Michael Roberts Blog

US president Donald Trump travels to China to meet China’s President Xi Jinping tomorrow, It will be the first time a US president has visited China in nearly a decade, with the last visit being Trump in 2017. The immediate issues before both leaders can be summarised as: 1) the trade war launched by Trump; 2) the Iran war launched by Trump and; 3) the tension over Taiwan, fostered by Trump.

On the trade war, the US and China agreed to a temporary truce last October. Trump had at one point imposed a tariff on China’s exports to the US of 145%. But two things forced him to back down. First, China threatened to restrict the export of rare earths, where China has almost 90% of these vital minerals used in all the hi-tech, AI, semi-conductors businesses upon which the US economy increasingly depends. And second, US manufacturers based in China were alarmed, complaining that Trump’s tariffs would mainly hit their exports and profits. So the meeting between Trump and Xi last October ended with Beijing suspending its export controls, while Trump reduced the tariffs on Chinese goods eventually to just 32% – still high but way down on his previous threats.

And further reductions followed.

Trump has maintained a ban on Chinese EVs into the US and its wind and solar exports. However, this has done little damage to China’s exports.  On the contrary, China’s exports have hit record levels – a result of making new trading partners around the world as ties with the US weakened. 

And all attempts to restrict China’s expansion into tech products, semi-conductors, etc have miserably failed.  China is catching up in the ‘chip war’, it is leading by a mile in robotics and has launched its own ‘open source’ AI models like DeepSeek that are seriously undercutting the likes of ChatGPT and Claude, America’s expensive AI models.

China also dominates the entire range of renewable energy manufacturing.

And China leads by far in the use of robots, with installations rising at 7% a year, while in the US they are falling by 9% a year.  China now has more robots in industry than the rest of the world put together.

Source: International Robotics Institute

Then there’s the issue of Iran. China is the biggest biggest buyer of Iranian oil. However,  China was prepared. It has built up huge oil inventories that could sustain its fossil fuel energy requirements for some time ahead.

Last week, the US imposed sanctions on several China-based companies, alleging that they provided “satellite imagery to enable Iran’s military strikes against US forces in the Middle East” and enabled “efforts by Iran’s military to secure weapons, as well as raw materials with applications in Iran’s ballistic missile and unmanned aerial vehicle (UAV) programs”. China fought back. “We have always required Chinese enterprises to conduct business in accordance with laws and regulations, and will firmly safeguard the legitimate rights and interests of Chinese enterprises,” spokesperson Guo Jiakun said at a regular press briefing. And China continues to import oil and energy products from Russia, despite sanctions by the European Union.

The ticking time bomb with US-China relations is Taiwan.  China maintains its long-standing position that Taiwan is part of China and has only developed into an independent statelet because of the occupation of the island of Formosa by the Chinese Nationalists when they fled the mainland after their defeat by the Communists in 1949.  Since then, while the US and the UN recognise in words China’s claim, in reality the US has supported and sustained first a military dictatorship in Taiwan and then after the Taiwan’s democratic evolution, parties and politicians that seek to make Taiwan independent permanently from China. With tiny Taiwan as close to mainland China as Puerto Rica or Cuba is to mainland US, tensions ebb and flow over whether China will act to take it over and whether the US and its allies in the region (Japan, Philippines) will militarily defend it.

Above all, in the 21st century, geopolitics increasingly boils down to a battle between an ailing and weakening hegemonic power, the US and a rising economic giant that is China. The US has long lost its superiority in industry, manufacturing and trade.  China is now the world’s manufacturing superpower. Its production exceeds that of the nine next largest manufacturers combined. It took the US the better part of a century to rise to the top in manufacturing; China took about 15 or 20 years. In 1995, China had just 3% of world manufacturing exports, Now its share had risen to well over 30%. While China runs a surplus on payments and receipts with other countries of around 1-2% of GDP a year, the US runs a current account deficit of 3-4% of GDP a year.

The US maintains its hegemony in world finance, but even that is weakening. US industry and banks have huge net liabilities with the rest of the world at 76% of GDP. In contrast, China has a net asset position of 18% of GDP. Such a net liability would put all other countries vulnerable to a run on their currencies – but the US escapes this because the US dollar remains the world’s ‘reserve currency’.  Indeed, because most countries in the world transact most of their trade and finance in dollars, the dollar has an ‘exorbitant privilege’ over other currencies.  A recent report found that the US gets close to 1% of its annual GDP from being the sole issuer of the greenback, while other economies must buy or borrow dollars.

The US still dominates in military prowess, spending more on armed forces that the rest of the world put together. And it runs near 800 foreign bases worldwide – while China has one.  But even here, the war in Iran has exposed the inability of the US military to impose its will over a third level economy and state which has no nuclear weapon (shades of Vietnam over 50 years ago).

For the US ruling elites, China is the ultimate enemy and threat to its global hegemony.  That applies to both the MAGA wing supporting Trump in the White House and the ‘globalists’ in America’s ‘deep state’ and ‘neo-con’ circles. The policy difference is that the Trumpists want to concentrate US power in the Western hemisphere with a view to taking on China across the Pacific just as America did with Japan in the 1930s.  For the MAGA crowd, Europe can deal with Russia and Ukraine on its own and Israel can deal with the Middle East on its own. The globalists on the other hand still have serious ambitions to dominate globally. They want the war with Russia to continue until Russia is brought to its knees and there is ‘regime change’; and they aim to back Israel and participate militarily until Iran’s regime falls. Trump vacillates between the two policies, currently swinging to the globalists over Iran. But both wings are agreed: China must be eventually be ‘dealt with’; it must be weakened economically and finally forced to accept Western policies and control.

This is the context of the continual economic attacks on China.  Mainstream economists in the US, Europe and Japan (along with émigré Chinese ‘experts’) maintain a relentless critique of China, hardly ever on its anti-democratic autocratic state machine (after all ‘democracy’ is a fairly loose description of the US and European state and political institutions).  No, it is not that; it is that China’s economy is ruining the rest of the world’s economies. 

The critique is contradictory, however.  On the one hand, we are told that China is taking over world trade unfairly with price dumping of goods exports, huge unfair subsidies to its industries and applying severe restrictions on the living standards of its people.  On the other hand, we are told that the Chinese economy is on the verge of collapse, with a build-up of huge debts in its corporate and local government sectors; with a meltdown in its property markets, with a falling working age population, with a rising fiscal deficit and declining productivity and so on.  It is turning into Japan, which has basically stopped growing (per capita income only rises there because the population is falling).

Which of these opposite critiques is true?  In many posts over the years, I have argued that neither is true.  The Chinese economy has many problems that I have outlined in several posts, but it is not about to collapse.  Indeed, it has not ever suffered a slump, as experienced in the major economies of the West in 1980-2, 1991, 2001, 2008-9, or in the COVID pandemic of 2020.  China’s state-led planned investment economy has avoided that and it will also overcome, in my view, future obstacles to its growth – if left alone by US imperialism.

China’s household consumption is not stagnating, it’s growing at 4.4% a year, more or less in line with GDP growth. Exports are not driving growth. Net trade accounted for about 20% of 2025 growth, the rest was driven by domestic consumption and investment.  Fast growth in productivity has avoided inflation, which is not due to a ‘lack of domestic demand’. So why should China change from its investment-led economy that has seen the average real wage in urban areas grow by 2,406% since 1978 taking purchasing power up 25 times?  Can the consumption-led economies of the US and the UK match that rise in purchasing power for their households?

As for ‘unfair’ subsidies applied to China’s industry, a recent report concluded that “While China is indeed an active user of industrial subsidies, direct fiscal support has stabilised since 2008. The strategic focus has shifted decisively from attracting foreign investment towards promoting domestic innovation and technological capabilities. Manufacturing subsidies, contrary to common perception, are relatively modest and decentralised.” Take motor vehicles. China’s BYD and Musk’s Tesla both make EVs in China. Yet BYD has significantly lower costs. Vertical integration is very high for BYD and research and development is far cheaper. State subsidies are only a small part in reducing costs.

That brings me to the latest critique of the Chinese economy, namely, it runs a huge trade surplus in goods with other countries, and so causes a major ‘global imbalance’ (deficits for the US etc) in world markets for trade and financial flows.  Apparently, the economic slowdown in the major capitalist economies of the West, the increased risk of stagflation and the possibility of a financial meltdown in the US and Europe are mainly due to China’s mercantilist ‘beggar thy neighbour’ policies. I recently dealt with the causes of global imbalances in trade and finance, which in my view, are a continual feature of the uneven development of capitalist accumulation and production and not due to ‘unfair’ practices or to ‘too much saving and investment’ by China or other trade surplus economies, but due to their superior productivity and investment growth.

But the charge against China goes on, led by a bunch of mainstream and Keynesian economists like George Magnus, Michael Pettis, Martin Wolf, Brad Setser etc.  “A few of us have been arguing for 10-15 years that China’s trade and investment imbalances and its soaring debt are all the result of a highly distorted distribution of income in which households directly and indirectly retain an astonishingly low share.” (Pettis). “In sum, China’s trade surplus of $1.2tn last year is not just a product of competitiveness, but also of its macroeconomic imbalances.” (Martin Wolf).

I have dealt with many of their arguments in previous posts.  But let me add just a few new points. China’s consumption per year has actually grown by more than $5 trillion over the past two decades alone. The problem is not that China consumes too little. It’s that China’s investment and government spending have also grown enormously. That’s why it has a low private consumption ratio as a share of GDP. Moreover, China’s personal consumption figures exclude “social transfers in kind”(public services, transport, health etc). If social transfers in kind were also stripped out of the disposable income of other countries, their numbers would look more like China’s. The figure for the euro area would be less than 64% in 2020 and a dozen European countries would have a smaller income share than China.

Source: The Economist

What really matters for Chinese households is the rise in consumption per person. Between 1978 and 2024, Chinese household consumption per capita grew by an astounding 7.6 percent per year, on average, compared to 5.2 percent growth in Japan, 5.7 percent in South Korea, and 6.2 percent in Taiwan over a comparable 46-year period. On average, these countries saw real household consumption growth that was less than half of the pace China is currently reporting.

Source: The Consensus on China’s Economy Is Strong—and Wrong, Arvind Subramanian https://t.co/I6zFDUqEZE

China’s personal consumption grows faster because its investment grows faster.  What drives an economy forward is investment in productive assets and sectors.  China has the highest investment to GDP ratio of the top G20 economies. Yes, some of this investment has been ‘unproductive’ (particularly into the private real estate market), but most has led to a massive improvement in infrastructure, public services and the productivity of labour. China has an additional layer of state capital that can continue investing in fields where private returns are insufficient, dispersed, too long-dated, or too externality-heavy. High-speed rail, power grids, ultra-high-voltage transmission, ports, expressways, bridges, urban rail transit, water infrastructure, 5G networks, industrial parks, space programs, and basic energy systems all fall into this category.

