Minskian versus Neo-Marxian Analyses of Finance Capital

James K. Galbraith is a left-liberal, post-Keynesian economist who adheres to Hyman Minsky's business cycle theory—which sees financial instability as being endemic to capitalism due to the perverse incentive structure of private lending—while Leo Panitch is a social democratic, neo-Marxian political scientist who follows Paul Sweezy's theory of monopoly-finance capital. Both schools of thought converge on a considerable number of issues but propose radically different responses to economic crises. Minskians like Galbraith and Steve Keen view finance capital as destructively erratic but nonetheless integral to economic dynamism, so they favor implementing a series a regulations to stabilize the system. Marxians of Panitch's persuasion, on the other hand, contend that regulation is an exercise in futility, and therefore advocate for the nationalization of finance. Contra the Minskians, they believe that not only are private financial institutions ethically unacceptable, but that capitalism can function reasonably well with a public banking sector.

As one who is increasingly finding merit in the orthodox Marxist theory of crisis (i.e., the law of the tendential fall in the rate of profit), I disagree with both of their explanations regarding what caused the Great Recession, but I think Panitch is correct to accuse Galbraith's proposal to rein in the banks of utopianism. However, I'm unsure if a public financial system desires could coexist with a robust capitalist sector for long. The distinction between productive and financial capital has blurred in recent decades, and the high and relatively quick rate of return in the latter industry would likely motivate certain segments of the bourgeoisie to lobby to reprivatize the banks. Thus, Panitch's proposal could be equally utopian.


What are your thoughts?

I intended to respond to this post when you initially opened the thread, but it seems I was distracted, and it has since escaped my recollection, but your most recent reply to Rapaille in another thread jostled my memory.

I fully agree that the falling rate of profit is the most convincing candidate for a crisis theory, but it should be noted that Marx never formulated a comprehensive, complete theory of crisis. What we find in the three existing volumes of Capital, instead, is woefully limited in scope, with only an introduction and overview of the law of the tendency of the rate of profit to fall in Volume III. It is well known by now that Marx intended to contribute vastly more to political economy had it been possible for him to do so, as is indicated by his preface to A Contribution to a Critique of Political Economy, the Grundrisse, letters to Engels, and other writings. It is my belief that finishing Marx's ambitious project, which he left to future generations, is critical to resolving some of the outstanding problems in Marxist economics (not myths of internal inconsistencies, mind you, but legitimate questions that remain unanswered) and arriving at a fully developed understanding of capitalism, including a final crisis theory. It is a shame that Marxists have historically neglected this undertaking, preferring instead to impose the categories of Capital upon economic life rather than perfecting Marx's system. Due to the cyclical nature of capitalism's crises, it seems obvious that there should be a governing mechanism involved, and I suspect that uncovering its true nature is something that can only be achieved once Marxists have produced a robust analysis of the capitalist world market—Marx's last addition to political economy, according to the aforementioned schema.

As far as underconsumption (or its supply-side equivalent, overproduction) theories of crisis are concerned, they are problematic for a number of reasons. For one, they neglect the fact that capitalists are also consumers, and capital accumulation need not necessarily be dependent primarily on the production of department II goods, articles of consumption. As Andrew Kliman rightly argues, there is no reason to suppose that workers' personal consumption should be the lynchpin of capitalist production, which seems counterintuitive and nonsensical in a system whose overriding logic is profit maximization, not the satisfaction of the workforce. Capitalists can simply continue to engage in productive consumption of their own, purchasing and selling department I goods, means of production, between each other to bolster effective demand. Kliman has offered statistics to show that inflation-adjusted investment demand grew many times faster than real personal consumption demand over the course of three-quarters of a century in the U.S. He has controversially challenged the statistics of left-Keynesian Marxists Fred Magdoff and John Bellamy Foster as well as the famous income inequality research of Thomas Piketty and Emmanuel Saez, among others, and I am skeptical of his argument that the TRPF is merely a recurring, not cumulative, problem for capitalism, but I agree with Kliman that underconsumption cannot be the underlying cause of the Great Recession or capitalist crises more broadly.

