Chris Harman

The rate of profit and the world today

(Summer 2007)
From International Socialism (2nd series), No.115, Summer 2007. Copyright International Socialism. Down o!ded with th!n"s #rom the International Socialism Website. $!r"ed up %y &inde '(C! !gh!n #or the Marxists Internet !rchi"e. )he *tenden+y o# the r!te o# pro#it to #! , is one o# the most +ontentious e ements in -!r $!r.(s inte e+tu! eg!+y. /10 1e reg!rded it !s one o# his most import!nt +ontri%utions to the !n! ysis o# the +!pit! ist system, +! ing it, in his #irst note%oo"s #or Capital (now pu% ished !s the #rundrisse), *in e2ery respe+t the most import!nt !w o# modern po iti+! e+onomy,. /20 3ut it h!s %een su%4e+ted to +riti+ism e2er sin+e his !rgument #irst !ppe!red in print with the pu% i+!tion o# 2o ume three o# Capital in 1567. )he #irst +riti+isms in the 1560s +!me #rom opponents o# $!r.ism, su+h !s the i%er! 8t! i!n phi osopher 3enedetto Cro+e !nd the 9erm!n neo+ !ssi+! e+onomist &ugen 2on 3:hm;3!wer". 3ut they h!2e %een !++epted sin+e %y m!ny $!r.ists < #rom =!u Swee>y in the 1670s to peop e su+h !s 9?r!rd Dum?ni !nd @o%ert 3renner tod!y. )he !rgument w!s !nd is import!nt. For $!r.(s theory e!ds to the +on+ usion th!t the there is ! #und!ment! , unre#orm!% e # !w in +!pit! ism. )he r!te o# pro#it is the "ey to +!pit! ists %eing !% e to !+hie2e their go! o# !++umu !tion. 3ut the more !++umu !tion t!"es p !+e, the more di##i+u t it is #or them m!"e su##i+ient pro#it to sust!in itA *)he r!te o# se #;e.p!nsion o# +!pit! ism, or the r!te o# pro#it, %eing the go!d o# +!pit! ist produ+tion, its #! ... !ppe!rs !s ! thre!t to the +!pit! ist produ+tion pro+ess,. /B0 )his *testi#ies to the mere y histori+! , tr!nsitory +h!r!+ter o# the +!pit! ist mode o# produ+tion, !nd to the w!y th!t *!t ! +ert!in st!ge it +on# i+ts with its own #urther de2e opment,. /70 8t showed th!t *the re! %!rrier o# +!pit! ist produ+tion w!s +!pit! itse #,. /50

Marx and his critics $!r.(s %!si+ ine o# !rgument w!s simp e enough. &!+h indi2idu! +!pit! ist +!n in+re!se his (or o++!sion! y her) own +ompetiti2eness through in+re!sing the produ+ti2ity o# his wor"ers. )he w!y to do this is %y using ! gre!ter Cu!ntity o# the *me!ns o# produ+tion, < too s, m!+hinery !nd so on < #or e!+h wor"er. )here is ! growth in the r!tio o# the physi+! e.tent o# the me!ns o# produ+tion to the !mount o# !%our power emp oyed, ! r!tio th!t $!r. +! ed the *te+hni+! +omposition o# +!pit! ,. 3ut ! growth in the physi+! e.tent o# the me!ns o# produ+tion wi ! so %e ! growth in the in2estment needed to %uy them. So this too wi grow #!ster th!n the in2estment in the wor"#or+e. )o use $!r.(s termino ogy, *+onst!nt +!pit! , grows #!ster th!n *2!ri!% e +!pit! ,. )he growth o# this r!tio, whi+h he +! s the *org!ni+ +omposition o# +!pit! ,, /D0 is ! ogi+! +oro !ry o# +!pit! !++umu !tion.

Eet the on y sour+e o# 2! ue #or the system !s ! who e is !%our. 8# in2estment grows more r!pid y th!n the !%our #or+e, it must ! so grow more r!pid y th!n the 2! ue +re!ted %y the wor"ers, whi+h is where pro#it +omes #rom. 8n short, +!pit! in2estment grows more r!pid y th!n the sour+e o# pro#it. Fs ! +onseCuen+e, there wi %e ! downw!rd pressure on the r!tio o# pro#it to in2estment < the r!te o# pro#it. &!+h +!pit! ist h!s to push #or gre!ter produ+ti2ity in order to st!y !he!d o# +ompetitors. 3ut wh!t seems %ene#i+i! to the indi2idu! +!pit! ist is dis!strous #or the +!pit! ist + !ss !s ! who e. &!+h time produ+ti2ity rises there is ! #! in the !2er!ge !mount o# !%our in the e+onomy !s ! who e needed to produ+e ! +ommodity (wh!t $!r. +! ed *so+i! y ne+ess!ry !%our,), !nd it is this whi+h determines wh!t other peop e wi e2entu! y %e prep!red to p!y #or th!t +ommodity. So tod!y we +!n see ! +ontinu! #! in the pri+e o# goods su+h !s +omputers or DGD p !yers produ+ed in industries where new te+hno ogies !re +!using produ+ti2ity to rise #!stest.

The ar$uments a$ainst Marx )hree !rguments h!2e %een r!ised time !nd !g!in !g!inst $!r.. )he #irst is th!t there need not %e !ny re!son #or new in2estment to t!"e ! *+!pit! intensi2e, r!ther th!n ! * !%our intensi2e, #orm. 8# there is unused !%our !2!i !% e in the system, there seems no re!son why +!pit! ists shou d in2est in m!+hines r!ther th!n !%our. )here is ! theoreti+! rep y to this !rgument. C!pit! ists !re dri2en to see" inno2!tions in te+hno ogies th!t "eep them !he!d o# their ri2! s. Some su+h inno2!tions m!y %e !2!i !% e using te+hniCues th!t !re not +!pit! intensi2e. 3ut there wi %e others th!t reCuire more me!ns o# produ+tion < !nd the su++ess#u +!pit! ist wi %e the one whose in2estments pro2ide !++ess to %oth sorts o# inno2!tion. )here is ! so !n empiri+! rep y. 8n2estment in m!teri! terms h!s in #!+t grown #!ster th!n the wor"#or+e. So, #or inst!n+e, the net sto+" o# +!pit! per person emp oyed in the HS grew !t 2 to B per+ent ! ye!r #rom 1675 to 167B. /70 8n Chin! tod!y mu+h o# the in2estment is *+!pit! intensi2e,, with the emp oyed wor"#or+e on y growing !t !%out 1 per+ent ! ye!r, despite the 2!st poo s o# rur! !%our. )he se+ond o%4e+tion to $!r.(s !rgument is th!t in+re!sed produ+ti2ity redu+es the +ost o# pro2iding wor"ers with their e.isting i2ing st!nd!rds (*the 2! ue o# their !%our power,). )he +!pit! ists +!n there#ore m!int!in their r!te o# pro#it %y t!"ing ! %igger sh!re o# the 2! ue +re!ted. )his o%4e+tion is e!sy to de! with. $!r. himse # re+ognised th!t rises in produ+ti2ity th!t redu+e the proportion o# the wor"ing d!y needed #or wor"ers to +o2er the +ost o# their own i2ing st!nd!rds +ou d #orm ! *+ounter2!i ing in# uen+e, to his !w. )he +!pit! ists +ou d then gr!% ! gre!ter sh!re o# their wor"ers( !%our !s pro#its (!n in+re!sed *r!te o# e.p oit!tion,) without ne+ess!ri y +utting re! w!ges. 3ut there w!s ! imit to how #!r this +ounter;in# uen+e +ou d oper!te. 8# wor"ers( !%oured #or #our hours ! d!y to +o2er the +osts o# "eeping themse 2es ! i2e, th!t +ou d %e +ut %y !n hour to three hours ! d!y. 3ut it +ou d not %e +ut %y #i2e hours to minus one hour ! d!y. 3y +ontr!st, there w!s no imit to the tr!ns#orm!tion o# wor"ers( p!st !%our into e2er gre!ter !++umu !tions o# the me!ns o# produ+tion. 8n+re!sed e.p oit!tion, %y in+re!sing the pro#it # owing to +!pit! , in+re!sed the potenti! #or #uture !++umu !tion. Fnother w!y to put the !rgument is to see wh!t h!ppens with ! hypotheti+! *m!.imum r!te o# e.p oit!tion,, when the wor"ers !%our #or nothing. 8t +!n %e shown th!t e2entu! y e2en this is not enough to stop ! #! in the r!tio o# pro#it to in2estment. )he #in! o%4e+tion is *'"ishio(s theorem,. Ch!nges in te+hniCue ! one, it is + !imed, +!nnot produ+e ! #! in the r!te o# pro#it, sin+e +!pit! ists wi on y introdu+e ! new te+hniCue i# it r!ises their pro#its. 3ut ! rise in the pro#it r!te o# one +!pit! ist must r!ise the !2er!ge pro#it o# the who e +!pit! ist + !ss. 'r !s 8!n Steedm!n put it, *)he #or+es o# +ompetition wi e!d to th!t se e+tion o# produ+tion methods industry %y industry whi+h gener!tes the highest possi% e uni#orm r!te o# pro#it through the e+onomy,. /50 )he +on+ usion dr!wn #rom this is th!t the on y things th!t +!n redu+e

