Some notes on the crunch and the crisis

Issue: 119

Fred Moseley

I agreed with much of Chris Harman’s latest article.1 My comments below will focus on the disagreements in order to further the discussion.

(1) As I have argued before, I think there has been a substantial recovery of the rate of profit in the US economy, although not a complete one. Even if we accept Robert Brenner’s estimates, the rate of profit has recovered more than half of the prior decline. And if we add in foreign profits and also top executive salaries (both of which are excluded from the Nipa estimates of profit, which Brenner uses),2 the recovery would be even greater. The criticisms Harman makes of the profit data do not apply to the Nipa estimates, because these estimates are based on actual profits and exclude capital gains and losses.

Three decades of stagnant real wages and increasing exploitation have substantially restored the rate of profit, at the expense of workers. This important fact should be acknowledged.

(2) Plus, debt-to-profit levels for non-financial corporate business have come down (except for the leveraged buyouts), so most of these companies are in decent financial shape, and are not at great risk of bankruptcy.

(3) However (as Harman discusses), the higher profit levels have not resulted in a significant increase of investment. Instead capitalists have chosen to pay themselves more dividends and higher salaries—as is clearly evidenced by higher dividend/profit ratios and the large stock buy_backs (which increases the incomes of executives who have stock options).

This means that there is even less of a “trickledown effect” of higher profits (if there ever is one).

(4) The main problem in the current crisis is the financial sector. Harman says that the crisis is not due mainly to the bankers’ greed and shortsightedness. I agree with that, but I would say the problem is more fundamental—the nature of the capitalist financial system, which is inherently speculative.

The best theorist of the capitalist financial system is Hyman Minsky, not Karl Marx. The current crisis is more of a Minsky crisis than a Marx crisis. I am not saying that we should throw away Marx (obviously), but rather that we should supplement Marx with Minsky, especially for analysis of the modern capitalist financial system.

Minsky’s theory emphasises: (i) Speculative finance—borrowing short term and lending long term. This is exactly what has exploded in recent decades (investment banks, hedge funds, mortgage companies, etc). (ii) A period of prosperity breeds over-confidence; lenders take more and more risks in hopes of higher returns (eg subprime mortgages). (iii) Eventually the bubble bursts, not all the speculative borrowers are able to refinance their short-term loans (they have to dump assets, many go bankrupt, etc) and the crisis spreads.

I think this is a very good framework for understanding and explaining the current credit crisis in the US.

(5) The government will try to solve this crisis by bailing out the speculative lenders in one way or another. Such proposals are already being made and frantically developed. I think that is where we should focus our class struggle energies in the months ahead—”no bail-outs for the bankers” and “stop foreclosures now”. This raises fundamental questions about the nature of the capitalist financial system.


1: This feedback article is a response to Chris Harman’s “From the Credit Crunch to the Spectre of Global Crisis”, International Socialism 118,

2: Nipa: the national income and product accounts tables produced by the US Bureau for Economic Analysis (