks since automobile manufacturing was still a core component of the capitalist economy. Despite the interest that the auto executives have today in keeping their operations afloat, there are signs that many capitalist politicians would be happy to see them go down drain-most surprisingly from the ranks of the Republican Party, a party that supposedly stands for unbridled free enterprise…

Ironically, despite the fact that the current economic crisis will probably not generate the kind of mass suffering experienced in the 1930s when unemployment reached 25 percent, it is actually more intractable than that of FDR’s epoch in some ways. To start with, there are few prospects on the horizon that will deliver the kind of dynamism that smokestack industries provided during earlier stages of capitalist development. The last such jolt of energy occurred with the computer revolution which began in the 1950s and has already reached maturity. With Dell Computers selling for around $300, you are clearly dealing with an economic wave in its final stages.

Doug also alluded to the differences he had with some leftists who opposed bailouts for AIG et al. He felt that there was no alternative. If the credit markets could not function properly, the economy would grind to a halt and cause immense suffering to those who could least afford it. Clearly, he has been thinking through these issues since he now formulates the task facing the left in terms of transforming financial institutions into a kind of public utility. Speaking only for myself, I feel that this kind of public utility must be distinguished from anything like Con Edison, with its long record of greed and indifference to the public interest.

This was the first chance I have had to hear Anwar Shaikh in person. I know him mostly through his very fine website that I referenced when I was preparing some comments on crisis theory for the Introduction to Marxism reading group.

Anwar started out by saying that the term Great Depression does not apply solely to the one that began in 1929. In his view, there were other Great Depressions in American history, including the 1840s, the 1870s, the 1930s and even the 1970s. He defines such events as having either a relatively short and very painful character or extending over a longer period with a bit less misery. In his view the “lost decade” of Japan in the 1990s falls into the latter category. When the government is committed to full employment and a social safety net, as was the case in Japan, you don’t have people selling apples on the street but it takes much longer for capitalism to enter a new expansionary period. In the U.S., since there is much less concern for workers, economic collapses tend to go about the task of “creative destruction” much more intensively and throw caution to the wind. With the goal being survival of the fittest firms, the American approach seems to make more sense from the standpoint of capitalist rationality using the term rational quite liberally given the specter of 10 percent or more unemployment that we are facing.

Although Anwar initially referred to the 1970s as an example of a Great Depression, he subsequently clarified that the period in question began in 1965 and lasted until 1982. Using equalized prices, the stock market took a 65 percent hit-comparable to the 1930s. Japan’s depression was also devastating. At its peak, their stock market was at 39,000. For the longest time it failed to go over 9,000 and is hovering around 16,000 of late. If the American stock markets are destined to suffer the same fate, the prospects for capitalist recovery are guarded at best.

Anwar identified the 1965 to 1982 period as one in which corporate profits suffered dramatically lower growth rates. It was only after an all out assault on American labor symbolized (in my view) by the airline controller’s strike that profit rates began to increase somewhat. But even more critical for the expansion up until the most recent period has been the availability of low interest rates. For corporations, this has meant increased profits because the price of capital has decreased. For workers, who were still in the neoliberal straightjacket placed on them in the 1970s, the only way to participate in the faux boom was through home equity loans on inflated house prices (although Anwar did not mention it, it is likely that he would have included cheap commodities from China and elsewhere for sale at Walmart, et al.)

During the discussion period I asked Anwar what accounts for the falling rate of profit. I have read Henryk Grossman on the subject but found his treatment at a very high level of abstraction. Have there been any attempts to bridge the gap between such abstract treatments and the actual case studies of American corporations? He referred me to his critique of Robert Brenner that appeared in Historical Materialism, Number 5.  Here is an excerpt I got a real chuckle out of, wondering if the comparison to Adam Smith was a subtle dig prompted by Brenner’s famous 1977 polemic against Paul Sweezy in which the Monthly Review editor was also likened to Adam Smith:

Classical and Marxian theories are premised on the notion that aggregate industrial profit originates in production, through the creation of a surplus product and surplus-value, so that price changes merely transfer it from one venue to another. But it is important to note that circulation can also give rise to profit in its own right, provided it involves a fundamentally unequal exchange between two poles. This was the secret of merchant capitalism, which lived off ‘buying cheap’ at one pole and ‘selling dear’ at another. And in such circumstances, competition can indeed erode the gap between the purchase and selling prices, thereby reducing not only individual profit rates but also the total. The irony is that, in his particular explanation of falling profitability, Brenner not only abandons Marx for Smith, but also industrial capitalism for merchant capitalism.


  1. Thanks for this, the links will be very useful. Do you know if these talks are available for reading or listening anywhere?

    I’ve been a subscriber to LBO for many years and you are right that Doug is sounding much more pessimistic this time. I heard him give a little promo for his talk on his radio show Thursday on WBAI.

    Comment by belgish — December 6, 2008 @ 3:25 am

  2. If I learn anything about the talks being made available online, I will post a link.

    Comment by louisproyect — December 6, 2008 @ 3:36 am

  3. Lou,

    Henwood supported the AIG bailout, because… because the alternatives were intolerable? Isn’t this the older lesser evil argument all dressed up in the clothing of a dismal scientist?

    Why not support every thing the Fed,the Treasury, does?

    And the rescue of AIG (and everything else)? What has it accomplished?

    If the credit markets can’t function successfully…? And then? They are not functioning “successfully,” they are functioning as determining by the contradictions of capitalist accumulation.