pro#it r!tes !re in+re!sed re! w!ges or intensi#ied intern!tion! +ompetition. $issing out #rom m!ny present!tions o# this !rgument is the re+ognition th!t the #irst +!pit! ist to !dopt ! te+hniCue gets ! +ompetiti2e !d2!nt!ge o2er his #e ow +!pit! ists, whi+h en!% es him to g!in e.tr! pro#its, %ut th!t this e.tr! pro#it dis!ppe!rs on+e the te+hniCue is gener! ised.Ih!t the +!pit! ist gets in money terms when he se s his goods depends upon the !2er!ge !mount o# so+i! y ne+ess!ry !%our +ont!ined in them. 8# he introdu+es ! new, more produ+ti2e, te+hniCue, %ut no other +!pit! ists do, he is produ+ing goods worth the s!me !mount o# so+i! y ne+ess!ry !%our !s %e#ore, %ut with ess e.penditure on re! , +on+rete !%our power. 1is pro#its rise. /60 3ut on+e ! +!pit! ists produ+ing these goods h!2e introdu+ed these te+hniCues, the 2! ue o# the goods #! s unti it +orresponds to the !2er!ge !mount o# !%our needed to produ+e them using the new te+hniCues. /100 '"ishio !nd his #o owers use the +ounter;!rgument th!t !ny rise in produ+ti2ity !s ! resu t o# using more me!ns o# produ+tion wi +!use ! #! in the pri+e o# its output, so redu+ing pri+es throughout the e+onomy < !nd there%y the +ost o# p!ying #or the me!ns o# produ+tion. )his +he!pening o# in2estment wi , they + !im, r!ise the r!te o# pro#it. Ft #irst g !n+e the !rgument oo"s +on2in+ing < !nd the simu t!neous eCu!tions used in the m!them!ti+! present!tion o# the theorem h!2e +on2in+ed m!ny $!r.ist e+onomists. 8t is, howe2er, #! se. 8t rests upon ! seCuen+e o# ogi+! steps whi+h you +!nnot t!"e in the re! wor d. 8n2estment in ! pro+ess o# produ+tion t!"es p !+e !t one point in time. )he +he!pening o# #urther in2estment !s ! resu t o# impro2ed produ+tion te+hniCues o++urs !t ! !ter point in time. )he two things !re not simu t!neous. /110 8t is ! si y mist!"e to !pp y simu t!neous eCu!tions to pro+esses t!"ing p !+e through time. )here is !n o d s!yingA *Eou +!nnot %ui d the house o# tod!y with the %ri+"s o# tomorrow., )he #!+t th!t the in+re!se in produ+ti2ity wi redu+e the +ost o# getting ! m!+hine in ! ye!r(s time does not redu+e the !mount the +!pit! ist h!s to spend on getting it tod!y. C!pit! ist in2estment in2o 2es using the s!me #i.ed +onst!nt +!pit! (m!+hinery !nd %ui dings) #or se2er! +y+ es o# produ+tion. )he #!+t th!t undert!"ing in2estment wou d +ost ess !#ter the se+ond, third or #ourth round o# produ+tion does not ! ter the +ost o# undert!"ing it %e#ore the #irst round. )he de+ ine in the 2! ue o# their ! re!dy in2ested +!pit! +ert!in y does not m!"e i#e !ny e!sier #or the +!pit! ists. )o sur2i2e in %usiness they h!2e to re+oup, with ! pro#it, the #u +ost o# their p!st in2estments, !nd i# te+hno ogi+! !d2!n+e me!nt these in2estments !re now worth, s!y, h! # !s mu+h !s they were pre2ious y, they h!2e to p!y out o# their gross pro#its to write o## th!t sum. Ih!t they h!2e g!ined on the swings they h!2e ost on the round!%outs, with *depre+i!tion, o# +!pit! due to o%so es+en+e +!using them !s %ig ! he!d!+he !s ! str!ight#orw!rd #! in the r!te o# pro#it. )he imp i+!tions o# $!r.(s !rgument !re #!r re!+hing. )he 2ery su++ess o# +!pit! ism !t !++umu !ting e!ds to pro% ems #or #urther !++umu !tion. Crisis is the ine2it!% e out+ome, !s +!pit! ists in "ey se+tions o# the e+onomy no onger h!2e ! r!te o# pro#it su##i+ient to +o2er their in2estments. Fnd the gre!ter the s+! e o# p!st !++umu !tion, the deeper the +rises wi %e.

The crisis and the rate of profit )he +risis, howe2er, is not the end o# the system. =!r!do.i+! y it +!n open up new prospe+ts #or it. 3y dri2ing some +!pit! ists out o# %usiness it +!n permit ! re+o2ery o# the pro#its o# others. $e!ns o# produ+tion +!n %e %ought !t %!rg!in %!sement pri+es, r!w m!teri! pri+es s ump !nd unemp oyment #or+es wor"ers to !++ept ow w!ges. =rodu+tion on+e !g!in %e+omes pro#it!% e !nd !++umu !tion +!n rest!rt. )here h!s ong %een ! dispute !mong e+onomists who !++ept $!r.(s !w !%out the imp i+!tions o# this. Some h!2e !rgued th!t the r!te o# pro#it wi tend to de+ ine in the ong term, de+!de !#ter de+!de. Not on y wi there %e ups !nd downs with e!+h %oom;s ump +y+ e, there wi ! so %e ! ong term downw!rd trend, m!"ing e!+h %oom shorter th!n the one %e#ore !nd