And that is the real bugbear for US imperialism and its allies: the state-led planning system that China has adopted. Capitalists are many in China and the capitalist sector is large. But they do not set the investment strategy; on the contrary, they must follow.  The Chinese Communist bureaucracy makes many mistakes and zig zags in its strategies because it is not accountable to its people in any organised way. But even so, the Chinese economic model is working way better than the capitalist model of the West, despite the attempts of Western economists to deny that.

As such, that is the main problem for Trump as he visits Beijing. China may be still very far behind US economic and military power, but it is catching up – unlike any other ‘emerging or developing’ economy (including India).  So China must be stopped in its tracks.

In the recent state elections in India, the ruling BJP-led coalition government won resounding victories in some key states previously held by opposition parties. In the highly populated West Bengal, Mamata Banerjee, India’s most powerful female politician, who had been in power for 15 years, saw her Trinamool Congress party (TMC) trounced by the BJP (she has refused to accept the result).  And in the small southern state of Kerala, the pro-business Congress party ousted the ruling left wing alliance in a landslide victory, with the BJP also gaining on foothold in the state for the first time ever. The BJP now controls 21 of the 28 states in India.

In the 2024 general election  Prime Minister Narendra Modi, the leader of the Hindu nationalist Bharatiya Janata Party (BJP) retained power. The BJP was formed by members of what was basically a Hindu religious fascist party, the Rashtriya Swayamsevak Sangh (RSS), an organisation modelled on Mussolini’s Black Brigades. Modi was a long-time member of the RSS who then moved seamlessly into the BJP. 

After winning power in 2014, Modi has increasingly cemented his control of government.  The nationalist BJP is now seen as ‘business-friendly’, but it is still dedicated to turning a multi-ethnic and multi-religious India into a Hindu state, where minorities, particularly Muslims, would be reduced to second-class citizens.  With increasing confidence, the Modi government has suppressed any public dissent by liberal democrats and socialists against this trend.  Many opposition politicians have been imprisoned for lengthy periods on trumped-up charges and prevented from participating in elections and in public debate.

So how is it possible for the BJP and Modi to be so popular?  First, because of the bulk of the BJP’s political support comes from the rural and more backward areas of this huge country who have not benefited from the strident rise of Indian capitalism in the cities. These areas are bulwarks of Hindu nationalism, incentivised by fear of muslims. 

The second reason is the total failure over decades of the main capitalist party and standard bearer of Indian independence, the Congress party, to deliver better living standards and conditions for the hundreds of millions, not only in the country but in the city slums. Congress appears to millions as the party of the establishment controlled by a family dynasty (the Gandhis), while the BJP appears to many as the populist party of the forgotten people.

Now even the leftist government in a small state of Kerala in the south-west of India and predominantly Christian, not Hindu or Muslim, has fallen.  Kerala is constantly promoted among the international left as a success story for public investment and support for the poor over the rich. The reality is less sanguine.  The Left Democratic Front government appears to have lost touch with working people.  Take these examples from one source.

For 266 days, ASHA workers of the public-health system that the LDF boasts about at international forums went on strike for a wage ₹21,000 a month; they were only drawing ₹7,000. After 10 months of protest, the government raised it to ₹8,000. The leftist government claimed that the strike was just a Congress conspiracy. 

The 2021 manifesto of the leftist government had promised a minimum support price of ₹250 per kilogram but it was no higher than ₹200 in 2025. Farmers in the rubber belt complained that they could not survive and their children were being forced to migrate to the Gulf and elsewhere. Youth unemployment has reached 30% and among young women, 47%, nearly three times the national average. The government promised 20 lakh jobs in five years, but none had materialised.

Worse, corruption emerged. Around ₹2.7 crore ($300k) was paid by a mining firm to the Chief Minister’s daughter’s IT company between 2017 and 2020 for no demonstrable services.  In the election campaign, the leftist alliance dropped its secular approach and tried to woo Hindu nationalists. As one source put it: “Kerala in 1957 voted Communist because the Left spoke for the labourer, the tenant, the Dalit, the fisherman, the woman in the kitchen and the field. Kerala in 2026 it began speaking only for itself.”

The ‘Communist’ left and Congress have failed to offer a clear alterntive to the BJP, which continues to boast of the unending success of the Indian economy since Modi came to power.  The Indian media and Western economists laud the strong economic growth that India is apparently enjoying under the Modi government.   

So ecstatic are mainstream economists about the success of Indian capitalism under Modi that talk of his neo-fascist past and current repressive measures are ignored.  Instead, all the talk is of India ‘catching up’ with China and even surpassing its real GDP soon.  For example, Goldman Sachs projects India will have the world’s second-largest economy by 2075.  Modi made the economy a major part of his election pitch, pledging to lift the country’s economy “to the top position in the world”. This is nonsense, as I have shown elsewhere. It is true that the world’s second largest country by population has had very fast economic growth, averaging 5-6% a year (in fact a little slower in the 2020s), although the official figures can be questioned.

Source: IMF, author

Also according to official figures, poverty in India has declined substantially in both rural and urban areas. Based on the official poverty line, rural poverty fell from 64.9 percent in 2011-12 to 19.3 percent in 2023-24, while urban poverty declined from 39.7 percent to 8.6 percent. A similar pattern is observed for ‘extreme poverty’, which declined from 30.7 to 3.1 percent in rural areas and from 17.4 percent to 1.4 percent in urban areas over the same period.

But these estimates are again to be  questioned. Labour market data suggest a much higher inequality in earnings with the top 10% of Indian earners getting income 17 times higher than the bottom 10%. Indeed, India’s economic growth post pandemic has been uneven, or “K-shaped” (where the rich have thrived, while the poor continue to struggle). India may be the fifth largest global economy at an aggregate GDP level, but on an income per person basis, it still languishes at the 140th rank. Inequality has widened to a hundred-year high according to research from the World Inequality Database!  The top 10% of the Indian population now holds 77% of the total national wealth.  The rise in inequality has been particularly pronounced since the BJP came to power in 2014. By 2022-23, top 1% income and wealth shares (22.6% and 40.1%) reached their highest historical levels and India’s top 1% income share is now among the very highest in the world.

In contrast, many ordinary Indians are not able to access the health care they need. 63 million of them are pushed into poverty because of healthcare costs every year – almost two people every second.  Indeed, it would take 941 years for a minimum wage worker in rural India to earn what the top paid executive at a leading Indian garment company earns in a year.  While the country is a top destination for ‘medical tourism’, the poorest Indian states have infant mortality rates higher than those in sub-Saharan Africa. India accounts for 17% of global maternal deaths and 21% of deaths among children below five years.

Rural distress, stagnation and falling farming incomes have led to a number of protests by farmers. According to Samyukta Kisan Morcha, an umbrella of farm unions, over 100,000 farmers have committed suicide in the last ten years of Modi’s rule. India ranks 111th of the 125 nations in the Global Hunger Index (2023) report. India is home to over a third of the world’s malnourished children, which is not only a health crisis but has a wider impact on the economy. A 2023 joint report by FAO, UNICEF, WHO and WFP, found that 74% of the population cannot afford healthy food. 

The key for Indian capitalism (as it is for all capitals) is the profitability of its business sector. The profitability of Indian capital took a huge plunge in the 1970s, as profitability did globally.  Under successive Congress-led governments, neo-liberal policies were adopted to drive up profitability. Then came the Great Recession and the ensuing Long Depression and profitability and growth began to fall back.  Modi came to power as a result. Under Modi, Indian capital has sustained a relatively high rate of profit, enabling it to expand investment and the economy.

Source: Penn World Tables 11.0 series

Investment to GDP reached 42% at the peak of the credit boom of 2007.  However, after the Great Recession of 2008-9 and the ensuing Long Depression of the 2010s, investment to GDP fell back significantly, until the Modi regime steadied the ship for Indian capital after the COVID pandemic slump.

Source: IMF

The Modi government is being encouraged by the international economic institutions to keep up the incentives to Indian capital. In its latest report, the World Bank said: “Boosting private sector-led growth will be critical to strengthening economic resilience and supporting more young people to enter the workforce, A predictable, business-enabling environment will help to unlock investment and create jobs at scale in priority sectors like energy and infrastructure, manufacturing, tourism, healthcare, and agribusiness.”

But India’s economic future is uncertain. “India is not immune to these global shifts. Intricately connected to global value chains, India faces external shocks and acute effects from these global policy changes, including tariff escalations and volatile capital flows.”  India imports nearly 90% of its crude oil and 50% of its natural gas requirements. Conflicts in the Middle East, such as the disruption in the Strait of Hormuz, pose a severe risk to this energy supply, potentially creating high inflation and hindering economic activity. If oil prices stay elevated for an extended period, it could significantly impact India’s external balance and increase the government’s subsidy burden. Industrial activity in early 2026 has been a mixed bag, with manufacturing and mining showing resilience while electricity generation acts as a drag.

So the Indian economy remains vulnerable to global economic crises, particularly due to high energy import dependence and geopolitical disruptions. External headwinds like Middle East conflicts and global supply chain disruptions threaten momentum. If there is a global economic slump, India will join it.

Last week, crude oil prices in Asia hit a new high at $125/b amid reports that the US was considering military action against Iran to break the deadlock in peace talks. The global average oil price also reached $113/b, the highest since the post-COVID pandemic slump in 2022.  In the end, Trump backed off (for now) from that threat and said that ‘peace talks’ were still underway.  But he asserted that the US will maintain its naval blockade until a ‘nuclear agreement’ is reached, further weakening prospects for a peaceful resolution.

Oil prices edged back a little, but remained well above $100/b as the war went into its third month.  The Strait of Hormuz remains blocked, with nearly all shipping unable to transit it.

The real issue now for the world economy is the inevitable global shortages of essential commodities, not just oil, but oil products like air fuel and a whole range of raw materials needed to sustain agricultural and industrial production through this year. Already US oil inventory data show steep declines in crude and fuel stockpiles

JPMorgan economists reckon that global oil inventories will hit Operational Floor by September. “Operational Floor” is the minimum needed to keep global oil production functioning. Below it and pipelines lose pressure, terminals shut and refineries go offline.

The World Bank released its latest Commodities Outlook report and it makes alarming reading for the world economy, especially for the poorest countries and their people. Energy prices are projected to surge by 24% this year to their highest level since Russia’s invasion of Ukraine in 2022.  Overall commodity prices are forecast to rise 16% in 2026, driven by soaring energy and fertilizer prices and record-high prices for several key metals.

Attacks on energy infrastructure and shipping disruptions in the Strait of Hormuz, which handles about 35% of global seaborne crude oil trade, have triggered the largest oil supply shock on record, with an initial reduction in global oil supply of about 10 million barrels per day.  Even after moderating from their recent peak, Brent oil prices remain more than 50% higher in mid-April than they were at the start of the year. Brent oil is forecast to average $86 a barrel in 2026, up sharply from $69 a barrel in 2025 (and this forecast was made before the latest hike up in the crude price and assumes that the most acute disruptions end in May and that shipping through the Strait of Hormuz gradually returns to pre-war levels by late 2026).

