By 2010 I had become convinced that the discussion among Marxists about the profit rate was at a dead end, and needed a wider vision, based on Marx’s own work, if it were to be resituated in such a way as to explain the reality of the actual empirical causes of the current capitalist crisis. It turned out, though I did not begin from this presupposition, that Marx’s own concept of capital provides the necessary foundation for such a resituation.
The essentiual ground for this resituation had already been established by TSSI scholars who had demonstrated the logical coherence of Marx’s approach. I therefore set out to ask which aspects of this approach might assist in explaining the specific function of marketable financial assets – monetised debt instruments which could be traded in markets just like normal commodities – but whose price was determined, along with all other forms of fictitious capital – not by the value intrinsic in them but by the capitalized revenue streams that these represented.
In a value framework, the solution is extremely simple: these instruments represent claims on total surplus value, just as industrial capital, commercial capital and landed capital. Therefore, the task before any genuine scientific political economy is to analyse how these claims manifest themselves in real capitalist economies.
In this article, I set out a framework for achieving this analysis.
This post includes a Spanish translation, for which I am indebted to Diego Guerrero.
Not unsurprisingly it met with universal scepticism, including, I am sad to say, among TSSI scholars. Nevertheless, I feel, it is justified on the basis of the only judge of theory that is ultimately applicable: it explains what we see.
At the time, I justified my approach in this way:
“This is a prepublication version of the article by the same name in the Journal of Australian Political Economy. It should be cited as “Freeman, A. 2012 ‘The Profit Rate in the Presence of Financial Markets: a Necessary Correction’. Journal of Australian Political Economy, Number 70, Summer 2012, pp 167-192”
In the past two decades the number, variety, and monetary value of marketable financial instruments have grown by orders of magnitude. While traditional equities have certainly grown in number and value, the greatest growth has taken place in securities since the turn to securitized lending in the 1970s. This is probably the single most significant development in what many writers term ‘financialisation’.
This article argues that these assets, when they function as money-capital, enter into the equalization of the rate of profit. They constitute part of the capital advanced by the capitalist class as a whole and should therefore be included in the denominator of the rate of profit.
In the two main world financial markets at least – the UK and the US – The resulting measures of the rate of profit reveal a general, systematic and virtually uninterrupted decline in the rate of profit in these countries since the late 1960s.
The paper then re-examines the definition of the rate of profit found in Marx’s writings on the subject and argues that it confirms the inclusion of financial instruments in both the concept and measure of the general rate of profit as defined by Marx.”