e!+h s ump deeper. 'thers $!r.ists, %y +ontr!st, h!2e !rgued th!t restru+turing +!n restore the r!te o# pro#it to its e!r ier e2e unti rising in2estment owers it !g!in. F++ording to this 2iew, there is ! +y+ i+! motion o# the r!te o# pro#it, pun+tu!ted %y intense +rises o# restru+turing, not !n ine2it!% e ong term de+ ine. So $!r.(s !w shou d %e +! ed *the !w o# the tenden+y o# the r!te o# pro#it to #! !nd its +ounter2!i ing tenden+ies,. /120 )here h!2e %een periods in the history o# the system in whi+h +rises got rid o# unpro#it!% e +!pit! on ! su##i+ient s+! e to stop ! ong term de+ ine in pro#it r!tes. )here w!s, #or inst!n+e, ! de+ ine in pro#it r!tes in the e!r y st!ges o# the industri! re2o ution, #rom 2ery high r!tes #or the pioneers in the +otton industry in the 1770s !nd 1750s to mu+h ower r!tes %y the #irst de+!de o# the 16th +entury. /1B0 )his ed Fd!m Smith !nd D!2id @i+!rdo to see #! ing pro#it r!tes !s ine2it!% e (with Smith % !ming them on +ompetition !nd @i+!rdo on the diminishing returns o# physi+! output in !gri+u ture). 3ut pro#it r!tes then seem to h!2e re+o2ered su%st!nti! y. @o%ert C. F en + !ims they were twi+e !s high in 1570 !s in 1500. /170 1is #igures (i# !++ur!te) !re +omp!ti% e with the *restru+turing restoring the r!te o# pro#it, !rgument, sin+e there were three e+onomi+ +rises %etween 1510 !nd 1570, with B,B00 #irms going %ust in 152D ! one. /150 8# +rises +!n ! w!ys +ounter!+t the #! in the r!te o# pro#it in this w!y $!r. w!s wrong to see his !w !s spe ing the de!th "ne o# +!pit! ism, sin+e the system h!s sur2i2ed re+urrent +rises o2er the p!st 150 ye!rs. 3ut those who re y on this !rgument !ssume restru+turing +!n ! w!ys t!"e p !+e in su+h ! w!y !s to h!rm some +!pit! s %ut not others. $i+h!e -idron presented ! 2ery import!nt +h! enge to this +ontention in the 1670s. 8t w!s %!sed on underst!nding th!t the de2e opment o# +!pit! ism is not simp y +y+ i+! , %ut ! so in2o 2es tr!ns#orm!tion through time < it !ges. /1D0

The concentration and centralisation of capital )he pro+ess %y whi+h some +!pit! s grow !t the e.pense o# others < wh!t $!r. +! s the *+on+entr!tion !nd +entr! is!tion, o# +!pit! < e2entu! y e!ds to ! #ew 2ery !rge +!pit! s p !ying ! predomin!nt ro e in p!rti+u !r p!rts o# the system. )heir oper!tion %e+omes intertwined with those o# the other +!pit! s, %ig !nd sm! , !round them. 8# the 2ery !rge +!pit! s go %ust, it disrupts the oper!tion o# the others < destroying their m!r"ets, !nd +utting o## their sour+es o# r!w m!teri! s !nd +omponents. )his +!n dr!g pre2ious y pro#it!% e #irms into %!n"rupt+y ! ongside the unpro#it!% e in ! +umu !ti2e +o !pse th!t ris"s +re!ting e+onomi+ *% !+" ho es, in the he!rt o# the system. )his %eg!n to h!ppen in the gre!t +risis o# the interw!r ye!rs. F!r #rom %!n"rupt+ies o# some #irms %ringing the +risis to end !#ter ! +oup e o# ye!rs they deepened its imp!+t. Fs ! +onseCuen+e, +!pit! s e2erywhere turned to st!tes to prote+t them. Despite their po iti+! di##eren+es, this w!s wh!t w!s +ommon to the New De! in the HS, the N!>i period in 9erm!ny, the emerging popu ist regimes in J!tin Fmeri+! or the #in! !++ept!n+e o# -eynesi!n st!te inter2ention !s the e+onomi+ orthodo.y in w!rtime 3rit!in. Su+h interdependen+e o# st!tes !nd %ig +!pit! s w!s the norm right !+ross the system in the #irst three de+!des #o owing the Se+ond Ior d I!r, !n !rr!ngement th!t h!s 2!rious y %een +! ed *st!te +!pit! ism, (my pre#erred term), *org!nised +!pit! ism, or *Fordism,. /170 )he inter2ention o# the st!te ! w!ys h!d dou% ed edged reper+ussions. 8t pre2ented the #irst symptoms o# +risis de2e oping into out;!nd;out +o !pse. 3ut it ! so o%stru+ted the +!p!+ity o# some +!pit! s to restore their pro#it r!tes !t the e.pense o# others. )his w!s not ! gre!t pro% em in the #irst de+!des !#ter 1675, sin+e the +om%ined imp!+t o# the interw!r s ump !nd the Se+ond Ior d I!r h!d ! re!dy +!used ! m!ssi2e destru+tion o# o d +!pit! (!++ording to some estim!tes ! third o# the tot! ). F++umu !tion w!s !% e to rest!rt with higher pro#it r!tes th!n in the pre;w!r period, !nd r!tes h!rd y de+ ined, or did so s ow y. /150 C!pit! ism +ou d en4oy wh!t is o#ten now +! ed its *go den !ge,. /160

3ut when pro#it r!tes did %egin to #! #rom the 16D0s onw!rds the system #ound itse # +!ught %etween the d!nger o# *% !+" ho es, !nd o# #!i ing to restru+ture su##i+ient y to restore those r!tes. )he system +ou d not !##ord to ris" restru+turing %y etting +rises rip through it. St!tes inter2ened to w!rd o## the thre!t o# %ig %!n"rupt+ies. 3ut in doing so they pre2ented the system restru+turing su##i+ient y to o2er+ome the pressures th!t h!d +!used the thre!t o# %!n"rupt+y. )he system, !s -idron put it in !n editori! #or this 4ourn! , w!s *s+ eroti+,. /200 Fs 8 wrote in this 4ourn! in 1652A St!te inter2ention to mitig!te the +risis +!n on y pro ong it inde#inite y. )his does not me!n the wor d e+onomy is doomed simp y to de+ ine. Fn o2er! tenden+y to st!gn!tion +!n sti %e !++omp!nied %y %oom ets, with sm! %ut tempor!ry in+re!ses in emp oyment. &!+h %oom et, howe2er, on y !ggr!2!tes the pro% ems o# the system !s ! who e !nd resu ts in #urther gener! st!gn!tion, !nd e.treme de2!st!tion #or p!rti+u !r p!rts o# the system. 8 !rgued th!t *two or three !d2!n+ed +ountries, going %!n"rupt might *pro2ide the system with the *opportunity #or ! new round o# !++umu !tion,, %ut th!t those running the other p!rts o# the system wou d do their %est to !2oid su+h %!n"rupt+y, est it pu ed down other e+onomies !nd the %!n"s, e!ding to *the progressi2e +o !pse o# other +!pit! s,. $y +on+ usion w!s th!t *the present ph!se o# +risis is i"e y to go on !nd on < unti it is reso 2ed either %y p unging mu+h o# the wor d into %!r%!rism or %y ! su++ession o# wor"ers( re2o utions,. /210

