The Great Financial Meltdown
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The Great Financial Meltdown

Systemic, Conjunctural or Policy Created?

Edited by Turan Subasat

The Great Financial Meltdown reviews, advocates and critiques the systemic, conjunctural and policy-based explanations for the 2008 crisis. The book expertly examines these explanations to assess their analytical and empirical validity. Comprehensive yet accessible chapters, written by a collection of prominent authors, cover a wide range of political economy approaches to the crisis, from Marxian through to Post Keynesian and other heterodox schools.
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Chapter 3: Crisis theory and the falling rate of profit

David Harvey


In discussions of Marx’s theory of capitalism’s crisis tendencies, the law (or tendency) of the rate of profit to fall holds a prominent and in some cases exclusive position. The statement of the law is certainly logically coherent and Marx clearly acknowledges, as do all commentators on the topic, that there are counteracting tendencies that modify the operation of the law. Different accounts exist, however, as to the variety and significance of these counteracting influences, in part because Marx himself took different positions on the subject. More importantly, and less well recognized, are the assumptions under which the law is derived. No account is taken, for example, of capital realization problems and the effects of turnover times (raised in Volume 2 of Capital) while the impacts of distributional arrangements (interest, profit on merchant’s capital, rents and taxes studied in Volume 3 of Capital) remain unexplored. In his later years Marx seems to have abandoned further consideration of the law, while Engels’s editing of Volume 3 made the law look more well established than it was in Marx’s notebooks. Furthermore, the crises Marx did examine were depicted as commercial and financial crises without reference to the falling rate of profit mechanism. It seems wise, therefore, to conclude that the falling rate of profit is but one of several different sources of crises, and at that probably a fairly rare one. While the facts of falling profit rates may be correct (although there are good grounds for critiquing them given the nature of the data) these facts cannot prove Marx’s particular theory of falling profits since there are many other ways in which profit rates might fall. A single mechanism theory of crisis theory needs to be replaced by a more complicated but more realistic multiple sources of crises theory.

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