Indermit Gill, the World Bank Group’s Chief Economist concluded that: “the war is hitting the global economy in cumulative waves: first through higher energy prices, then higher food prices, and finally, higher inflation, which will push up interest rates and make debt even more expensive,” He went further: “The poorest people, who spend the highest share of their income on food and fuels, will be hit the hardest, as will developing economies already struggling under heavy debt burdens. All of this is a reminder of a stark truth: war is development in reverse.” 

Rising commodity prices caused by these shocks will increase inflation and destroy economic growth worldwide. In developing economies, inflation is now projected to average 5.1% in 2026 under the World Bank’s ‘baseline’ assumptions—a full percentage point higher than was expected before the war and an increase from 4.7% last year. Growth in developing economies will also deteriorate as higher prices for essentials weigh on incomes and exports from the Middle East face sharp curbs. Developing economies are expected to grow by 3.6% in 2026, a downward revision of 0.4 percentage point since January. Economies directly impacted by conflict will be hardest hit, and 70% of commodity importers and more than 60% of commodity exporters worldwide will see weaker growth.

Critically, these effects spill over into other key commodity markets, with an impact roughly 50% larger than under normal market conditions. According to the World Bank, a 10% oil price increase triggered by a geopolitical supply shock leads to natural gas price increases peaking at about 7% and fertilizer price increases peaking at over 5%.

This will feed through to prices in the shops and the bills of households around the world. The fertiliser shock is already under way. The plunge in crop yields will come in the autumn. If fertiliser prices rise from roughly $300–$350 a tonne to around $900–$1,000 and remain elevated, global food prices could increase by 60-100%, pushing up to 100mn additional people into undernourishment — a far larger impact than disruptions to grain trade alone.

As I have argued in previous posts, stagflation (ie slowing real GDP growth and rising inflation), had already been emerging well before the Iran conflict broke out. The war has only accelerated that process –  the major economies are like a pair of scissors; the bottom blade (growth) is dropping further while the upper blade (prices) is rising faster – so the gap between the blades is widening.

US consumer inflation (PCE index) reached 3.6% yoy in April. PCE inflation has been moving up relentlessly for the past 10 months, and the energy price spike will now add to that in future months. So even the US is facing stagflation.

Trump’s continued tariff tantrums are only adding to the inflationary pressure. The US Federal Reserve reckons that tariffs have resulted in a “near-complete pass-through to consumer prices, contributing roughly 0.8 percentage points to core PCE inflation and explaining the excess inflation in core goods.” 

Given the stagflationary economic environment intensified by the Iran war and rise in energy and commodity prices, central banks are in a dilemma – raise or cut interest rates? So far, they have decided to do neither.

Last week the US Fed kept its federal funds rate unchanged at the 3.5%–3.75% target range for a third consecutive meeting. But the decision was not unanimous, with Governor Miran (Trump’s man on the board) voting to lower interest rates by 25bps and three other members objecting to the language in the statement that suggested the central bank would eventually resume cutting rates. The 8-4 vote marked the first time since October 1992 that four officials dissented against a FOMC decision. This split joins a similar split by the Bank of Japan earlier in the week, when its board members held its short-term policy rate at 0.75% at its April 2026 meeting (the highest level since September 1995). But three bank board members voted for a hike in the rate.

In the Eurozone, stagflation is already confirmed. Eurozone real GDP rose just 0.1% from the previous quarter in the first quarter of 2026, so that year-on-year real GDP growth slowed to just 0.8%, the slowest rate of expansion since 2022.  Yet Euro area annual inflation climbed to 3% in April 2026, the highest since September 2023. Energy costs soared 10.9%, the most since February 2023. The European Central Bank was left in quandary about raising or reducing its interest rate. It decided to do nothing and kept interest rates unchanged.

Within the Eurozone, France is in deep in stagflation. Real GDP stalled quarter-on-quarter in Q1 2026,, marking the weakest performance in five quarters, and household consumption and investment declined and exports fell sharply.

In the UK, the Bank of England reckons that in its ‘worst case scenario’, now looking increasingly likely, inflation could hit 6.2% by the start of 2027! Food prices could rise by 6-7% by the end of this year. This could lead to significant rises in the BoE base interest rate as the central bank tries to ‘control’ inflation.

Average real incomes in Britain will fall (low-income households will suffer most, as usual) and the economy will stagnate. Unemployment will rise as food and hospitality businesses see a reduction in demand and are forced to lay people off.

Globally, if the conflict lasts much longer, then rising inflation will be joined by falling economic growth and the likelihood that even some of the major economies could slip into an outright slump.  Stagflation is here now, but ‘slumpflation’ is on the horizon.

The war will also intensify the widening gap between the rich elite and the rest of us. In the US, this gap is called a “K-shaped” economy, namely the better-off get richer and the worse-off get poorer.

 A new report by Oxfam shows that the inequality gap in global pay has widened dramatically through the 2020s.  When adjusted for inflation, global worker pay declined 12% between 2019 and 2025, the equivalent of 108 days of free work during that time period. In comparison, chief executive officer (CEO) ‘compensation’ increased by 54% between 2019 and 2025. CEO pay increased 20 times faster than average worker pay around the world in 2025.

Four of the world’s biggest companies — Blackstone, Broadcom, Goldman Sachs and Microsoft — paid their chief executives more than $100 million each in 2025. The payouts place these bosses among the highest earners globally, with the top 10 CEOs together taking home more than $1 billion last year. The average CEO received $8.4m in total compensation in 2025 compared to $7.6m in 2024.

The Oxfam analysis also found billionaires were paid $2,500 a second in dividends in 2025, according to the investment portfolios of more than 1,000 billionaires. For every two hours in the 2025, the average billionaire received more in dividends than the average worker earned in annual pay. The wealth of billionaires reached a record high in 2026, with the wealthiest gaining $4tn over the past 12 months, a 13.2% increase from 2025.

Inequality in the US was worse than the global average, with CEO pay increasing 20.4 times faster than worker pay in 2025. For 384 CEOs in the S&P 500 where CEO compensation data was available, pay increased by 25% from 2024 to 2025, while average hourly earnings for workers at private companies increased just 1.3% in the same period.

The labour share of GDP is a measure of how much economic value goes to workers. Globally, labour share as a percentage of GDP has declined by 0.4 percentage points since 2019. If labour share had stayed at 2019 levels, workers would have been $469 billion better off in 2025. Since 2019, productivity has increased by 9% while real wages have fallen by 12%.

The share of US national income going to capital has rocketed in the 21st century.

Source: John G. Fernald, “A Quarterly, Utilization-Adjusted Series on Total Factor Productivity.”   FRBSF Working Paper 2012-19.  My calculations.

Indeed, this is why the US stock market continues to boom despite the intensifying crisis in the productive sectors of the economy globally.  In April, US stocks had their biggest rise since the coronavirus pandemic, as strong earnings and plans for further huge spending on AI persuaded investors to shrug off concerns over the fallout from the US-Iran war.  

The rise was almost entirely due to technology stocks. Investors piled back into US tech stocks as analysts revised their profit forecasts to new highs. As has been said before, the US economy is one big bet on AI.  Investors are banking on booming AI infrastructure spending by a handful of Silicon Valley companies to support economic growth.  And the AI spending boom shows no sign of abating. The big four “hyperscalers”, which include Amazon, Meta, Microsoft and Google parent Alphabet, are together expecting to spend 77 per cent more in capital expenditures than a record $410bn last year to a staggering $725bn. 

Will AI deliver in creating a step-change up in the productivity of labour in the US that will overcome the downward pressure on economies and on the profitability of capital in the major economies? So far, there is little sign of any productivity boost.  Productivity expert Carl Frey reckons that those promoting AI would be lucky to see the technology’s impact on output per hour match even the short-lived burst of the 1990s and 2000s.

It costs around $30 million in AI hardware) and $14 million per megawatt of data center capacity. Data centers appear to take anywhere from a year to three years depending on the size. Of the 114GW of data centers supposedly being built by the end of 2028, only 15.2GW is under construction in any way, shape, or form.  As a result, every AI data center starts millions of dollars in the hole, and even with six-year-long depreciation schedules, takes years to pay off. Open AI reckons it will make $673 billion in revenue through the end of 2030, but it is burning $852 billion in cash raised from loans and contracts to get there.  At the same time, competitor AI companies, mainly in China, are providing open source AI machines that dramatically undercut prices being charged by the American firms.

Many investors in so-called ‘private credit’ (non-bank credit funds) that have been investing in AI are demanding their money back. If central banks decide to raise intereest rates on borrowing to try and control rising inflation, that could trigger corporate defaults and a squeeze on private lenders. So the jury is still out on whether AI will succeed in boosting productivity and delivering sufficient profit before the investment bubble bursts. 

And then there is the cost of the Iran war.  This war is costing the American state over $1 billion a day. The Trump administration has already dramatically increased the “defence” budget to over $1 trillion a year, but even after just a few weeks, the war is using up a sizeable part of the weaponry and logistics available. This is squeezing what is required to continue the Ukraine war as a result. Already Ukraine’s President Zelenskyy is complaining of the lack of funding and arms that he needs to sustain the frontline against the Russians.

Global military spending hit a record $2.9 trillion in 2025, marking 11 straight years of growth, as major powers like the US, China, and Russia ramp up budgets. Europe is also increasing budgets in response to the war in Ukraine.

Source: SIPRI

The Trump administration is now asking the US Congress for a 50% increase in US defense spending for the next year to $1.5trn.  In Europe and Japan, ‘defence’ spending is also set to rise sharply. This will add to already record-high public debt in the US and elsewhere and to the burden of servicing that debt through cuts in government spending and rising interest costs – more guns, less butter; more arms, less fuel; more weapons, less food.

Global imbalances are back on the agenda of the economic powers that be.  What are these ‘global imbalances’?  First, there is the imbalance in global trade, namely some countries run significantly large surpluses in goods and services exports over imports; while other countries run sizeable deficits on trade.  The global current account imbalance is the aggregate difference, currently 2% of world GDP a year.

Since 2018, the sum of current account surpluses and deficits has increased by roughly 25% and 35% respectively, now reaching their highest levels since 2012. China, Europe and the US (G3) drove the widening in current account balances in 2024, with the US and China continuing the divergence in 2025.

Second, those countries with large and persistent trade and income surpluses then recycle these into investments abroad, both in purchases of factories, companies etc and also in buying the the stocks and bonds of other countries.  In so doing, these surplus countries become major creditors in foreign assets, while the deficit countries become major debtors.  These imbalances can be measured by the net foreign investment position of countries.  China, the EU countries, the oil exporters and Japan are the main creditors and the main debtors are the US, along with the UK and the smaller economies of the Global South.

Net international investment position (% of global GDP)

These rising imbalances are worrying the international financial institutions like the IMF, the OECD and G7 as well as many mainstream economists.  Why are they worried?  They fear that ‘excessive’ global imbalances can lead to financial crises, when a major debtor country finds it increasingly unable to pay for its deficits on trade unless it accepts it must pay more in interest for borrowing more; or allow its currency to fall against the currencies of the surplus nations, thus increasing domestic inflation.  And if a financial meltdown were also to ensue, then the debtor country could be driven into a deep recession.