The empirical picture 1ow does the empiri+! re+ord o# pro#it r!tes o2er the p!st B0 ye!rs me!sure up to these 2!rious !rgumentsK Fnd wh!t !re the imp i+!tions #or tod!yK )here h!2e %een ! num%er o# !ttempts to +! +u !te ong term trends in pro#it r!tes. )he resu ts !re not ! w!ys #u y +omp!ti% e with e!+h other, sin+e there !re di##erent w!ys o# me!suring in2estment in #i.ed +!pit! , !nd the in#orm!tion on pro#its pro2ided %y +omp!nies !nd go2ernments !re su%4e+t to enormous distortions (+omp!nies wi o#ten do their %est to underst!te the pro#its to go2ernments, #or t!. re!sons, !nd to wor"ers, in order to 4usti#y ow w!gesL they ! so o#ten o2erst!te their pro#its to sh!reho ders, in order to %oost their sto+" e.+h!nge r!tings !nd their +!p!+ity to %orrow). Ne2erthe ess, Fred $ose ey, )hom!s $i+h , Fnw!r Sh!i"h !nd &rtugru Fhmet )on!", 9?r!rd Dum?ni !nd DominiCue J?2y, H#u" )ut!n !nd F C!mp%e , @o%ert 3renner, &dwin N. Io ##, !nd =iru> F emi !nd Dun+!n - Fo ey /220 h!2e ! #o owed in the #ootsteps o# Moseph 9i m!n !nd Sh!ne $!ge who +!rried through empiri+! studies o# pro#it r!te trends in the 16D0s. F +ert!in p!ttern emerges, whi+h is shown in gr!phs gi2en %y Dum?ni !nd J?2y (#igure 1) #or the who e %usiness se+tor in the HS !nd %y 3renner (#igure 2) #or m!nu#!+turing in the HS, 9erm!ny !nd M!p!n.

%i$ure &' (S profit rates accountin$ for ()) and a*stractin$ from (+) the impact of financial relations /2B0

)here is gener! !greement th!t pro#it r!tes #e #rom the !te 16D0s unti the e!r y 1650s. )here is ! so !greement th!t pro#it r!tes p!rti! y re+o2ered !#ter the e!r y 1650s, %ut with interruptions !t the end o# the 1650s !nd the end o# the 1660s. )here is ! so !n import!nt !re! o# !greement th!t the #! #rom the mid;1670s to the e!r y 1650s w!s not ! resu t o# rising w!ges, sin+e this w!s the period in whi+h HS re! w!ges %eg!n ! de+ ine whi+h w!s not p!rti! y re2ersed unti the !te 1660s. $i+h /270, $ose ey, Sh!i"h !nd )on!", !nd Io ## /250 ! +on+ ude th!t the rising r!tio o# +!pit! to !%our w!s !n e ement in redu+ing pro#it r!tes. )his +on+ usion is !n empiri+! re#ut!tion o# the '"ishio position. *C!pit! intensi2e, in2estments %y +!pit! ists !imed !t r!ising their indi2idu! +ompetiti2eness !nd pro#it!%i ity h!2e h!d the e##e+t o# +!using pro#it!%i ity throughout the e+onomy to #! . $!r.(s %!si+ theory is 2! id!ted. %i$ure 2' (S, #erman and -apanese manufacturin$ net profits rates /2D0

=ro#it r!tes did re+o2er #rom !%out 1652 onw!rds < %ut they on y m!de up !%out h! # the de+ ine th!t h!d t!"en p !+e in the pre2ious period. F++ording to Io ##, the r!te o# pro#it #e %y 5.7 per+ent #rom 16DD;76 !nd then *re%ounded, %y B.D per+ent #rom 1676;67L Fred $ose ey +! +u !tes th!t it *re+o2ered ... on y !%out 70 per+ent o# the e!r ier de+ ine,L /270 Dum?ni !nd J?2y th!t *the pro#it

r!te in 1667, w!s *sti on y h! # o# its 2! ue o# 1675, !nd %etween D0 !nd 75 per+ent o# its !2er!ge 2! ue #or the de+!de 165D;D5,. /250

.xplanations Ihy did pro#it r!tes re+o2erK 'ne import!nt #!+tor w!s !n in+re!se in the r!te o# e.p oit!tion throughout the e+onomy, !s shown %y the rising sh!re going to *+!pit! , !nd opposed to * !%our, in n!tion! outputA $ose ey showed ! rise in the *r!te o# surp us 2! ue #rom 1.71 in 1675 to 2.22 in 1657,. /260 )here w!s, howe2er, ! so ! s owdown in the growth o# the r!tio o# in2estment to wor"ers (the *org!ni+ +omposition o# +!pit! ,), !t e!st unti the mid;1660s. Fn import!nt +h!nge too" p !+e in the system #rom !round 1650 onw!rds < +rises %egin to in2o 2e !rge s+! e %!n"rupt+ies #or the #irst time sin+e the interw!r ye!rsA During the period #rom Ior d I!r 88 through the 1670s, %!n"rupt+y w!s not ! m!4or topi+ in the news. Iith the e.+eption o# r!i ro!ds, there were not m!ny not!% e %usiness #!i ures in the HS. During the 1670s, there were on y two +orpor!te %!n"rupt+ies o# prominen+e, =enn Centr! )r!nsport!tion Corpor!tion in 1670 !nd I.). 9r!nt Comp!ny in 1675. 3utA During the 1650s !nd e!r y 1660s re+ord num%ers o# %!n"rupt+ies, o# ! types, were #i ed. $!ny we "nown +omp!nies #i ed #or %!n"rupt+y ... 8n+ uded were J)G, &!stern Fir ines, )e.!+o, Continent! Fir ines, F ied Stores, Feder!ted Dep!rtment Stores, 9reyhound, @.1. $!+y !nd =!n Fm ... $!.we Communi+!tion !nd ' ympi! N Eor". /B00 )he s!me story w!s repe!ted on ! %igger s+! e during the +risis o# 2001;2. For inst!n+e, the +o !pse o# &nron w!s, !s Moseph Stig it> writes, *the %iggest +orpor!te %!n"rupt+y e2er < unti Ior dCom +!me ! ong,. /B10 )his w!s not 4ust ! HS phenomenon. 8t w!s ! +h!r!+teristi+ o# 3rit!in in the e!r y 1660s !s %!n"rupt+ies i"e those o# the $!.we &mpire !nd ' ympi! N Eor" showed, !nd, ! though 3rit!in !2oided ! #u re+ession in 2001;2, two on+e domin!nt +omp!nies, $!r+oniO9&C !nd @o2er, went down, !s we !s s+ores o# re+ent y est!% ished dot+om !nd hi;te+h +omp!nies. )he s!me phenomenon w!s %eginning to %e 2isi% e in +ontinent! &urope, with !n !dded twist in 9erm!ny th!t most o# the %ig enterprises o# the #ormer &!st 9erm!ny went %ust or were so d o## !t %!rg!in %!sement pri+es to Iest 9erm!n #irms, /B20 !nd then in Fsi! with the +risis o# 1667;5. 'n top o# this there w!s the %!n"rupt+y o# who e st!tes < not!% y the HSS@, with ! 9D= th!t w!s !t one st!ge ! third or e2en h! # th!t o# the HS. $ost o# the e#t he d ! +on#used %e ie# th!t these were *so+i! ist, st!tes. )his pre2ented m!ny +omment!tors #rom underst!nding th!t these st!tes +o !psed %e+!use the r!te o# pro#it w!s no onger high enough to +o2er their +ost o# eCuipping themse 2es #or intern!tion! +ompetition. /BB0 8t ! so pre2ented them #rom !n! ysing the imp!+t th!t writing o## these 2!st !mounts o# +!pit! h!d on the wor d system. /B70 Ih!t o++urred through these de+!des w!s ! pro+ess o# re+urrent *restru+turing through +risis, on !n intern!tion! s+! e. 1owe2er, it w!s on y ! imited return o# the o d me+h!nism #or + e!ring out unpro#it!% e +!pit! s to the %ene#it o# the sur2i2ors. )here were sti m!ny +!ses in whi+h the st!te inter2ened to prop up 2ery %ig #irms or to pressurise the %!n"ing system to do so. )his h!ppened in the HS with the ne!r %!n"rupt+y o# Chrys er in 1676;50, /B50 with the +risis o# the SNJs (e##e+ti2e y HS %ui ding so+ieties) in the !te 1650s !nd the +o !pse o# the gi!nt deri2!ti2es g!m% er Jong )erm C!pit! $!n!gement in 1665. 'n e!+h o++!sion #e!r o# e+onomi+, so+i! !nd po iti+! inst!%i ity pre2ented the +risis + e!ring unpro#it!% e +!pit! s #rom the system. 'r !ndo C!pit! Jei2! te s how in the Hnited St!tes *the st!te supported ... restru+turing. 8n 1670 pu% i+ in2estment w!s on y 10 per+ent o# pri2!te in2estment. 8t in+re!sed to 27 per+ent in 1660 !nd #rom then on m!int!ined e2e s ! most dou% e those o# 1670,. /BD0