Another flaw in the theory of underconsumption is that unproductive workers and capitalists also drive demand, thus increasing the capacity to absorb the surplus product to realize surplus value. There is also the fact, which you've already raised, that capitalism is in a chronic state of overproduction, yet it experiences crises periodically. Proponents of this theory have failed to provide an adequate explanation for why this is so. It also strikes me as question begging to assume, like the Minskyians, that financial crises are due to irrational speculative behavior and unsustainable debt. If a stable and increasing rate of return existed, it should not truly matter how frenzied Wall Street and consumer borrowing becomes, since the greater economy would continue to grow. It seems much more plausible that financial bubbles and their inevitable implosion are a reaction to intensifying contradictions in the productive sector of the economy, not a precursor to economic calamity in themselves. They are indicators, not originators, of a looming crisis.

Marx did acknowledge that underconsumption was a component of capitalism's instability, as the following quote from Capital Vol. III attests:

"The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses, in face of the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit."

However, he states this in Volume II:

"It is pure tautology to say that the crises are provoked by a lack of effective demand or effective consumption. The capitalist system does not recognize any forms of consumer other than those who can pay, if we exclude the consumption of paupers and swindlers. The fact that commodities are unsaleable means no more than that no effective buyers have been found for them, i.e. no consumers. If the attempt is made to give this tautology the semblance of greater profundity, by the statement that the working class receives too small a portion of its own product, and that the evil would remedied if it received a bigger share, i.e. if its wages rose, we need only note that crises are always prepared by a period in which wages generally rise, and the working class actually does receive a greater share in the part of the annual product destined for consumption. From the standpoint of these advocates of sound and 'simple' (!) common sense, such periods should rather avert the crises. It does appear that capitalist production involves certain conditions independent of people's good or bad intentions, which permit the relative prosperity of the working class only temporarily, and moreover always as a harbinger of crisis."

Perhaps the most damning blow to underconsumptionist theories is that capitalism functions on the basis of expanded reproduction, requiring a constantly increasing stream of surplus value in the form of maximal profits. Far from vitalizing capitalism by divesting a greater portion of surplus value to enhance workers' wages and public services, such policies introduce an unacceptable profit squeeze that can only expedite crisis, not avert it.

We can both agree, I am sure, that the crisis theory that ultimately prevails is not simply of theoretical significance but also of political importance. If post-Keynesians like Hyman Minsky and his disciples or the "Keynesian Marxists" of the Monthly Review school are correct, then it is possible to salvage capitalism by imposing strict financial regulations and promoting the welfare state, thereby justifying a revival of Keynesian policy prescriptions. Paul Sweezy, co-author of the famous Marxian work on monopoly and its relationship to overproduction, Monopoly Capital, admitted as much in the following passage:

"If my analysis … is accepted, to what policy conclusions does it point? …

The second indispensable change needed to make the private-enterprise economy work better is a redistribution of wealth and income toward greater equality. We live in a period in which an unprecedented and growing share of the society’s income accrues to corporations and wealthy rentiers, while the share of the underlying population stagnates or declines. This implies a permanent imbalance between society’s potential for adding to its stock of capital and its flagging consuming power. … Would the capitalist class as a whole, in extremis, be willing to give up half of what it has to save the other half? I have a feeling that the fate of the private-enterprise system may depend on the answer to this question."
Sweezy, Paul M. 1995. “Economic Reminiscences”, Monthly Review 47:1 (May), pp. 1–11.

This is politically dangerous, and not simply because it accepts the premise that capitalism can be improved, but because it invites backlash from the working class once its policy recommendations result in further capital flight, job losses, and general failure, which can only provide fodder for bourgeois propagandists and disseminate false consciousness among workers. On the contrary, I am strongly of the view that the capitalist mode of production is doomed, that its own internal logic undermines it in the long-term, and that its evolution paves the way to socialism. The criteria by which we judge the success of our political platform in the course of revolutionary activism should therefore never be measured against how beneficial it is for the capitalist system.

I think the "Fragment on Machines," found in the Grundrisse, contains a rare but illuminating outline of capitalism's fate, as Marx might have come to conceive it privately:

"The theft of alien labour time, on which the present wealth is based, appears a miserable foundation in face of this new one [where man becomes master over nature and appropriates his own general productive power by virtue of working as a social body], created by large-scale industry itself. As soon as labour in the direct form has ceased to be the great well-spring of wealth, labour time ceases and must cease to be its measure, and hence exchange value [must cease to be the measure] of use value. The surplus labour of the masses has ceased to be the condition for the development of general wealth, just as the non-labour of the few has ceased to be the condition for the development of the general powers of the human head. With that, production based on exchange value breaks down, and the direct, material production process is stripped of the form of penury and antithesis."