And of course, we are talking about the US here.  The debtor position of the US has worsened significantly since the end of the COVID pandemic slump. 

Increasingly, the US has relied on foreigners buying more US companies and stocks (‘the kindness of strangers’), who are currently attracted by the AI boom.  The reaction of the Trump administration to the high US trade deficit has been to impose tariffs and other measures to ‘protect’ American industry and reduce imports.  The US has also imposed measures to ban Chinese investments into the US.  But Trump’s measures have only led to a slowdown in world trade and foreign investment that reduces global economic growth.

So the international financial institutions are worried and are calling for global action to reduce the imbalances.  The IMF etc recognise that trade and investment imbalances will exist, but their economists claim that the problem is only when they become ‘excessive’ “Not all imbalances are the same – it is excessive imbalances that should concern us.”  Kristalina Georgieva, IMF chief.  The IMF estimates that over the past 10 years, on average, around one-half of imbalances have been ‘excessive’. But the increase in excess imbalances in 2024 was the largest in a decade, with major economies – China, the US and the euro area – driving the increase.

But what is ‘excessive’?  The IMF economists have attempted to measure this. They claim that “persistent excess imbalances are driven primarily by domestic macroeconomic factors.”These factors include “demographics, levels of development, and whether a country has large resource endowments such as oil.”  This does not take us very far in an explanation of excessive imbalances.  In the graph below, the IMF actually shows that the main factor is ‘other fundamentals’.  These include “output per worker, expected GDP growth, and the International Country Risk Guide.”  In other words, what makes a country excessively in surplus or in deficit are its relative levels of productivity and economic growth compared to its trading partners.

The Bank of England economists recently made a critique of the IMF ‘excessive imbalance’ model. “IMF modelling finds it hard to explain what causes excess imbalances.  For example, the US excess fiscal deficit accounts for only around 1/3 of its excess current account deficit. And euro-area excess fiscal tightness and weak private credit accounts for about half of its excess surplus. For China, identified domestic policy distortions do not help explain China’s excess surplus.”

As the BoE put it, “the IMF’s External Balance Assessment exercise could be missing important structural trends.”  The IMF model shows that policy measures ie tariffs, devaluation of the currency, subsidies for industry or low welfare spending “can only explain some, but not much, of the gap between actual and norm.” So what can explain the rest of the gap?”

The Boe wants to argue that imbalances are caused by ‘industrial policy’ i.e subsidies for industry, capital controls on investment, regulations on imports – all measures that China is accused of adopting the most: “industrial policy has no long run effects on productivity or output composition; however, if productivity growth is endogenous and sector-specific, industrial policy can have persistent effects.”  However, even here, the BoE takes a step back. “While, for example, China, Japan and South Korea tend to use industrial policy intensively and run large current account surpluses, other surplus countries, such as the Nordics for example, make relatively little use of it. This suggests that IP is not the primary driver of current account balances.”

So trade and investment imbalances are not primarily caused by ‘bad economic policies’ but by structural factors. What are these? The key missing contribution in the IMF’s list of components of imbalnaces is cost competitiveness.  Classical Ricardian trade theory predicts that trade among countries will balance in the long run if currency exchange rates adjust to do so.  A country in deficit will see its currency fall relative to countries in surplus and then their exports will get cheaper and so end the trade deficit.  So there should be a set of exchange rates that will balance all trade among countries.

This is David Ricardo’s theory of comparative advantage.  But it has always been demonstrably untrue. Under capitalism, with open markets, more efficient economies will take trade share from the less efficient. So trade and capital imbalances do not tend towards equilibrium and balance over time.  Moreover, causation runs from trade imbalances to capital account imbalances, contrary to the Ricardian model where the trade balance should adjust to bring the capital account into balance. So widening trade imbalances cause widening creditor and debtor imbalances.

Trade is primarily determined by the real cost of production, i.e. absolute cost advantages. What really decides is the productivity level and growth in an economy and the cost of labour compared to others. Trade would only be balanced if all trading partners were equally competitive in cost terms. But in the world of capitalist competition and trade that does not happen.Therefore global competition among unequally competitive trading partners engenders persistent global imbalances.

Global imbalances in trade and investment are really a symptom of the imbalances of capitalism’s uneven and combined development. Contrary to the views of the mainstream, capitalism cannot expand in a harmonious and even development across the globe. On the contrary, capitalism is a system ridden with contradictions generated by the law of value and the profit motive. One of those contradictions is the law of uneven development under capitalism – some competing national economies do better than others.  And when the going gets tough, the stronger start to eat the weaker.  Imbalances grow.

For the IMF, and for Keynesians, there is apparently a ‘sustainable’ level of surplus or deficit which is determined by the ‘right balance’ between aggregate savings and investment in an economy. In their book, Keynesians Klein and Pettis argue that “the excess savings of Germany and several other smaller European countries (such as the Netherlands)” is the cause of Europe persistent surpluses”. But any proper analysis of the Euro imbalances will find that it was not a result of Germany needing to export its ‘excess savings’, but the result of Germany’s more superior technology and productivity, enabling it to expand exports throughout the EU at the expense of its other weaker member states.  There is a transfer of value and surplus value from the weaker capitalist economies to the stronger.  Indeed, that is precisely the nature of imperialism: the unequal exchange of value, not a savings-consumption imbalance.

If global imbalances are becoming a threat to economic growth and risk triggering financial crises, what to do?  The IMF, G7, OECD etc call for China to rein in its exports and manufacturing investment and instead increase household consumption.  On the other side, the US should not apply tariffs, but impose severe fiscal austerity to reduce spending on imports.

This is a hopeless policy solution for two reasons.  First, China’s surplus is not due to too much saving that needs to be reduced – on the contrary,  it is due to massive investment in manufacturing and technology sectors.  Indeed, China has moved decisively up the value chain, capturing market share from other export-oriented economies, most notably Germany and the rest of the euro-zone, but also Japan and Korea. As a result, the latter’s surpluses have diminished compared to the mid-2000s.

The US deficit is not due to excessive government spending, but to the inability of US industry to compete in world goods markets (although it still holds dominance in services and finance). 

Second, In China’s case, helping to reduce global imbalances and reduce the US deficit would require a shift away from high savings and investment towards household consumption. Why should they do this to help the US?  Indeed, it is wrong to place the burden of the adjustment on the surplus country. Deficit countries should ‘adjust’ by investing more in productive sectors and so lowering costs.

Moreover, a coordinated global adjustment is highly unlikely given the current geopolitical climate.  So when the Keynesians call for a revival of ‘multilateralism’ and global cooperation, they are denying the reality of the 2020s. The Keynesian left have attempted to revive the long forgotten idea of Keynes made in 1941 that governments should establish an international ‘clearing house’ for countries where any trade surpluses or deficits are converted into credits and debits measured in a unit of international currency – named a ‘bancor’. The essential feature of Keynes’ plan was that creditor countries would not be allowed to hold onto the money from their outstanding trade surpluses, or charge punitive rates of interest for lending them out; rather these surpluses would be automatically available as cheap overdraft facilities to debtors through the mechanism of the ICU.  Again, it would be China or Europe that would pay to get the US out of its deficit and liabilities.

How did the recent OECD annual meeting conclude on the chances of such international cooperation? “We’re really where we were before the meeting, which is nowhere,” said the head of the World Trade Organisation (WTO).  The utopian idea of Bancor was vetoed in 1941; and if raised again by Keynesians now, it will suffer the same fate.

This post reviews some recent economics books published by various authors, both Marxist and non-Marxist.

Let me start with a magnum opus, Capitalism – a global history, by Sven Beckert. Beckert is the Laird Bell Professor of History at Harvard University, where he teaches the history of the United States in the 19th century and global history.  His ‘Capitalism’ is called a ‘monumental book’ by global inequality expert, Thomas Piketty, himself an author of an eariler gargantuan publication back in 2014 called Capital in the 21st century (Piketty’s suggestion then was that he was ‘updating’ Marx’s Capital from the 19th century). 

Beckert in contrast is not trying to update or critique Marx’s Capital.  Instead, as an economic historian, he aims to paint a broad canvas of the rise of capitalism from its early embryonic origins, that he takes back to 1000 years ago. He does not provide a theoretical analysis of capitalism as Piketty tries in his book.  This book is very much more descriptive than analytical.  He delivers a global view of capitalism , not confined what he calls the ‘eurocentric’ approach of others. That is the book’s merit, full of anecdotes and examples of capitalists at work worldwide.  But the book’s de-merit is its lack of any systematic understanding of capitalism.  Indeed, it is like the work of Adam Tooze – namely, it is ‘more the how, than the why’.

As the blurb says for the book, “Sven Beckert, author of the Bancroft Prize–winning Empire of Cotton , places the story of capitalism within the largest conceivable geographical and historical framework, tracing its history during the past millennium and across the world. An epic achievement, his book takes us into merchant businesses in Aden and car factories in Turin, onto the terrifyingly violent sugar plantations in Barbados, and within the world of women workers in textile factories in today’s Cambodia”.

Capitalism, argues Beckert, was born global. Emerging from trading communities across Asia, Africa, and Europe.  And capitalism can only be described as a global phenomenon. “This book understands capitalism as, above all, a global development whose local articulations can only be understood globally. The economic dynamics of a given place are inescapably shaped by its connections to the outside world. There is no “French capitalism” or “American capitalism”; rather, there is capitalism in France and America, which have contested and complicated relationships with capitalism elsewhere, indeed everywhere “

Beckert makes big claims for the revolutionary nature of capitalism. “It was a fundamental break in human history not just because it revolutionized economic affairs but because it turned human relations upside down; infiltrated our politics, societies, and cultures; altered the natural environment we inhabit; and made revolution a permanent feature of economic life. The capitalist revolution is the only revolution whose fundamental core is that it is ongoing, that it qualifies as a state of permanent revolution.” 

But of course, he recognises that capitalism has its faults. “Capitalism is also distinctive for the particular kinds of social inequalities and global hierarchies it creates.”  But Beckert does not want to take sides between those authors supporting and those critiquing capitalism. “On one side, Marx’s writings became sacred texts through which to filter the politics du jour; on the other side, scholars read capitalism’s history through the equally sacralizing lens of Adam Smith’s writings. This book strives to avoid either idolatrous extreme.” 

Actually, it is not true that Marx did not recognise the great changes that capitalism made to human progress; or that Adam Smith saw no faultlines in market economies. But Beckert resorts to descriptive history rather than economic insight. As Beckert puts it: “this work is an effort to reclaim capitalism as a territory for historical investigation. This history will show that capitalism is neither a state of nature nor a process whose internal logic determines its eventual outcome in more than the most general way.”  So the Marxist materialist conception of history and Marx’s explanation of the internal contradictions in capitalism are to be put aside; as are the views of mainstream neoclassical economists that markets and profit making are an eternal and beneficial feature of human social organisation. Instead, capitalism is a contingent history.