'##i+i! use o# the rhetori+ o# neo i%er! ism does not pre+ ude ! +ontinuing strong e ement o# st!te +!pit! ism in !+tu! go2ernment po i+y. )his is true not 4ust o# the HS. 9o2ernments !s 2!ried !s those o# the S+!ndin!2i!n +ountries !nd M!p!n h!2e rushed to prop up %!n"s whose +o !pse might d!m!ge the rest o# the n!tion! #in!n+i! system < e2en i#, !s ! !st resort, this in2o 2es n!tion! is!tion. /B70 )he go2ernment o# 9erm!ny poured %i ions into the e!stern p!rt o# the re+ent y uni#ied +ountry !#ter +omp!nies #ound their new y !+Cuired su%sidi!ries +ou d not %e pro#it!% e otherwise. Fnd the wor d #in!n+i! institutions h!2e re!+ted to su++essi2e de%t +rises with s+hemes th!t prote+t %ig Iestern %!n"s #rom going under, despite o++!sion! +omp !ints #rom, #or inst!n+e, the .conomist to the e##e+t th!t this pre2ents the system #rom t!"ing the on y medi+ine th!t wi restore its #u 2igour.

(nproducti"e la*our and waste $ose ey, Sh!i"h !nd )on!", !nd Simon $ohun h!2e ! noted !nother #e!ture o# +!pit! ism(s most re+ent de2e opment < one high ighted %y -idron %!+" in the 1670s. )his is the growing *non;produ+ti2e, portion o# the e+onomy. $!instre!m neo+ !ssi+! e+onomi+s reg!rds ! e+onomi+ !+ti2ities in2o 2ing %uying !nd se ing !s *produ+ti2e,. )his #o ows #rom its imited #o+us on the w!y tr!ns!+tions t!"e p !+e in m!r"ets. $!r., i"e Fd!m Smith !nd D!2id @i+!rdo %e#ore him, h!d ! deeper +on+ern < to dis+o2er the dyn!mi+s o# +!pit! ist growth. 1e there#ore #urther de2e oped ! distin+tion to %e #ound in Smith %etween *produ+ti2e, !nd *unprodu+ti2e, !%our. For $!r., produ+ti2e !%our w!s th!t whi+h +re!ted surp us 2! ue through e.p!nding produ+tion. Hnprodu+ti2e !%our w!s th!t whi+h, r!ther th!n e.p!nding produ+tion, w!s simp y distri%uting, prote+ting or w!sting wh!t w!s ! re!dy produ+ed < #or inst!n+e, the !%our o# person! ser2!nts, po i+emen, so diers or s! es personne . $!r.(s distin+tion w!s not %etween m!teri! produ+tion !nd *ser2i+es,. Some things +!tegorised !s *ser2i+es, !dd to the re! we! th o# the wor d. $o2ing things #rom where they !re m!de to where they +!n %e +onsumed, !s is done %y some tr!nsport wor"ers, is there#ore produ+ti2e. F+ting in ! #i m is i"ewise produ+ti2e inso#!r !s it yie ds ! pro#it #or ! +!pit! ist %y gi2ing peop e en4oyment !s so impro2ing their i2ing st!nd!rd. 3y +ontr!st, !+ting in !n !d2ert whose on y #un+tion is to se something ! re!dy produ+ed is not produ+ti2e. $!r.(s +!tegoris!tion h!s to %e re#ined to +ome to terms with present d!y +!pit! ism, in whi+h things i"e edu+!tion !nd he!th ser2i+es !re mu+h more import!nt th!n when he w!s writing. $ost present d!y $!r.ists wou d !++ept th!t those e ements o# te!+hing th!t in+re!se the +!p!+ity o# peop e to produ+e things (!s opposed to mere y dis+ip ining +hi dren) !re !t e!st indire+t y produ+ti2e. -idron went #urther !nd !rgued th!t wh!t w!s produ+ti2e w!s th!t whi+h ser2ed the #urther !++umu !tion o# +!pit! . )he produ+tion o# me!ns o# produ+tion did this, !nd so did the produ+tion o# goods th!t "ept wor"ers !nd their #!mi ies #it !nd he! thy enough to %e e.p oit!% e (i.e. good th!t rep enished their * !%our power,). 3ut produ+tion th!t mere y pro2ided u.uries #or the +!pit! ist + !ss !nd their h!ngers;on shou d not %e reg!rded !s produ+ti2e, nor shou d th!t whi+h went into !rms. /B50 Hnprodu+ti2e !%our is o# +entr! import!n+e to present d!y +!pit! ism, reg!rd ess o# the e.!+t de#inition gi2en to it. Fred $ose ey estim!tes the num%ers in +ommer+e in the HS grew #rom 5.6 mi ion to 21 mi ion %etween 1650 !nd 1650, !nd the num%er in #in!n+e #rom 1.6 mi ion to 5.2 mi ion, whi e the produ+ti2e wor"#or+e on y grew #rom 25 mi ion to 70.B mi ion. /B60 Sh!i"h !nd )on!" +! +u !te th!t the sh!re o# produ+ti2e out o# tot! !%our in the HS #e #rom 57 per+ent to BD per+ent %etween 1675 !nd 1656. /700 Simon $ohun h!s +! +u !ted th!t the sh!re o# *unprodu+ti2e, w!ges !nd s! !ries in *m!teri! 2! ue !dded, in the HS grew #rom B5 per+ent in 16D7 to o2er 50 per+ent in 2000. /710 -idron +! +u !ted th!t, using his wide de#inition, *)hree #i#ths o# the wor" !+tu! y undert!"en in the HS in 1670s w!s w!sted #rom +!pit! (s own point o# 2iew,. /720

