Michael Roberts – Profits call the tune

by
Mike Norman
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I have argued in many posts that ‘profits call the tune’ in capitalist accumulation. What I mean by that is that any change in business profits (and profitability) will lead to changes in business investment – and not vice versa over time.

Profits are key to capitalist investment, not ‘effective demand’ as Keynesians argue, or changes in interest rates or money supply as Monetarists and the Austrian school argue. I differ strongly from the post-Keynesian view that profits are a ‘residual’ generated by investment; or as Keynesian-Marxist Michal Kalecki put it: ‘capitalists earn what they invest, while workers spend what they earn’.

Yes, workers spend what they earn from wage labour ie (consume and save little); but capitalists do not ‘earn’ profits from their investment in capital (means of production and labour). This theory denies Marx’s law of value that only labour produces value and surplus value (profit) for the capitalist. It turns profit into the ‘gift of capital’; ie there is no profit without capitalists investing. Yet profits can be generated out of the exploitation of labour power and capitalists may not invest. Indeed, that is what we can see now in the expansion of ‘fictitious capital’ at the expense of productive investment.

And it’s not just the theory; the empirical evidence is overwhelming that profits lead investment. In several posts and papers, I have cited empirical work done by Marxist economists like Alan Freeman, Andrew Kliman, Peter Jones, Jose Tapia, Guglielmo Carchedi and others including myself that show this. Moreover, there are also many mainstream economic studies from prestigious sources that deliver the same story....