The crisis of neoliberalism and Gerard Dumenil

posted 5 Mar 2011, 03:30 by Admin uk   [ updated 5 Mar 2011, 05:47 ]

 by Michael Roberts

 Gerard Dumenil and Dominique Levy have made important contributions to the understanding of Marxist economics over the years.  Now they have a new book out, called The crisis of neoliberalism (  Gerard Dumenil was in London this week to give a presentation on the main ideas in their book.

Dumenil started by saying modern capitalism, or “contemporary capitalism” as he called it, has different phases and takes different forms.  Neoliberalism is the latest.  It is a new form of capitalism.  One of its features is that it is very violent.  You could say it started in 1979 with Volcker’s rate hikes, or with the coup in Chile along with Milton Friedman or with Argentina in 1976, or with Thatcher in 1979, a friend of Pinochet.  But the US is the locus of neoliberalism because it is where ‘financialisation’ and ‘financial hegemony’ started and went furthest (the UK is like a little sister in this regard).

For Dumenil, capitalist crises can be caused by a variety of reasons.  There is no one cause and it won’t be the same cause each time.  He identified what he called “four structural crises” in “contemporary capitalism” of which the crisis of neoliberalism was the latest.  They were structural, unlike ordinary recessions or crises, because they were crises of the prevailing ‘social order’ of capitalism.

The four crises were the decade of 1890s; the 1930s Great Depression; the 1970s crisis; and now the neoliberal crisis of the early 21st century.  The 1890s crisis was caused by a lack of profitability; but the 1930s depression was a financial crisis (as profitability had been rising up to 1929).  The 1970s crisis was one of profitability again; but the crisis of neoliberalism was one of a collapse of financial hegemony (again profitability had been rising up to 2006).

Profitability is not always and not even often the cause of these ‘structural crises’, argues Dumenil.  He had “no idea why there were structural crises every 30-40 years”, but each structural crisis laid the basis for a change in the prevailing social order’.  Those who argue that falling profitability is the cause of capitalist crises forget that Marx did not raise this cause in the Communist Manifesto, but on the contrary referred to the cause of crisis in the credit system.  The crisis of neoliberalism was caused when capitalists “lost control“ of the credit system.  Dumenil said you can see that because the profit crisis of the 1970s took the form of a capitalist “collapse” while the financial crisis of 2008-9 took the form of an “explosion”.

Neoliberalism is a social order, a new form of capitalism, that can be explained by recognising, according to Dumenil, that there are now three classes or “social orders” in contemporary capitalism: the capitalists; the “popular class” made up of wage workers and lower-level salaried employees; and in between there is what he called the “managerial class”.  The social order changes when the managerial class sides with one or other of the other two.  Thus in the 1930s and in the post war period, the managerial class sided with the popular class against the capitalist class and we had the welfare state etc.  In the neoliberal era, the managerial class sided with the capitalist financial class and the popular class was on the back foot.  With the crisis of neoliberalism, we could look to a new realignment of this ‘social order’, with the managers swinging back again.

Neoliberalism started in the US because US capitalism was uniquely placed to expand financial hegemony and could rely on globalisation for growth.   This made the US economy imbalanced with a growing trade deficit and relying on capital inflows from the rest of the world.  This generated excessive consumption and inadequate investment.  And debt took over from saving.  That meant slow accumulation of capital in productive sectors and the need for more financialisation to raise profits.

It was this imbalance of financialisation and globalisation that caused the structural crisis of 2008-9.  It was not falling profitability.  Dumenil produced a graphic showing that the rate of profit for the US non-financial corporate sector peaked in 1965, fell back to 1982, then rose to 1997, fell again to 2002 and then rose again to peak in 2006.  For Dumenil, the crisis of 2008-9 could not be caused by falling profitability because it rose from 1982 to 2006.  This was especially the case if you looked at after-tax profitability and not overall profitability.   The trigger, but not the cause, of the crisis was the residential subprime loans market and the securitisation of those loans around the world

Dumenil concluded from his analysis that the crisis of neoliberalism may well force the US to change the social order with the managers moving towards the ‘popular class’ and adopting a policy of joint government/private investment in green technology and infrastructure as Obama has been arguing.  Dumenil did not think this would work in solving the crisis of neoliberalism and so capitalism would have a new crisis some time.

Also at the presentation was Costas Lapavitsas of the School of African and Oriental Studies.  He said that Dumenil’s book had two very strong points.  The first was that it showed irrefutably that profitability was not the cause of Great Recession.  Dumenil’s data prove that and it was just “alchemy” to suggest otherwise using various tricks as some profitability proponents do.  The fall in the rate of profit after 2005 was too short to be the cause of the recession in 2008 or certainly not enough to explain the “systemic crisis” that the Great Recession was.

Anyway, the idea that the tendency of the rate of profit to fall is the cause of capitalist crises is really a fairly new idea, one that has arisen only post-war and mainly comes from Anglo-Saxon sources, says Lapavitsas.  Sure, it might have fitted the facts in the 1970s, but not after.  “Classical Continental European Marxists” of the prewar era never proposed profitability as the cause of crisis.  Luxemburg said it was underconsumption and others said it was disproportionality.   Lapavitsas reckons the causes of capitalist crisis is complex not monocausal.  Each “structural crisis” has a different cause and Dumenil brilliantly shows this.