$ose ey, Sh!i"h !nd )on!", !nd -idron in his !ter writings /7B0 h!d no dou%t. )he %urden o# pro2iding #or unprodu+ti2e !%our ser2es !s ! dr!in on surp us 2! ue !nd the r!te o# pro#it. /770 $ose ey, !nd Sh!i"h !nd )on!", +! +u !ted the r!te o# pro#it in *produ+ti2e, se+tors (the *$!r.i!n r!te o# pro#it,), !nd then +omp!red their resu ts with those pro2ided #or the e+onomy !s ! who e %y +orpor!tions !nd the HS go2ernment(s N!tion! 8nstitute o# =ension Fdministr!tors (N8=F). /750 Sh!i"h !nd )on!" +! +u !te th!t #rom 1675;56 *the $!r.i!n r!te o# pro#it #! s %y ! most ! third ... )he N8=F %!sed !2er!ge r!tes e2en #!ster, %y o2er 75 per+ent, !nd the +orpor!te the #!stest o# ! %y o2er 57 per+ent. )hese more r!pid de+ ines +!n %e e.p !ined %y the re !ti2e rise in the proportion o# unprodu+ti2e to produ+ti2e !+ti2ities,. /7D0 $ose ey +on+ udes th!t *in the post;w!r HS e+onomy through the !te 1670s the +on2ention! r!te o# pro#it de+ ined e2en more th!n the $!r.i!n r!te, < %y 70 per+ent !s opposed to 15;20 per+ent. 1e h!s !rgued th!t the in the 1660s it w!s m!in y the rise in the e2e o# unprodu+ti2e !%our th!t stopped the r!te o# pro#it #u y re+o2ering. Ihy h!2e unprodu+ti2e e.penditures grown i"e this, e2en to the e.tent o# +ho"ing o## wh!t might otherwise %e he! thier pro#it r!tesK Di##erent #!+tors !re in2o 2ed, %ut e!+h is itse # ! re!+tion to ow pro#it r!tes (!nd !ttempts %y #irms !nd go2ernments to "eep +risis !t %!y)A C!pit! s pour gre!ter resour+es into !ttempts to de#end !nd e.p!nd m!r"ets in unprodu+ti2e w!ys. I!2e upon w!2e o# spe+u !ti2e in2estment o++urs !s +!pit! ists see" e!sy pro#its through g!m% ing in money m!r"ets, #in!n+i! !d2entures, hedge #unds !nd so #orth. $!n!geri! hier!r+hies grow in !n e##ort to e.ert in+re!sed pressure on those !t the %ottom < ! typi+! #e!ture o# %oth the pu% i+ !nd pri2!te se+tors tod!y. )he +osts to the system o# trying to m!int!in so+i! pe!+e in+re!se through %oth *se+urity, e.penditures !nd minim! %ene#its #or those it +!nnot produ+ti2e y emp oy. St!tes resort to mi it!ry !d2entures !s ! w!y to o## o!d the pro% ems #!+ed %y +!pit! s within them.

Contradictory effects )here is ! 2i+ious +ir+ e. @e!+tions %y indi2idu! #irms !nd st!tes to the #! ing r!te o# pro#it h!2e the e##e+t o# #urther redu+ing the resour+es !2!i !% e #or produ+ti2e !++umu !tion. /770 3ut the e##e+t o# unprodu+ti2e e.penditures is not on y to ower the r!te o# pro#it. 8t +!n ! so redu+e upw!rd pressure on the org!ni+ +omposition o# +!pit! . )his w!s !n insight used %y $i+h!e -idron to e.p !in the *positi2e, imp!+t o# m!ssi2e !rms spending on the system in the post;w!r de+!des. 1e s!w it, i"e u.ury +onsumption %y the ru ing + !ss !nd its h!ngers;on, !s h!2ing ! %ene#i+i! side;e##e+t #or those running the system < !t e!st #or ! time. J!%our whi+h is *w!sted,, he !rgued, +!nnot !dd to the pressure #or !++umu !tion to %e e2er more +!pit! intensi2e. G! ue whi+h wou d otherwise go into r!ising the r!tio o# me!ns o# produ+tion to wor"ers is siphoned out o# the system. F++umu !tion is s ower, %ut it +ontinues !t ! ste!dy p!+e, i"e the tortoise r!+ing the h!re in Fesop(s #!% e. =ro#it r!tes !re weighed down %y the w!ste, %ut do not #!+e ! sudden thrust into the depths #rom ! r!pid !++e er!tion o# the +!pit! ; !%our r!tio. )his !++ount seems to #it the e!r y post;w!r period. Frms spending !t !round 1B per+ent o# HS n!tion! output (!nd with indire+t e.penditures, perh!ps 15 per+ent) w!s ! m!4or di2ersion o# surp us 2! ue !w!y #rom #urther !++umu !tion. 8t w!s ! so !n e.penditure th!t the HS ru ing + !ss e.pe+ted to g!in #rom, in th!t it he ped their g o%! hegemony (%oth in +on#ronting the HSS@ !nd %inding the &urope!n +!pit! ist + !sses to the HS) !nd gu!r!nteed ! m!r"et to some import!nt produ+ti2e se+tors o# the HS e+onomy. 8n this sense, the +!pit! ists +ou d reg!rd !rms, i"e their own u.ury +onsumption, !s something to their !d2!nt!ge < 2ery di##erent in this sense to *unprodu+ti2e, e.penditures on impro2ing the +onditions o# the poor. Fnd i# it redu+ed the r!te o# !++umu !tion, this w!s not +!t!strophi+ sin+e the restru+turing o# +!pit! through s ump !nd w!r h!d