Beckert does not hide the brutal nature of the emergence of capitalism globally. “Although capitalism’s history is often told as a story of contracts, private property, and wage labor—that is, stylized as a history of the realization of human freedom—there is another story, equally important, about vast expropriations, huge mobilizations of coerced labor, brutality in factories and on plantations, fierce destructions of noncapitalist economies, and massive extractions of resources for private gain. Capitalism rested, as we will see in the chapters that follow, not just on productivity gains but on enormous appropriations”.

Many of the early sections of the book give the reader a panoramic view of the capitalist process at work across the world, even when other social formations like, slavery, feudalism and Asian despotism were dominant. Unfortunately, when Beckert gets into 20th century, the period when capitalism became fully dominant globally as the mode of production and social formation, Beckert’s analysis becomes weaker. He notes the post-1970s crisis of reconstructed capitalism, ie the neoliberal period, but it seems he remains confident that capitalism is here to stay despite the accumulating economic, environmental and geopolitical crises that we see accelerating in the 21st century. ”We can anticipate that capitalism will remain a global totality, even if the nature of that totality continues to change, perhaps in radical and surprising ways. We can expect capitalism’s enormous creativity to persist, along with its amazing adaptability.” 

Or does he? “Eventually, however, there will be a moment when capitalism ends. Regardless of whether we fear or hope for that end, capitalism, like everything in human history, is finite, even if it is impossible to say when or how it will end or what will replace it.”  But even if capitalism is to give way to a new stage of human social organisation, it will take a very long time and “be interwoven within capitalism itself, just as capitalism was itself embedded in noncapitalist societies for centuries.”  Or maybe not – if the “ecological and social crises unfolding right now and right here become unbearable”.   All these maybes are a product of his descriptive approach to the history of capitalism.

Another opus magnum is the latest book by former World Bank lead economist and global inequality expert, Branco Milanovic.  I have posted several times on Milanovic’s indepth studies of global inequality, but this new book is not so much about inequality but more about what he considers is the great transformation in the world economy that is taking place –namely the movement of economic power from North America and Europe to Asia. “The first defining change is the much greater importance of, and the movement of economic activity towards, Asia and the Pacific.”

The second big change is the result of that shift. As China became richer, the Chinese people also became richer. That meant that people who were in the lower-middle class in the US, Germany, or Italy, for the first time in the last 200 years, fell behind substantial numbers of people from Asia. “At the level of the nation-state, we have had a movement towards much greater importance of Asia in economics and politics. At the level of personal incomes, we see the decline of the Western middle class.”

Milanovic argues that the Industrial Revolution transformed the countries that were leading the industrialization—the UK, France, Northern Europe, then the United States, and finally Japan—and made their people much richer than people elsewhere. But In the last 40 years, we have had, for the first time, a serious challenge to that. Countries in Asia are now not only catching up but, in some cases, even overtaking Western countries technologically.

This has led to a new cold war not now based on ideology (capitalism v communism, as with the US and the Soviet Union), but now economically between the US and China. If China continues with real GDP growth rates 2-3% points higher than the US rate, within one generation, and a maximum of two generations, you will have the same number of people in China who are above the US median income as Americans. “If one thinks that the real sign of catching up is when China becomes equally rich on a per capita basis as the United States, it will take a long time. But before that happens, China as a nation would be much more powerful than the United States simply because it is so much bigger.”  But see my forthcoming paper on Catching up , to be published by the World Association of Political Economy.

Milanovic says there are three views on the benefits or otherwise of the globalisation of trade and finance in the last 40 years. The mainstream one is that trade among nations benefits all countries and so leads to peace. Adam Smith is more nuanced and argued that only ‘balanced trade’ would maintain peace. But there is the Hobson-Luxemburg-Lenin theory, which holds that the big powers would fight for control of the resources and assets of the rest of the world and that would eventually lead them to war ie imperialism.  Milanovic tends to a mix of the last two views.  The end of globalisation and free trade has led to a loss of living standards for many in the West and thus “a huge dissonance between different parts of the Western population.”  I would add that globalisation led to a massive transfer of value and resources from the Global South to the Global North, hitting living standards not just in the Global North but also for the vast majority in the Global South..

According to Milanovic, neoliberal globalism has now been replaced by ‘national market liberalism.’  Tariffs are being imposed and immigration controls are increasing.  The world has moved from option two to option three. ”We still have neoliberalism, but only at the national level. We end up with a version of neoliberalism stripped of its international component.” Milanovic concludes that “we clearly have a global disorder.” But he lays his hope on the world moving towards a multipolar system. Eventually, “we can build a more equitable international system where major powers have a greater stake than they do now.”  So a new balance of trade and finance and economic power can emerge. Option three becomes option two again, hmm.

Mariana Mazzucato is another rock star economist of the ‘left’, once called the world’s scariest economist.  I have reviewed many of her previous books (search my blog). But it seems she does not really scare the international powers that be.  She is regularly invited to speak around the world at various mainstream economic gatherings and as an adviser to governments.  Her latest book is called The Common Good Economy.  This follows on from a previous book, the Mission economy. – each time a new attractive title suggesting economic innovation and insight.

Mazzucato tells us that “Our economic system is broken. The climate crisis is accelerating. Inequality is deepening. Public trust is crumbling. Wealth concentrates in fewer hands while governments scramble to fix what markets can’t do, rather than to shape them from the outset.”  So what should well-meaning governments do? Instead of trying to correct these ‘market failures’ and trying to patch up problems, governments need “to proactively build the economy we need”.  She offers a ‘new theory of the common good, one which allows governments and businesses to develop purposeful economic relationships, creating value and building spaces where human flourishing can happen.”

As in previous books, she starts from the premiss that what is needed is ‘partnership’ between an ‘activist’ state and capitalist businesses – ‘participation and reciprocity’.  You see “capitalism and workers’ rights are not in tension — they are co-dependent. Industrial policy that includes workers in design and delivery produces better outcomes for all.”   So the answer is not to replace capitalism, but to strengthen worker representation in decision-making bodies, including corporate boards.  

Governments must encourage capitalist companies to invest but under what she calls “green and social conditionalities across all sectors” so “ensuring we socialize both risks and rewards through smart (??) public financing.”   What is needed is not socialism, but with “strong social contracts into our industrial policies now, we can ensure this historic wave of green investment builds an economy that works for both people and planet.”  We need “mission-oriented industrial policy that treats workers as co-creators of value — with conditionalities that share the rewards.” Mazzucato sort of admits that such a social contract with conditionalities placed on the big multinationals, the fossil fuel giants and the financial sector would be “a delicate task, as too much micromanaging with a shopping list of conditions can, of course, stifle innovation.” On the other hand, “close relationships with private firms could make governments prone to capture.”  Indeed!

Mazzucato continues her merry way across the globe at conferences, government meetings etc to advocate ‘mission projects’; conditionalities on big business and a social contract between workers and bosses – all for the ‘common good’ economy.  Dare I say it, but clever jargon and trendy titles do not make for radical change.

Ann Pettifor in her new book, Global Casino, does not even look for radical change.  You see, unregulated global finance is causing the crises we see in the world economy.  The global market in money – housed in the offshore ‘shadow’ banking system – holds $217 trillion in financial assets and operates beyond the reach of any nation’s taxman. Asset managers, private equity firms, and pension and sovereign wealth funds scoop up the world’s savings for investment and manage them as they choose, unaccountable to politicians or the citizens who elect them.

But it does not require socialist or very radical measures to sort this out.  Pettifor: “societies and gov­ernments can take back control of the global financial system. We have done it before and can do it again. Indeed, it is imperative that we do so, if we are to manage the twin threats of climate breakdown and biosphere collapse.”  Pettifor reckons that in those halcyon days after the second world war, a global financial order was established with the Bretton Woods agreement to manage ‘global imbalances’ and currency and trade flows as well as regulation of financial excesses and recklessness.  But President Nixon blew all this up internationally when he took the dollar off the gold standard in the early 1970s and later government leaders deregulated the financial sector, turning the world economy into a giant casino.  This was the reason for the global financial crash in 2008-9 –  it has nothing to do with falling profitability of capital or any other rigid Marxist explanation.  The answer now is to return to the post-war period of managed trade and financial regulation – simples.  But I think not.

What is stopping a return to global regulation being implemented is the current ideology. Pettifor, in an interview on her book: “If you read the Financial Times, people who talk about managing trade are treated as mad Trotskyists. I dare not say it because I don’t want to be branded as a mad Trotskyist, I’m just a very moderate Keynesian, for God’s sake. But even my moderate views are considered extreme in the world of free markets. And how we overcome that ideology is the issue that we face.”

You see Pettifor knows what she is talking about – unlike the rest of us on the left. “What always strikes me about the great financial crisis of 2007–9 was that the Left didn’t know it was coming. I am very proud of having written The Coming First World Debt Crisis (2006), but the rest of the Left didn’t see it coming. People talked about globalization as if it was a given. And then when it blew up, there was no plan B. We didn’t even know it could happen. We were as stupid as the chair of the Federal Reserve, Alan Greenspan. The Left was as stupid as Greenspan, who said he didn’t believe it could happen.” Actually many on the left (at least the Marxist left) did see the financial crash coming (see my paper here). And what is this plan B to replace globalisation and unregulated speculative finance?  According to Pettifor, it is restoring proper regulation.  But regulation always fails. Indeed, since the Great Recession, there have been several banking crises, despite increased regulation. 

Moreover, if the cause of all our woes globally is an uncontrolled financial sector, why does Pettifor not call for the public ownership of the banking system in the major economies and the closure of hedge funds and other speculative forms of finance capital? Instead, Pettifor offers a tax on speculative financial transactions and capital controls on footloose capital flows – and which governments are going to introduce these?  This is like putting a bandage on a gaping wound with blood flowing from a pierced artery.

Mazzucato offers us capitalism with ‘conditionalities’ for the common good and Pettifor offers us capitalism ‘regulated and managed’. Only one book proposes ending the capitalist mode of production and it is not by a feted academic, but by an Irish Marxist activist. James O-Toole’s Economics for the Exploited is written from a working class point of view.  He explains clearly and simply how capitalism works and why it cannot deliver the needs of humanity any more.

O’Toole covers Marx’s law of value and answers its critics clearly (he explains Marx’s law of profitability and even deals with the so-called ‘transformation problem’).  He explains the cause of economic crises, inflation and the rise of imperialism. And he outlines the case for a planned economy under common ownership and democratic control as the way forward for humanity and the planet.

“Modern humans have been on Earth for around 300,000 years. Class society is a few thousands years old and capitalism only a few hundred. There’s nothing “natural” about this system. In those few hundred years capitalism has brought us to the point where corporate greed could actually destroy the natural underpinnings of any advanced social order. The clock is ticking. This system isn’t natural. We can live in other ways. We workers produce this system. It’s in our hands. Workers have to take control.”

