Noel Ignatiev's Blog

Paul Mattick’s Business as Usual

Paul Mattick’s Business As Usual (Reaktion Books: London 2011) is a short, comparatively accessible attempt to explain the current economic crisis. In contrast to bourgeois (including radical) economists, Mattick locates the source of the crisis not in greed or government policy but in the nature of the capitalist system. He insists that the problem is not excessive profits but the failure to generate sufficient profit to provide for investment. “The depression phase of the cycle is the cure for insufficient profits; it is what makes the next period of prosperity possible, even as that prosperity will in turn generate the conditions for a new depression.” The argument will be familiar to those who have read Volume III of Capital, in particular Part III, The Law of the Tendency of the Falling Rate of Profit, and who remember Marx’s observation that the depression always follows a period of low profits.

Mattick reviews the history of capitalist crises, and past attempts of economists to explain and control them. Dealing with the recent period he discusses collateralized debt, derivatives and a lot of other terms that give me (and I suspect others as well) a toothache in the brain. The part of the book that spoke most directly to me was his discussion of government spending. For some time I have been trying to understand whether government-financed military production contributes to, or is a drain upon, accumulation. If the government, through public debt paid for by taxes, buys a new bomber plane, how is that different from the population, through private debt, buying cars and TVs? There is a debate on this subject among Marxists. Mattick addresses the issue in the following passage, which I think is worth quoting at length:

The underlying problem is that government-financed production does not produce a profit. This is hard to grasp, not only because it contradicts a basic supposition of the past 75 years of economic policy—that government spending can function as an equivalent of private capitalist investment—but because a company that sells goods to the state, as when Boeing provides bombers for the Air Force, does receive a profit, and usually a good one, on its investment. But the money paid to Boeing represents a deduction from the profit produced by the economy as a whole. For the government has no money of its own; it pays with tax money or with borrowed funds that will eventually have to be repaid out of taxes.

Here comes the money shot:

Tax money appears to be paid by everyone. But despite the appearance that business is undertaxed, only business actually pays taxes. To understand this, remember that the total income produced in a year is the money available for all purposes. Some of this money must go to replace producers’ goods used up in the previous year; some must go in the form of wages to buy consumer goods so that the labour force can reproduce itself; the rest appears as profit, interest, rent—and taxes. The money workers actually get is their ‘after tax’ income; from this perspective, tax increases on employee income are just a way of lowering wages. The money deducted from paycheques, as well as from dividends, capital gains and other forms of business income, could appear as business profits—which, let us remember, is basically the money generated by workers’ activity that they do not receive as wages—if it didn’t flow through paycheques (or other income) into government coffers. So when the government buys goods or services from a corporation (or simpler yet, hands agribusiness a subsidy or a bank a bailout) it is just giving a portion of its cut of profits back to business, collecting it from all and giving it to some. The money paid to Boeing has simply been redistributed by the state from other businesses to the aircraft producer (page 81).

I find that passage tough going, if valuable, and I wish Mattick had elaborated it for the people in the cheap seats (or that he takes the trouble to reply to this post).

The title of his last chapter is The Future of Capitalism. It includes a review of past failures of “the Left” and a critique of reformist solutions. I unreservedly agree with his conclusion: “ [T]he precondition for a desirable human future requires us to move beyond the increasingly dysfunctional system, subordinated to the imperative of private profit-making and capitalist accumulation, through whose most recent crisis we are now living.”

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