The Bifurcation of Marxist Economic Analysis

Abstract

Contemporary mainstream economics, in both its Keynesian and New Classicalist perspectives, failed to predict not only the eruption of the recent economic crisis circa 2007-08, but also the historically weak and uneven recovery of the global economy, 2008-12. The article argues the basic reason for the failure is a deficient conceptual apparatus that fails to account for the role of credit, debt, asset prices, the growing weight of speculative investment, and financial variables in general. Leaving this theme for subsequent further development, the article maintains that a similar conceptual deficiency has prevented Marxist economists in recent years from adequately understanding and predicting the continuing global economic crisis. By focusing primarily on Marx's triad of production of value concepts (rate of exploitation, organic composition of capital, and falling rate of profit) as the core conceptual apparatus for explaining the crisis, Marxist economists have been unable to adequately account for the destabilizing role of finance capital in the 21st century. Financial instability is viewed as a second derivative of real economic instability—the latter represented and measured quantitatively by the tendency of the overall rate of profit to fall. The disruptive impact of finance capital on the realization of value, the full circuit of capital, and capital accumulation is largely de-emphasized. In contrast, the article argues that changes in global financial structure, financial institutions, and financial markets in 21st-century global Capitalism have rendered Marx's 19th-century view of money, credit and banking insufficient. Marxist economic analysis thus needs to develop a more complete conceptual apparatus, beyond the production of value conceptual “triad” and addressing more directly the realization of value processes, if it is to more adequately account for the disruptive role of finance capital in the 21st century. Only by so doing can Marxist analysis de-emphasize its excessive and misdirected reliance on the falling rate of profit as the key predictive variable for understanding the current crisis of Capital. Suggestions for a new conceptual apparatus focusing on value realization, the full circuit of Capital, and thus finance capital, are offered.