The era of disinflation is over.  By disinflation, I mean a rise in overall prices of goods and services, but at a slowing rate.  Deflation means an actual fall in prices.  That has not been the case for many decades, not really since the end of money as a physical commodity, namely gold and the arrival of what are called fiat currencies, ie money as coined, or ‘printed’, or digitally created by national states to replace gold.  Only in rare occasions have states so restricted the supply of fiat money that it has caused deflation and really only happened when there was already a slump in capitalist production.

For the last 70 years or more, governments have controlled the issuance of currency and so the direct relationship between production of value in an economy and its representation by the supply and turnover of money has become separated.  Inflation of prices has become the norm, but the pace of that inflation is now the issue.

In our (forthcoming) paper on inflation, Guglielmo Carchedi and I identified two separate periods of US price inflation in the post-1945 period to now. The first was from 1948-81 and the second was from 1981-2019. In the first period, the rate of inflation rose, constituting an inflationary period. In the second period, the rate of inflation fell, constituting a disinflationary period.

Between 1948 and 1981, the average annual rate of inflation was 4.3%; from 1981 to 2019 it slowed to 3.0%.

If we look at the annual average rate by decade, we can see the change even more clearly.

From the 1980s onwards, the US (and other major economies) entered a period of progressive disinflation, culminating in the Long Depression of the 2010s , a decade with an average rate of just 1.8% (and a rise of just 0.1% in 2015).  But now in the 2020s, starting with the post-COVID pandemic inflationary spike in 2022, the major economies appear to have entered a new period of inflation ie. a rising rate of price change. 

In various posts, I have argued, contrary to the mainstream theories that inflation is supply, not demand driven.  What determines the rate of inflation in a modern capitalist economy with fiat currencies, is the rate of growth in the production of value relative to the rate of growth in the supply of money. The latter excludes the supply of money that is hoarded in banks or used for speculation in financial assets (fictitious capital, to use Marx’s term).  The supply of money rose sharply in the 2010s as central banks tried to keep interest rates low and provide liquidity for the financial sector after the Global Financial Crash.  This monetary injection was called ‘quantitative easing’. Mainstream monetarist theory argued that this would lead to a big rise in inflation.  No such thing happened – on the contrary, price inflation slowed almost to zero, because a large portion of central bank monetary injection never left the banking syste. 

As unemployment fell to lows not seen since the 1960s, Keynesian monetary theory also argued that high government spending (large budget deficits) and ’tight’ labour markets would create ‘demand-led’ inflation.  However, the empirical evidence for this theory – the famous Phillips curve that supposedly revealed the inverse trade-off between falling unemployment and rising inflation rates – was missing.  The Phillips curve was flat.  Low unemployment did not lead to high inflation. That’s because the differential between the rate of growth in money supply created by the banking system into the economy and the growth in value production had narrowed.

The post-COVID inflation spike was clearly supply-driven as the closing down of production and trade that produced the pandemic slump of 2020 was accompanied by a lingering breakdown of global supply chains and the squeezing up of prices in energy and key commodities by multi-national companies. A new Fed paper confirms that “underlying inflation dynamics have shifted since COVID.” The share of the consumption basket experiencing inflation above 3 percent remains well above the 2014–2019 average in the major economies, more than doubling in the euro area and the UK.  The Fed still wants to blame this on ‘excessive wage increases’, but this is not born out by the evidence.  Real hourly earnings roughly doubled between 1940 and 1970, but have barely risen since 1980.

Central banks have been at sixes and sevens in trying to control inflation.  In the 2010s, they lowered interest rates to zero and raised money supply to new heights, but inflation slowed. Then in the post-pandemic period they hiked interest rates and introduced ‘quantitative tightening’ of the money supply. But that failed to stop inflation heading above 10% a year, a rate not seen since the supply-driven oil crisis of the 1970s. The story then was that 1970s US inflation subsided because the US Federal Reserve under Paul Volcker hiked its policy interest rate to an unprecedented high. The reality was that Inflation only dropped because the US economy went into a major slump in 1980-2 that decimated its manufacturing industry. The Fed’s high interest policy just added to that investment and production collapse. Stagflation turned into slumpflation.  Indeed, the annual inflation rate stayed above the average of the 1960s until at least the 1990s.

Now with the Iran conflict and the reduction in oil and other commodity exports, inflation is back on the agenda.  Global supply chain pressure was building even before the Iran conflict. 

Supply disruptions in metals, grains, and livestock markets can generate macroeconomic effects comparable to oil shocks. When adverse supply disturbances hit these non-oil commodities, inflation rises persistently while industrial production falls, closely resembling the stagflationary dynamics typically associated with oil price spikes.

The signs of a return to inflation are already there in the rise in inflation rates so far in 2026.  The latest March CPI data for the US show that another inflation spike is underway.  Consumer price inflation rose to 3.3% in March, a near 1% pt leap from February.  And there will be a further rise ahead towards 4% or more this year as the lasting impact of the energy and trade blockage feeds through.

Trump’s tariff tantrums are only adding to the inflationary pressure. Based on 2025–2026 data, the US Federal Reserve reckons that tariffs have resulted in a “near-complete pass-through to consumer prices, contributing roughly 0.8 percentage points to core PCE inflation and explaining the excess inflation in core goods.”  

Goods inflation was +0.84%, a huge month-over-month increase (10.6% annualized) and the largest since Jan 2022.

And the Euro area is experiencing a similar spike.

Again, the major central banks are in confusion. Federal Reserve policymakers sparred during the central bank’s March meeting over how to respond if the Iran war triggers a prolonged period of high energy prices. Minutes of the March meeting showed “most” members of the Federal Open Market Committee fretted that a lengthy war could warrant cutting rates to support the jobs market, while “many” suggested it might require raising them to counter higher prices.

Before the war, the ECB had been expected to keep rates steady in 2026. However, the war-driven surge in energy prices revived inflation concerns. ECB governing council member Olaf Sleijpen warned that sustained energy disruptions could still feed into broader price pressures. “Persistently high oil prices will ultimately feed through to the prices of other products, and thus also to wage formation, which could amplify inflationary effects,” he said. “In that case, the ECB will naturally intervene to keep inflation around 2% in the medium term”. 

Divisions within the Bank of England have emerged. Andrew Bailey, the bank’s governor, indicated that he expects depressed UK demand and labour markets to make “second round” effects from surging energy and food prices less dangerous than in 2021-22, reducing the risk of another wage-price spiral. But other Monetary Policy Committee members including chief economist Huw Pill and deputy governor Clare Lombardelli sounded less sanguine.

This confusion could be resolved if central banks recognised that monetary policy has little influence over price inflation, which depends first and foremost on the pace of value creation. If economies’ output slows and the monetary authorities react by increasing money supply and lower the ‘price’ of money (interest rates), then inflation will accelerate. If money supply growth stays close to value growth, inflation subsides.

Having seen monetarism and Keynesian monetary policies fail, central banks economists have diverted to a psychological theory of ‘consumer expectations’ of inflation, namely that inflation rises because consumers expect it and act accordingly by buying more to beat price rises. But as Federal Reserve economist Rudd concluded in 2021: “Economists and economic policymakers believe that households’ and firms’ expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case can be made that adhering to it uncritically could easily lead to serious policy errors.” But central banks are not going to admit this because it would remove their perceived role in the macro-management of the capitalist economy and reduce it to just acting as a ‘lender of last resort’ for the banking system. 

In its latest World Economic Outlook, the IMF reckons that economic growth will not slow much if the Iran conflct is shortlived. But it sees global inflation rising significantly.  Moreover, this time the ‘supply shock’ won’t be easy to contain. IMF: “the 2022 surge reflected an unusually steep aggregate supply curve, with strong demand running into supply bottlenecks, allowing central banks to achieve disinflation with limited output losses. Evidence now suggests a return to a flatter supply curve, making disinflation more costly.” Nevertheless, the IMF advocates that central banks must be prepared to hike interest rates because “if medium- or long-term inflation expectations drift up as prices and wages pick up, restoring price stability must take precedence over near-term growth, with a swift tightening.”

The Iran war and the ensuing oil and commodity price rises are clearly a supply-side problem.  Falling supply will raise prices but it will also lower growth, as it will cut into the wages and savings of households and raise costs for companies. High energy prices are a regressive tax,falling heavily on middle- and lower-income consumers. Weaker non-energy consumption and rising costs beget pressure on corporate margins which beget lay-offs, and the job market cracks. US fourth-quarter real GDP growth was just 0.5% (quarter-over-quarter annualised) and the consumer sentiment index just hit an all-time low.

The major economies are not in ‘slumpflation’ yet.  In the US, corporate profit margins remain at record highs. And corporate earnings for the first quarter of 2026 are expected to be very strong. Trump’s planned fiscal handouts to US companies are substantial with tax incentives for businesses investing in machinery and factory equipment. And a weaker dollar in the latter half of 2025 will help boost dollar earnings from foreign investment revenues.

But the bulk of these earnings gains are concentrated in the US silicon valley tech giants. The rest of the corporate sector is struggling.  Profits for the whole of the non-financial corporate sector fell in 2025.

And the impact of the Middle East conflict on profits has yet to be fully felt.

Hungary has a general election tomorrow. Hungary is a relatively small country with less than 10m in population and with a GDP of just $220bn and with just 8.2m registered to vote. This election is pivotal, not just for Hungarians, but also for the EU Commission and the core European governments. The incumbent Fidesz government led by PM Victor Orban has been a thorn in the side of the EU for years. Orban has opposed EU sanctions on Russia and recently blocked the implementation of the latest round of agreed E96bn EU funding for Ukraine on the grounds that Ukraine has been stopping imports of Russian gas. The EU has responded by holding back Hungary’s share of structural and support funds.

Domestically, Orban’s party has been in power for 16 years, including a landslide victory in the 2022 election. It is claimed that over its period of rule, the government has gradually reduced democratic institutions like an independent media and courts; and adopted cronyist procurement policies for government spending and for foreign investors, with a high level of corruption. According to the EU, Hungary is an autocracy, not a democracy. 

Not surprisingly,, Orban’s policies have attracted strong support from US President Trump and the MAGA movement. In the election campaign, US Vice-President Vance visited Hungary to give Orban the full backing. President Trump posted in his usual style: “GET OUT AND VOTE FOR VIKTOR ORBÁN. He is a true friend, fighter, and WINNER, and has my Complete and Total Endorsement. I AM WITH HIM ALL THE WAY!”

The EU leaders are desperate to defeat Orban and break the logjam that he is causing over the funding of the Ukraine war and on EU policies in general. They are backing to the hilt the main opposition party Tisza, led by Peter Magyar.  Magyar was a former Fidesz loyalist with family and friends still in the government. He broke from Orban two years ago, accusing it of corruption and cronyism. Magyar recently added in a social media post: “The ongoing election fraud carried out for months by Fidesz, along with criminal acts, intelligence operations, disinformation and fake news cannot change the fact that Tisza is going to win this election.” 