! re!dy %oosted !++umu !tion to higher tr!4e+tory th!n th!t "nown in the 16B0s. Domesti+! y, ! #irms su##ered the s!me h!ndi+!p, !nd so none ost out to others in +ompetition #or m!r"ets. Fnd intern!tion! y, in the e!r y post;w!r ye!rs, other +ountries in2o 2ed in signi#i+!nt e+onomi+ +ompetition with the HS (su+h !s the o d imperi! powers o# 3rit!in !nd Fr!n+e) were h!ndi+!pped %y re !ti2e y high !rms spending o# their own. )od!y things !re 2ery di##erent. Sin+e the e!r y 16D0s the re;emergen+e o# m!4or #oreign e+onomi+ +ompetitors h!s +re!ted ! power#u pressure #or the HS to redu+e the sh!re o# n!tion! output going tow!rds !rms. 3oosting !rms spending in the mid;16D0s during the Gietn!m I!r !nd in the 1650s during the *se+ond Co d I!r, g!2e on y ! short term #i ip to the HS e+onomy %e#ore re2e! ing immense pro% ems. 9eorge 3ush(s rise in !rms spending #rom B.6 per+ent 7.7 per+ent o# 9N= (eCu! to !%out ! third o# net %usiness in2estment) h!s e.!+er%!ted the HS(s %urgeoning %udget !nd #oreign tr!de de#i+its. )he e##e+t o# ! o# these #orms o# *w!ste, is mu+h ess %ene#i+i! to the system !s ! who e th!n h! # ! +entury !go. )hey m!y sti redu+e the downw!rd pressures on the r!te o# pro#it #rom the org!ni+ +omposition o# +!pit! < it +ert!in y does not rise !s r!pid y !s it wou d i# ! surp us 2! ue went into !++umu !tion. 3ut the pri+e the !d2!n+ed +!pit! ist +ountries p!y #or this is s ow produ+ti2e !++umu !tion !nd s ow ong term r!tes o# growth. 1en+e the repe!ted *neo i%er! , !ttempts %y +!pit! s !nd st!tes to r!ise pro#it r!tes %y +utting %!+" on wh!t they p!y emp oyed wor"ers, the o d, the unemp oyed !nd the ong term si+"L the resort to m!r"et me+h!nism to try to redu+e +osts in edu+!tion !nd he! thL the insisten+e th!t )hird Ior d +ountries p!y their pound o# # esh on their o!nsL !nd the HS !d2enture o# trying to sei>e +ontro o# the se+ond %iggest sour+e o# the wor d(s most import!nt r!w m!teri! . 8t is wrong to des+ri%e the situ!tion !s one o# perm!nent +risis /750 < r!ther it is one o# re+urrent e+onomi+ +rises. )he e+onomi+ re+o2eries o# the 1650s (espe+i! y in M!p!n) !nd 1660s (in the HS) were more th!n *%oom ets,. Jow e2e s o# p!st pro#it!%i ity do not stop +!pit! ists im!gining th!t there !re mir!+u ous pro#its to %e m!de in #uture !nd su+"ing in surp us 2! ue #rom ! o2er the wor d to %e p oughed into pro4e+ts !imed !t o%t!ining them. $!ny o# these !re pure y spe+u !ti2e g!m% es in unprodu+ti2e spheres, !s with %u%% es in re! est!te, +ommodity m!r"ets, sh!re pri+es !nd so on. 3ut +!pit! ists +!n ! so #!nt!sise !%out pro#its to %e m!de %y pouring resour+es into potenti! y produ+ti2e se+tors, !nd so +re!te r!pid %ooms !sting se2er! ye!rs. 8n2estment in the HS dou% ed %etween 1661 !nd 1666. /760 Ihen the %u%% e %urst it w!s dis+o2ered th!t !n immense in2estment in re! things su+h !s #i%re opti+ te e+ommuni+!tion networ"s h!d %een undert!"en th!t wou d ne2er %e pro#it!% e, with the %inancial Times writing o# ! *P1000 %i ion %on#ire o# we! th,. /500 )h!t w!s ! period in whi+h there w!s some re! re+o2ery o# the r!te o# pro#it. 3ut th!t did not do !w!y with the *irr!tion! e.u%er!n+e, o# e.pe+ting spe+u !ti2e pro#its where they did not e.ist. Girtu! y e2ery m!4or +omp!ny de i%er!te y in# !ted its pro#its so !s to t!"e m!"e spe+u !ti2e g!ins, with pro+ !imed pro#its !round 50 per+ent higher th!n re! pro#its. /510 )here !re m!ny signs th!t in the HS (!nd pro%!% y 3rit!in) we m!y %e !ppro!+hing ! simi !r ph!se now. 8n2estment in the HS, !#ter de+ ining in the !st re+ession, is now %!+" to the e2e s o# the !te 1660s. /520 3ut the HS re+o2ery h!s %een %!sed upon m!ssi2e go2ernment de#i+its, on %! !n+e o# p!yments de#i+its +o2ered %y in# ows o# ending #rom !%ro!d, !nd on +onsumers %orrowing to +o2er their i2ing +osts !s the sh!re o# *emp oyee in+omes in HS 9D= h!s #! en #orm 76 per+ent to 7D per+ent,. /5B0 )his is the %!+"ground to the upsurge o# spe+u !ti2e 2entures su+h !s hedge #unds, deri2!ti2es m!r"ets, the housing %u%% e !nd, now, m!ssi2e %orrowing #or pri2!te eCuity t!"eo2ers o# 2ery %ig +orpor!tions (2ery reminis+ent o# the *%!r%!ri!ns !t the g!te, issue o# 4un" %onds in the gi!nt t!"eo2ers o# the !te 1650s). Fg!inst su+h ! %!+"ground, +orpor!te pro#its wi %e %eing pu##ed up unti they ose tou+h with re! ity, !nd things wi seem to %e going 2ery we unti o2ernight it is dis+o2ered they !re going %!d y. Fnd, !s they s!y, when the HS gets ! +o d, the H- +!n e!si y +!t+h in# uen>!.

For the moment pro#it r!tes in 3rit!in !ppe!r to %e high. F++ording to one +! +u !tion they re!+hed 15.5 per+ent #or ! non;#in!n+i! pri2!te +orpor!tions in the #ourth Cu!rter o# 200D < the highest #igure sin+e 16D6. Hnder New J!%our the sh!re o# pro#its in 9D= h!s re!+hed ! re+ord o# ne!r y 27 per+ent. /570 3ut the #igures #or !2er!ge pro#its r!tes wi h!2e %een %oosted %y the +urrent high e2e s o# pro#it on North Se! oi !nd g!s. Fnd +! +u !tions o# pro#its m!de %y 3ritish #irms !re not the s!me !s pro#its m!de in 3rit!in, gi2en the 2ery high dependen+e o# %ig #irms on their o2erse!s !+ti2ities (more so th!n in !ny other !rge !d2!n+ed +!pit! ist +ountry). *Ser2i+e se+tor, pro#it!%i ity is high. 1owe2er, pro#it!%i ity in the mu+h diminished %ut sti import!nt industri! se+tor h!s #! en #rom !%out 15 per+ent in 1665 to !%out 10 per+ent now. Fs in the HS there !re +urrent y m!ny enthusi!sts #or +!pit! ism who #e!r the good times !re !%out to end !s they e2entu! y did in the 1670s, the 1650s !nd the 1660s. )here !re e2en dou%ts !%out the one p!rt o# the wor d system where immense produ+ti2e in2estments !re t!"ing p !+e < Chin!. Some +omment!tors see this +ountry !s the s! 2!tion o# the system !s ! who e. Chinese +!pit! h!s %een !% e p ough mu+h more surp us 2! ue %!+" into in2estment < more th!n 70 per+ent o# n!tion! output < th!n in the HS, &urope or e2en M!p!n. 8t h!s %een !% e to e.p oit its wor"ers more, !nd it h!s not so #!r %een he d %!+" %y the e2e s o# unprodu+ti2e e.penditure th!t +h!r!+terise !d2!n+ed +!pit! ist +ountries (! though the present re! est!te %oom is +h!r!+terised %y ! pro i#er!tion o# o##i+e s"y s+r!pers, hote s !nd shopping m! s). F this h!s en!% ed it to emerge !s ! m!4or +ompetitor with the !d2!n+ed +!pit! ist +ountries in e.port m!r"ets #or m!ny produ+ts. 3ut its 2ery high e2e s o# in2estment !re ! re!dy h!2ing !n imp!+t on pro#it!%i ity. 'ne re+ent !ttempt to !pp y $!r.ist +!tegories to the Chinese e+onomy +! +u !tes th!t its pro#it r!tes !s #e #rom 70 per+ent in 1657 to B2 per+ent in 2002, whi e the org!ni+ +omposition o# +!pit! h!s in+re!sed %y 50 per+ent. /550 )here !re some Iestern o%ser2ers who !re +on2in+ed th!t the pro#it!%i ity o# some %ig Chinese +orpor!tions is 2ery ow, %ut th!t this is +on+e! ed %y the pressure on the %ig st!te;run %!n"s to "eep them e.p!nding. /5D0 Spe+u !tion !%out wh!t wi h!ppen ne.t is e!sy, %ut point ess. )he gener! +ontours o# the system !re de+ipher!% e, %ut the myri!d indi2idu! #!+tors th!t determine how these tr!ns !te into re! ity in the +ourse o# ! #ew months or e2en ye!rs !re not. Ih!t m!tters is to re+ognise th!t the system h!s on y %een !% e to sur2i2e < !nd e2en, sp!smodi+! y, grow Cuite #!st #or the p!st three de+!des < %e+!use o# its re+urrent +rises, the in+re!sed pressure on wor"ers( +onditions !nd the 2!st !mounts o# potenti! y in2est!% e 2! ue th!t !re di2erted into w!ste. 8t h!s not %een !% e to return to the *go den !ge, !nd it wi not %e !% e to do so in #uture. 8t m!y not %e in perm!nent +risis, %ut it is in ! ph!se o# repe!ted +rises #rom whi+h it +!nnot es+!pe, !nd these wi ne+ess!ri y %e po iti+! !nd so+i! !s we !s e+onomi+.