    We should not be in the business of improving capitalism– I don’t mean reform of labor conditions, wages, but refinement of the mechanisms for accumulation, as every refinement, improvement, “democratization” sets the stage for expanding barbarism– as FDR’s New Deal fed the US working class into a world war.

    Comment by S Artesian — December 6, 2008 @ 3:53 pm

  4. I’ve commented on this before on Marxmail. Henwood in my view is not a Marxist, but a left Keynesian. His claim that “If the credit markets could not function properly, the economy would grind to a halt and cause immense suffering to those who could least afford it” is clearly false, since it is being shown to us every day since August 2007 that the intermediation of the “credit markets” can be replaced by the direct financial intermediation of the state. Unfortunately, actual state intervention is being perverted into intermediation for the purpose of preserving the position of the financial sector in the economy rather than for the benefit of the economy as a whole, not even for the benefit of capitalist sectors excluded from the charmed circle of military-financial parasitism, much less for the rest of the population.

    But since state intervention IS occurring on a massive scale in full public view (if except for the details of the diversion of enormous sums from the U.S. Treasury), why not call for direct state intermediation NOW (Doug!) and cut out the middleman who, after all, precipitated the crisis. These “too big to fail” operations should, of course, be taken over, shutdown, broken up, their officers imprisoned and the remainder to public utility functions.

    But no, Henwood can’t even bring himself to support this minimal reform because there is no “realistic” chance of it occurring. But it is precisely this diversionary hijacking of the Treasury that will now be an immense barrier to any US economic restructuring that would constitute a “way out” of the crisis, even in narrow capitalist terms. Henwood in his call to support the AIG bailout therefore is calling for a worsening of mass misery, not its alleviation. And Dougs’ call is now directly opposed to what should now be called for: the reversal of the Treasury hijacking. Without that there will be no class struggle over where these funds should be going: in essence to bail out the capitalists or the workers. They will all be gone down the financial rathole. Once again Henwood is to be found on the other side of the front line as it presently stands.

    Comment by Matt — December 6, 2008 @ 8:12 pm

  5. Matt, I need some help. Could you explain to me who, besides you, is going to accomplish this realization of The Internationale?

    Comment by Doug Henwood — December 6, 2008 @ 10:12 pm

  6. Henwood’s defensive sarcastic response to Matt’s apt comments (and, by extension, Artesian’s “we cannot be in the business of improving capitalism”)is no argument. And no defense of his position. At all. Marxists ought oppose these bail-outs and point out them as what they are, bandages applied, at our (workers) expense, to try and soothe the ills caused by fundamental flaws in the logic and the mechanics of this system.

    Comment by John A Imani — December 7, 2008 @ 2:34 am

  7. You don’t have to be a Marxist to oppose the bailout as a corrupt payoff to Wall Street under the guise of restoring liquidity to the credit system.

    Dean Baker, no Marxist, opposed it on these grounds and Elizabeth Warren, who was (miraculously) appointed to the congressional panel overseeing the bailout appears to be heading towards a similar conclusion:


    Ultimately, those who viewed the bailout with a sufficient degree of skepticism are those who have the capacity to view the claims of the technocratic intelligentia (in the economics profession, and elsewhere) for what they normally are: serving the interests of entrenched power and privilege.

    It is not obvious to me that Marxists have a particularly good track record of skepticism with respect to these sort of claims. In this connection, i might be noted that Henwood was by no means the only self professed Marxist to support the bailout.

    The reasons for this are, perhaps, worth discussing,

    Comment by John Halle — December 7, 2008 @ 4:01 pm

  8. I don’t think that Doug’s response here was sarcastic at all. His position on the the financial sector bailout, to me, is the “best” of the realistic options. A wish list, while perfectly acceptable, is something entirely different…

    Comment by Mark S. — December 7, 2008 @ 9:47 pm

  9. Hi, audio of the discussion is online at:

    Comment by hello — December 8, 2008 @ 9:17 pm

  10. I would question the degree to which rate of profit recovered following the application of neo-liberal prescriptions and would also note that, to the extent meaningful, global growth has moved along a decade by decade slowing since the early 1970s. Marx, I belive more than once, pointed to the rise of speculators and expansion of fictitious capital as symptomatic of crisis. He did not, so far as I know, consider the possibility of a rentier segment capturing state power and perpetuating itself, which is what seems to have transpired since ‘Wall Street’s choice’, Paul Volker, rode in to save the day.
    One hand, a Long Slowing
    other, financial hypertrophy and masquerade of prosperity.
    third hand, relative insufficiency of surplus to support those claims against it

    Why is today’s crisis surprising when it has been under development for decades.

    Comment by Juan — December 9, 2008 @ 3:10 am

  11. Anwar Sheik’s crit of Brenner is interesting, but his version of the rate of profit isn’t a Marxist one he says “the rate of profit can be written as the raio of profits to capital stock”…
    With capital stock being “the value of gross fixed captial stock”, leaving out wages and circulating constant capital. Given that these are absolutely critical in determining the rate of profit, and particularly significant for the business cycle (see capital vol 3 chapter 6) then one has to really question the value of his theory.

    Comment by bill j — December 9, 2008 @ 3:42 pm

  12. […] Audio can be downloaded or streamed here. Comments on discussion by Louis Proyect and others here. Note, this was in December […]

    Pingback by RSS agregator » Blog Archive » Doug Henwood and Anwar Shaikh on the Financial Crises — May 21, 2009 @ 1:09 pm

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