Magyar’s message on corruption resonated with people.  After an estimated 35,000 people turned up to a protest organised by Magyar in March 2024, he launched his movement. Currently, independent polls suggest that Tisza is leading in the vote. In 2025, Hungary was again ranked at the bottom of the European Union, according to the annual Corruption Perceptions Index (CPI) compiled by the Secretariat of Transparency International in Berlin. The poor result reflects “the continued failure to remedy rule of law deficiencies and to curb systemic corruption, manifested in the organized theft of public funds”

EU economists and Magyar claim that corruption is the main reason behind the country’s now persistent economic decline.  But is it?  As always, it is the structural economic issues that are more important. Since 2019, Hungary‘s real GDP growth has been highly volatile, marked by a sharp pandemic-induced contraction followed by strong but short-lived rebounds. Since mid-2022, the economy has largely fluctuated in a “no-growth zone,” characterized by stagnation or very limited expansion.

Capital investment and productivity has stagnated and unemployment has reached its highest level since 2016. 

After the end of Soviet control in the early 1990s, foreign investment into Hungary by European and US multi-nationals flooded in to use cheap Hungarian labour in new factories (autos and electronics). This led to a sharp rise in the profitability of capital. But that investment petered off by the beginning of the 21st century as ‘globalisation’ slowed. Profitability fell back, particularly after the Great Recession of the 2008-9 and in the Long Depression of the 2010s.

Source: Penn World Tables 11.0

The Hungarian economy remains very reliant on foreign investment and so is vulnerable to international crises, like the Global Financial Crash of 2008 or the COVID pandemic slump of 2020.  And any global inflationary spike affects the Hungarian economy more than most, as it did in the post-pandemic inflation spike – and will also from the Iran conflict.

And it’s the main reason that Hungary lags towards the bottom of the East European “convergence” club, if still higher than Bulgaria and Slovakia.

Wages are low, on average just half that of the EU average, worse than Slovakia and only slightly better than Bulgaria and Greece.

Pay for key sectors like education and health is among the lowest in the EU and life expectancy is poor compared to other EU countries.  On most measures of social deprivation, Hungary performs badly compared to other Visegrad countries (Czech, Poland and Slovakia).  And its gini ratio for inequality of incomes is higher.

Would an election victory by Magyar make any difference to Hungary’s weak economy?  Probably not.  Despite more than two years of campaigning and a 240-page election manifesto, the details of what exactly Magyar will do if he gains power remain vague.  He concentrates on removing ‘corruption’ and undemocratic parts of Hungary’s institutions.  Above all, he wants closer relations with the EU.  He would end the veto Hungary has been applying on EU funds for Ukraine.

Ending that would release E20bn in frozen EU support funds for Hungary (that’s about 10% of the country’s GDP). Hungary had been allocated a total of €10.4 billion under the EU Recovery and Resilience Facility (RRF), consisting of €6.5 billion in grants and €3.9 billion in loans. However, almost all of these funds have remained frozen or not yet fully accessible due to disputes over rule-of-law, corruption, and judicial independence issues.

But in many areas, Magyar would change little.  He wants a harder line on immigration than Orban by scrapping the country’s ‘guest worker’ scheme. And while he would end ‘dependence’ on Russian energy imports, he wants to preserve ‘pragmatic’ relations with Russia. Orban is relying for support on the government’s generous handouts to pensioners and low-paid. So Magyar, in a ‘New Deal’, is promising a $1.5bn boost for health, railways and energy. But at the same time, he aims to cut the government budget deficit to under 3% of GDP to speed up euro entry by 2030.  And he also wants to cut taxes for most Hungarians. So there are a few contradictions there. Above all, the structure of the Hungarian economy as a foreign investor vassal will not be touched by either party – indeed more incentives for the multi-nationals will flow.

The 2022 election saw a turnout of just under 70%, where it has been for several elections. The turnout could be higher in this crucial election. But even if Magyar wins, ending corruption and autocracy won’t be easy. His government is very unlikely to have enough seats in the new parliament for the two-thirds majority necessary to reverse the many measures that Orban incorporated into the constitution over the decades. And if changes are not made to comply with EU rules by end-August, Hungary will lose all this EU funding. But at least the EU leaders will get a more cooperative Hungarian government after 16 years.

Back in 2012, I made an initial attempt to go beyond measuring the rate of profit on capital in any one country and calculate a world rate of profit. Then, I argued that it was important to test Marx’s law of the tendency for the rate of profit to fall on a world level. As capitalism had spread its tentacles to all parts of the world through the 20th century, it was necessary to find better empirical support for the law by calculating a world rate because capitalism is only a ‘closed economy’ at a global level. The rate of profit in just one country or a few would not be accurate as it would not account for profits made from trade and investments abroad and each country’s rate of profit could have different trends.

In 2020, I updated and improved my measure for global profitability significantly.  Then, my calculations were made for the average rate of profit on capital of top 19 economies (ie G20).  My data source was the Penn World Tables 10.0 series. My results confirmed Marx’s law that there was a long-term tendency for profitability to fall.  This was important because it led to the conclusion that capitalist expansion was transient and also subject to regular and recurring crises of production and investment.  Indeed, crises were necessary to ‘cleanse’ the system of old capital and lay the basis for a period of upswing in what I called the ‘profit cycle’. The world rate of profit did not fall in a straight line, as the long-term tendency to fall was interspersed with periods when profitability rose, usually after a significant slump.  This was what my graph of 2020 looked like.

In 2020, I divided the graph into four sections: the periods 1950-66, the so-called Golden Age after WW2 when profitability was high and even rose; the profitability crisis of 1966-82 when profitability globally slumped; the neo-liberal period 1982-97 when there was a (limited) recovery in the profit rate; and finally the period that I call the Long Depression from 1997, where the profit rate fell back, leading to the Great Recession of 2008-9, followed by stagnation in the rate up to 2019, just before COVID pandemic.

Then in early 2022, I published another post entitled A world rate of profit: important new evidence. That post highlighted a new study of the global rate of profit on the stock of capital invested as calculated by Deepankur Basu and colleagues at the University of Massachusetts Amherst. Their data are contained on their website here. Basu et al used a different database (the Extended Penn World Tables 7.0 series) and they calculated an average global rate of profit for 25 countries. Their results supported my 2020 measurement.

Now in a new study, Pooyah Karambakhsh of Sydney University has published a comprehensive update on the measurement of a world rate of profit.  Karambakhsh explains that, while “the analysis of an individual country’s profit rate is invaluable in assessing national economic growth and crisis, I argue that assessment of the LTRFP should be done at the global level. Capitalism is in essence a global system with an intrinsic tendency toward the world market.” As Karambakhsh says, “Whatever the mechanism of value transfer, its existence indicates the possibility of discrepancies between surplus value produced and realized in each nation. A global perspective, with a “global pool of surplus value,” circumvents these discrepancies.”

Karambakhsh’ study applies multiple measures of the profit rate, including those based on the Marxian concept of productive labour. Using a sample of 32 countries, Karam also finds a downward trend in the world rate of profit between 1952 and 2019.  Most important, he shows that this decline is due to Marx’s law of profitability, namely that a rising ‘organic composition of capital’, (more investment in technology over labour) exerts a downward force on profitability over time, while a rising rate of surplus value acts as a countertendency (but only dominates in the neo-liberal recovery period 1982-97). Moreover, his data show that this falling tendency has been common among nearly all developed and developing countries.

Karambakhsh correctly reckons that the Marxian rate of profit should incorporate the concept of productive labour. Marxian theory argues that new value and surplus value is created only in the productive sectors of the economy (eg. manufacturing, construction, transport and communications); not in unproductive sectors such as real estate, finance or government. The latter sectors merely redistribute surplus value created in productive sectors.

So Karambakhsh tries to delineate global profitability, using four different measures: one using a detailed breakdown of productive actvities; one using a simplified measure of productive sectors; and one as an overall average of profitability including unproductive sectors; and finally one that removes the impact of depeciation (which has become an issue of controversy) and so uses gross capital stock, not net of depreciation.This measure is used by Shaikh and Tsoulfidis and Tsaliki – but only for the US, not globally. Karambakhsh weights each country’s capital stock to reach a global average profitability.

Unfortunately, data measuring the rate of profit on productive sectors has a much shorter time series and fewer countries. So in the end, Karambakhsh looks at the global average rate of profit that includes unproductive sectors. He finds that this falls over the period 1950-2019 from a peak of 11% in 1966 to 7% in 2019 – see the black line in the graph below (Figure 1a).  Moreover, he finds the same turning points in the rate as I did in my 2020 measure: 1950-66; 1966-82; 1982-97; 1997-19 (Figure 1b).  But he shows that the other measures based on productive sectors only also match closely the overall average rate (Figure 1b).  That tells me that, using the overall ‘whole economy’ measure (as I call it) of the average rate of profit is still a very good proxy for the rate a la Marx.

Figure 1. (a) Four estimates of the world rates of profit (WRP) by four definitions and (b) their normalized magnitude indexed to the year 2000.

In decomposing the components driving the rate of profit (RP), Karambakhsh finds more or less the same results as I did in 2020. He finds that the organic composition of capital (VCC), as defined by the ratio of the stock of fixed assets to the consumption of employees, rose over the period, while the rate of surplus value (RSV) varies. From 1952–1965, the world profit rate rises, and so do the rate of surplus value and the organic composition of capital. Both work toward raising the RP.  In the second period, 1965–1982, the VCC rises strongly and, supported by the fall in the RSV, lowers the RP. From 1982–1997, the neoliberal era, the RSV rises and the VCC falls slightly. As a result, the RP rises, but not enough to fully compensate for the fall of the previous period of falling profitability. In the last period 1997–2019, the RP falls, mainly driven by rising VCC, but also supported by a fall of the RSV. By 2019, the RP loses all its gains from the neoliberal period.  I found similar results in my 2020 calculations. What does this tell you?  It confirms Marx’s explanation of why the rate of profit moves. When the organic composition of capital rises faster (or falls less) than any rise (or fall) in the rate of surplus value, the rate of profit will fall and vice versa. 

Karambakhsh also shows that, although the world profit rate is a weighted average of individual countries’ profit rates, most of the countries within his sample had the same overall trend and driver as the global rate.  He concludes that “Although the studied period may not be long enough for a definitive statement about cycles, the sequence of rises and falls suggests cyclical behavior with cycles of 30–35 years.”  And he interprets Marx’s LTFRP as a “theory of the rate of profit cycle.”  Indeed,this is something that I noted and argued since I first looked at the profitability of capital (only US capital then) back as early as 2005-6 (see my book, The Great Recession) and supported by my calculations since for the world rate of profit in 2012 and 2020.

Karambakhsh uses the Penn World Tables 10.0 series, which takes his calculations only up to 2019.  We now have available the 11.0 series; this takes data up to 2023. My own calculations from the latest series show that the global rate of profit has only slightly recovered since the pandemic slump of 2020, so far.  Moreover, in my new calculations, I aggregate individual country surplus value, the stock of fixed assets and employee compensation to come up with proper global figures for Marx’s rate of profit formula, doing away with the need to weight individual country capital stocks. (I shall publish these calculations in a future paper.)