/otes
1. )his !rti+ e is %!sed on rese!r+h #or ! #orth+oming %oo" on +!pit! ism in the 21st +entury. 8 wou d !ppre+i!te suggestions !nd +onstru+ti2e +riti+ism. = e!se em!i +hrish!rm!nQswp.org.u" 2. $!r., 167B, p.775. B. $!r., 16D2, pp.2BD;2B7. 7. $!r., 16D2, p.2B7. 5. $!r., 16D2, p.275. D. )he org!ni+ +omposition o# +!pit! w!s depi+ted ! ge%r!i+! y %y $!r. %y the #ormu ! +O2, where + R +onst!nt +!pit! , !nd 2 R 2!ri!% e +!pit! . 7. C !r"e, 1676, p.727. See ! so the +omment %y $.N. 3!i ey, p.7BB;7BD. For ! gr!ph showing the ong term rise o# the +!pit! ; !%our r!tion, see Dum?ni !nd J?2y, 166B, p.277. 5. Steedm!n, 1655, p.D7L +omp!re ! so pp.125;126.

6. For $!r.(s !rgument with ! numeri+! e.!mp e, see $!r., 16D5, pp.B1D;B17. 10. For more on this !rgument, with ! simp e numeri+! e.!mp e o# my own, see 1!rm!n, 1657, pp.26;B0. 11. )his point w!s m!de %y @o%in $urr!y in ! rep y to !n !ttempt %y Fndrew 9 yn to use ! *+orn mode , to dispro2e the #! ing r!te o# pro#it ($ur!y, 167B), !nd w!s t!"en up %y 3en Fine !nd J!wren+e 1!rris in 0ereadin$ Capital (Fine !nd 1!rris, 1676). 8t now st!nds !re the +entre o# the !rguments put #orw!rd %y the *tempor! sing e;system interpret!tion, o# F !n Freem!n !nd Fndrew - im!n. See, #or inst!n+e Freem!n !nd C!r+hedi, 166D, !nd - im!n, 2007. 12. Fine !nd 1!rris, 1676, p.D7. )he !rgument is ! so !++epted %y Fndrew - im!n, see - im!n, 2007, pp.B0;B1. 1B. See the #igures in 1!r ey, 2001. 17. F en, 2005. 15. F !m!nt !nd Singer;-?re , 1670, p.15. 1D. 1en+e -idron(s des+ription o# present d!y +!pit! ism !s *!geing +!pit! ism,, r!ther th!n the term * !te +!pit! ism, popu !rised %y &rnest $!nde . 17. )he !tter term is mis e!ding, sin+e it eCu!tes m!ss produ+tion methods o# e.p oit!tion, rising +onsumer spending !nd st!te inter2ention in industry, !s i# someone set out to produ+e ! threeL r!ther th!n the ogi+ o# the +on+entr!tion !nd +entr! is!tion o# +!pit! wor"ing itse # out. )he term *post;Fordism, is e2en more +on#using, sin+e m!ss produ+tion methods rem!in in m!ny se+tors o# the e+onomy, !nd there is e2erywhere ! +omp e. inter!+tion %etween st!tes !nd +!pit! s. 15. Di##erent me!sures o# pro#it r!tes gi2e s ight y di##erent pi+tures in these de+!des. 16. $i"e -idron !s+ri%ed this to the ro e o# !rms spending in his two %oo"s, -idron, 1670!, !nd -idron, 1677, ! 2iew whi+h 8 endorsed in 1!rm!n, 1657. $ore on this Cuestion !ter in this !rti+ e. 20. -idron, 1670%, p.1. 21. 1!rm!n, 1652, p.5B. )his !rti+ e w!s reprinted, with minor +h!nges, !s +h!pter three o# 1!rm!n, 1657. 22. F emi !nd Fo ey, 1667. 2B. Dum?ni !nd J?2y, 2005!, p.11. 27. $i+h , 1655. 25. Io ##, 200B, pp.776;766. 2D. 3renner, 200D, p.7. 27. $ose ey, 1667. 25. Dum?ni !nd J?2y, 2005%. 26. $ose ey, 1661, p.6D. B0. $!stroi!nni, 200D, +h!pter 11. B1. Stig it>, 2007. B2. D! e, 2007, p.B27. BB. See 1!rm!n, 1677, !nd 1!rm!n, 1660. B7. 8t too" repe!ted +omments %y -en $u er to m!"e me e2en %egin to try to thin" this through. B5. *8n ! r!re emotion! !ppe! to the 1ouse o# @epresent!ti2es, Spe!"er )ip '(Nei %rought ! hush to the +h!m%er !s he re+! ed the d!r" d!ys o# the 9re!t Depression !nd w!rned th!t #!i ure to s!2e

Chrys er wou d resu t in wor"er !yo##s !rge enough to trigger ! new depression. S!id heA SIe won(t %e !% e to dig ourse 2es out #or the ne.t ten ye!rs(., Time m!g!>ine, B1 De+em%er 1656. BD. Jei2!, 2007, p 12. B7. See '&CD, 166D. B5. See the +h!pter Waste US: 1970 in -idron, 1677. See ! so my dis+ussion o# this in 1!rm!n, 1657. B6. $ose ey, 1661, p.12D. 1e mist!"en y underestim!tes the !mount o# produ+ti2e !nd unprodu+ti2e !%our %y e.+ uding the pu% i+ se+tor #rom the +!pit! ist e+onomy, see p.B5. 70. Shei"h !nd )on!", 1667, p.110. 71. $ohun, 200D, #igure D. 72. -idron, 1677, p.5D. 7B. -idron, 2002, p.57. 77. 1owe2er, Dum?ni !nd J?2y do not !++ept th!t unprodu+ti2e e.penditures ne+ess!ri y ower the r!te o# pro#it. )hey +ontend th!t unprodu+ti2e e.penditures +!n he p the r!te o# pro#it through the imp!+t o# in+re!sed m!n!geri! super2ision on produ+ti2ity. )hey + !im this e.p !ins the rise in the r!te o# pro#it whi+h o++urred %etween the 1620s !nd the !te 1670s. )heir !rgument is dou% y wrong. )he most o%2ious +!use o# th!t rise w!s the destru+tion o# +!pit! in s ump !nd w!r. Fnd in+re!sed produ+ti2ity in itse # +!nnot in+re!se the r!te o# pro#it, sin+e its e##e+t, on+e it t!"es p !+e right !+ross the system, is to ower the so+i! y ne+ess!ry !%our reCuired to produ+e, !nd hen+e the 2! ue o#, e!+h unit o# output. )heir position #o ows #rom their in2ersion o# $!r.(s re !tionship %etween produ+ti2ity !nd 2! ue, whi+h in e##e+t !%!ndons the !%our theory o# 2! ue %y denying it is possi% e to use 2! ues !s ! %!sis #or pri+es. See my re2iew o# their Capital 0esur$ent, 1!rm!n, 2005. 75. $ose ey, 1661,p.107. 7D. Sh!i"h !nd )on!", 1667, p.127. 77. 'ne #!u t with $ose ey(s !n! ysis is th!t he does not see this, %ut oo"s #or other #!+tors to e.p !in the rising e2e o# w!ste. 75. 8t w!s ! mist!"e on my p!rt to use su+h ! #ormu !tion in 1652 < ! though 8 thin" e.+us!% e !s we #!+ed on y the se+ond re! re+ession my gener!tion h!d e.perien+ed !nd did so ! mere #our ye!rs !#ter the end o# the #irst. 76. Jei2!, 2007, p.11. 50. %inancial Times, 5 Septem%er 2001. 51. The .conomist, 2B Mune 2001. 52. Jei2!, 2007, p.11. 5B. @i ey, 2007. 57. F #igures on 3ritish pro#it r!tes !re #rom 3!re !nd -ir"%y, 2007. 55. '(1!r!, 200D. 5D. For mu+h more on this, see 1!rm!n, 200D.

0eferences
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