The second strong point in Dumenil’s thesis, said Lapavitsas, is that he looks at capitalism as changing through various ‘social orders’.  Financialisation was a product of new order of neoliberalism.  Indeed, we now ought to look at the financial sector as a “separate entity” and not just as an “adjunct” to the producer sector in capitalism.  That is why neoliberalism is an epochal change.  We need to return to Hilferding and Lenin to understand financialisation.  The circulation of capital is now key to understanding the structural crisis of capitalism not profitability.

Where do you start with all this?  As those of you who have read my posts regularly would not be surprised to guess, I could not disagree more with so many of the propositions presented by Dumenil and Lapavitsas.  Let’s start with Lapavitsas’ two ‘strong points’ from Dumenil’s book.  They seem to me to be the weakest arguments, not the strongest.  It seems that, for Dumenil, every crisis is different.  That’s surely true in its immediate or proximate causes – in the latest crisis, it was the collapse of the US residential homes markets that spread to bank assets and various ‘financial weapons of mass destruction’, as Dumenil says.  In the 1970s,  it was the oil price spike that triggered the first simultaneous post-war capitalist recession in 1974-5.  In 1929, it was the Wall St stock market crash that set off the Great Depression.

But these proximate causes do not reveal the underlying or ultimate cause of capitalist crisis.  I would argue that Dumenil makes no clear distinction between proximate and ultimate cause, but merely cherry-picks his causal explanation as it seems to fit – the very charge that Lapavitsas makes against the ‘post-war Anglo Saxons’.

Lapavitsas seemed to be arguing that, because the great ‘classical’ European Marxists of the pre-war era never proposed Marx’s law of profitability as the main causal explanation of capitalist crisis, it can’t be right.  But just maybe Luxemburg and Bukharin were wrong, and if they were ‘classical Marxists’, then maybe Marx was not a classical Marxist (as he indeed once said).

To claim that Marx’s theory of crisis is better found in that short but brilliant propaganda pamphlet, The Communist Manifesto,written in 1848, before Marx had fully formulated his economic theories, rather than in his mature works, Capital Vols 2 and 3, Theories of Surplus Value and Grundrisse, is tendentious, to say the least.  And were there no non Anglo-Saxons that saw Marx’s law of profitability as the main cause of crisis?  What about Henryk Grossman or Paul Mattick? But perhaps they were not ‘classical Marxists’.

As Guglielmo Carchedi pointed in his article in International Socialism, issue 125 ( “some Marxist authors reject what they see as “mono-causal” explanations, especially that of the tendential fall in the rate of profit.  Instead, they argue, there is no single explanation valid for all crises, except that they are all a “property” of capitalism and that crises manifest in different forms in different periods and contexts.  However, if this elusive and mysterious ‘property’ becomes manifest as different causes of different crises, while itself remaining unknowable, if we do not know where all these different causes come from, then we have no crisis theory”.

Carchedi comments “if crises are recurrent and if they have all different causes, these different causes can explain the different crises, but not their recurrence.  If they are recurrent, they must have a common cause that manifests itself recurrently as different causes of different crises. There is no way around the ”monocausality” of crises.”

As for Lapavitsas’ second ‘strong point’, is it really convincing to say that neoliberalism is a new social order, a structural change in the balance of class forces?  Is ‘neoliberalism’ not simply an ideological policy response from the strategists of capital to the profitability crisis of the 1970s?  Dumenil’s analysis of ‘contemporary capitalism’ with its three classes or social orders smacks more of the theory of the sociologist Weber, taken up by some Marxists in the 1930s.  For Marx, there are only two classes defined by their relation to the means of production: one that owns the means of production and appropriates the surplus value created; and one that lives only by selling its labour power.  People may think they are not members of either class but from the point of view of Marxist economic theory, they are defined by these economic categories.  The concept of a managerial class is not part of a ‘classical Marxist’ analysis.

There is a political implication from Dumenil’s theory that an alliance can be struck by the ‘popular class’ with the ‘managerial class’ against the ‘capitalist class’ that would tip the balance of forces towards a better society and defeat neoliberalism, something like the New Deal in America or the Popular Front in France in the 1930s.  President Obama could lead such an alliance in a similar way.  The trouble is that the managerial class is an illusion and there is nothing to ally with!

Can we really identify the major cause of a capitalist crisis by whether the economy collapses (profitability) or explodes (financial)?  I’m not sure I know the difference between a collapsing and an exploding economy.

But perhaps most important of all is Dumenil’s data.  He produced pretty much the same results on the movement of the US rate of profit that I and others in the ‘profitability camp’ do.  Namely, the US rate of profit peaked in 1965, then fell back to a low in 1982, then in the era of so-called neoliberalism, it rose to peak in 1997.  That 1997 peak, according to Dumenil and my own data (see graph) was not surpassed in 2006 at the peak of the credit boom.  And the 1965 peak was also higher than the 1997 peak.


That suggests, as I argue in my book, The Great Recession, that Marx’s law of profitability is operating as the ultimate cause of capitalist crisis.  Indeed, based on that view, in early 2006, I predicted the Great Recession would take place in 2009-10.  I was wrong  – it came a year earlier.  Dumenil made no such forecast as far as I am aware.

Profitability will soon resume its downward path (after its current recovery from the recession low of 2009), according to my interpretation of the data.  It will reach a new low with a new recession in four to five years time.  If that’s right, we can then judge better whether capitalist crises are a product of capitalists “losing control of credit” or the result of the inexorable tendency for the rate of profit to fall .