Most important for me, considering that many authors reject it, is that Karambakhsh’ results also support my view that the underlying cause of the Great Recession of 2008-9 lies with falling profitability in the decade before.  As he says “The US RP shows a clear downward trend starting in 1997, well before the latest crisis.” 

Here is my own calculation for the ‘whole economy’ US rate of profit up to 2023, using the latest Penn World Tables 11.0 series and, in my case, including variable capital in the denominator.

He adds “not only did the WRP decline begin before the 2007–2009 crisis, it continued afterward. Although there was a quick bounce-back in 2010, there is no sign of overall recovery. One main driver of recoveries after crises is the destruction of capital, usually in the form of bankruptcies and devaluation of capital. Policies that prevented large-scale bankruptcies, with the aim of containing crisis contagion, likely reduced capital destruction and thereby muted post-crisis recovery in profitability.”  Exactly so – see my posts on creative destruction.

Karambakhsh interestingly brings our attention to other factors affecting the growth of profits, if not profitability. “From a Marxian perspective, productive hours are the direct producers of surplus value, and their fall indicates the decline of profitability.” He shows that the share of wages has consistently declined since 1952, while the operating surplus (profits) has remained almost constant.  Why?  Because the depreciation rate of the stock of fixed assets has increased over the decades.  If more profit has to be used just to replace depreciated capital, it will reduce new net investment and GDP growth.

Another result from Karambakhsh’ paper is that the developing world had a higher profit rate during the period than the developed capitalist economies. 

This follows Marx in that the former countries generally have less technology compared to labour (lower VCC).  But as these countries industrialise, the gap narrows in the rate of profit with the developed world.  This supports the analysis that Guglielmo Carchedi and I made in our paper on modern imperialism, where we show that the higher profit rate in the developing economies has gradually narrowed towards the global north rates particularly with the big rise in the organic composition of capital in China. Indeed, Karambakhsh shows that the rise in China’s VCC translated into a sharp 51% drop in its RP, from over 15% to less than 8%, undermining China’s role as an engine of profitability. I find a similar result using the latest Penn Tables series, with a 55% fall in the ROP since 1950 and a 2.6 times rise in the VCC.

Like other authors, Karambakhsh measures the rate of profit against only fixed assets (machinery, plant, etc), and does not include in the denominator, variable capital ie employee compensation.  Also he does not account for circulating capital (ie inventories of raw materials and components used). In my calculations, I often include variable capital.  But as Karambakhsh and other authors say, if you don’t, it does not significantly change the results, only the level of profitability, not the direction or turning points. The same applies to circulating capital, in my view – but for a different take on this, see here.

Karambakhsh’s conclusions are pertinent. “The persistent fall in the WRP since the mid-1990s, together with the accelerating rise of depreciation from the mid-1980s and the long-run slowdown in productive hours and a growing share of hours devoted to unproductive activities, has contributed to slower capital accumulation and weaker GDP growth. These forces suggest intensified competition, higher bankruptcy risk, increased pressure on labor to extract more surplus value, and that a short-term reversal of global profitability is unlikely.”

But, he goes on: “Capitalism has strong adaptive capacities, with potential for technological and organizational shifts. In short, the evidence points to a prolonged period of constrained growth and heightened social and economic tensions, not an immediate or predetermined terminal crisis.”  I think that is right.  As I have suggested elsewhere, capitalism may yet get a new lease of life (after a slump) from the new AI technologies if they do indeed deliver higher surplus value at the expense of the shedding of labour.

In its latest review of the impact of the Middle East conflict on the world’s economies, the IMF summed it up: “Although the war could shape the global economy in different ways, all roads lead to higher prices and slower growth.”

The global benchmark oil price is on course for its largest monthly rise on record in March, higher than in 1990 when Iraq invaded Kuwait. The conflict could end soon, as Trump and Rubio claim (presumably through with a deal with Iran in which the latter basically surrenders to US demands).  Or more likely there is a longer conflict stretching out into April and beyond, possibly involving US troops on the ground attempting to break Iran’s stranglehold over the Strait of Hormuz and searching for its nuclear stockpiles. 

Either way, crude oil prices will stay high for some time (and even more for prices of oil derived products, which have risen even more).

That means two things.  In the short term, global inflation is going to rise.  If the conflict lasts longer, then rising inflation will be joined by falling economic growth and the likelihood that even some of the major economies could slip into a slump.  Stagflation is certain and slumpflation is possible.

If oil and gas installations are permanently damaged or out of operation for a long time, then oil prices will rise further to reach $150/barrel—nearly three times pre-war levels—and natural gas prices would rocket to €120 MWh, or four times the pre-war rate. Such a rise would be comparable to the global supply shock of the late 1970s, which contributed to high inflation and global recession. France’s Finance Minister Roland Lescure reckons that 30–40% of Gulf refining capacity has already been damaged or destroyed by Iran’s retaliatory strikes, leaving a shortage of 11 million barrels a day on global oil markets. Lescure warned it could take up to three years to restore damaged facilities and several months to restart those that were urgently shut down.

Goldman Sachs economists offer three scenarios: the baseline scenario is six weeks disruption where crude oil price rises to $120/barrel before falling back to $80–100, with no lasting infrastructure damage. The second scenario is a medium-term war (ten weeks) where the crude price spikes to $140/barrel, staying at $95+ for a further ten weeks. This  would “scar” production permanently. The third scenario is apocalyptic (with ten weeks of war and lasting damage). Then the oil price rises to $160/barrel and never falls back below $100 for the foreseeable future because of damage to production facilities.

The OECD’s latest economic outlook has already downgraded forecasts for real GDP growth in the major economies this year due to the US-Israel war with Iran. All G7 economies except the US will now grow more slowly this year than previously forecast, with the UK reduced the most—from 1.2% to just 0.7%. The US economy will grow faster than forecast, according to the OECD, because of gains for its oil and gas exports. The OECD has also raised its forecast for inflation in the top G20 economies from a previous 2.8% to 4%. Argentina will have the highest rate of inflation in the G20 at 31% and China the lowest at 1.3%. US inflation will jump to 4.2% from the current 2.9%. If the war continues into the next quarter, expect these growth forecasts to be further reduced and inflation forecasts raised. 

Revised OECD growth forecasts

In my view, contrary to the OECD’s optimistic forecasts on US growth, the US will not escape this downturn. According to Royal Bank of Canada economists, if oil prices hold at $100/barrel, it could cut US real GDP growth by 0.8 percentage points (from the current average 2% a year to near 1%) and US inflation could reach 4% a year.

The World Trade Organization (WTO) forecasts that if energy prices remain persistently high, merchandise trade growth this year will slow from 1.9% to 1.5%. North American export growth will slow a bit, from an expansion of 1.4% to 1.1%, but Europe will be clobbered, with exports shrinking by 0.6% rather than growing by 0.5%. The hit to growth will be equally lopsided: while costly energy could boost GDP growth in North America this year to 2.5% (from a baseline of 2.3%), it would slow GDP growth in Asia to 3.1% from 3.9%. In Europe, a long war would bring the economy almost to a halt, slowing its expansion to 0.4% from a prior estimate of 1.6%.

Analysis by the ECB also reckons that a long war would mean a deep, prolonged downturn in output with persistently higher inflation. Already, Euro area annual inflation climbed to 2.5% in March, up from 1.9% in February.This marked the highest rate since January 2025, pushing inflation above the ECB’s 2% target as energy costs soared 4.9%, the first annual increase in nearly a year and the sharpest since February 2023, driven by the Middle East conflict.

Moreover, an energy price explosion does not just drive up overall inflation, at a certain point, it forces households and businesses to cut back on purchases and investments in order to meet energy bills.  It becomes a tax on growth.  Already, borrowing costs, as expressed in long-term government bond yields, are rising in all the major economies.

How high and for how long must energy (and other key commodity prices) rise for a slump to happen?  There are various estimates.  Paul Krugman, the Keynesian economist, reckons that the price elasticity of demand for crude oil is low — that is, even large price increases only cause small declines in demand (ie GDP). But this time could be different. He reckons that ‘low disruption’ (oil price $100-150/b) would reduce supply by about 8% in the US.  Medium disruption (oil price $120-230/b) would cause a fall of 12% in US economic growth.  High disruption (oil price $155-370/b) would take US supply down 16%. 

A prolonged conflict would hit the Middle East and Asia hardest. The Gulf states would lose their lucrative tourist traffic and airlines may be forced to bypass the area for global transit. The heady days of luxury lifestyles for foreigners would be over in these places. With large infrastructure projects in Gulf countries targeted by strikes, migrant construction workers will have less money to send home—a loss affecting households across the Middle East and South Asia. Workers in Gulf countries send home $88 billion in remittances annually. Countries such as Egypt, Pakistan, and India are the biggest recipients, amounting to tens of billions of dollars per year and accounting for more than half of all remittances received in these economies. Egypt, Pakistan, and Jordan each receive more than 4% of GDP from Gulf remittances.

Société Générale estimates that every $10 sustained increase in oil prices would widen India’s current account deficit—currently around 1% of GDP—by half a percentage point and would cut economic growth by 0.3%. At $100/barrel, that would mean a current deficit of 3% of GDP and a reduction in economic growth from a 2026 forecast of 6.4% to 5%. The Centre for Global Development (CGD), a Washington-based organisation, compiled a list of 17 countries most vulnerable to the shocks of the Iran war. Thirteen of those are African, including Angola, Nigeria, Egypt, Ghana and Ethiopia. In Asia, Pakistan, Bangladesh and Sri Lanka were deemed vulnerable, with Jordan singled out in the Middle East.

Taken together, higher oil prices and exchange rate devaluation will lead to a negative terms-of-trade shock for many countries, making it harder to service external debt and build foreign exchange reserves. Countries that have both high external debt service and low reserves will be especially at risk. For instance, Egypt may need to roll over more than $4 billion in outstanding eurobonds in the next year; Jordan and Pakistan may need to roll over around $1 billion apiece.

About 70% of Brazil’s and 40% of India’s urea imports—essential to their agriculture sector—come from the Gulf through the Strait of Hormuz. Gulf nations import most of their food: 75% of their rice comes through the strait, as well as more than 90% of their corn, soybeans and vegetable oil.¹² On top of all this, countries like Bangladesh, India and Pakistan will be hit by the inevitable drop in remittances from millions of their citizens working in Gulf countries as the war takes a toll on the regional economy.

Three countries will be less affected. The US has plenty of strategic stockpiles and, of course, its own domestic production. Although China relies for much of its oil from the Middle East (mainly Saudi Arabia), it has been building up its strategic stockpiles for just such events and because of worries about US sanctions. Last year, China imported about half of its crude oil and almost one-third of its liquefied natural gas from the Middle East. But it has aggressively built up strategic stockpiles of fossil fuels. China is estimated to hold the world’s largest emergency reserves of petroleum, totalling 1.3 billion barrels.

China has also made significant investments in electrification. Electricity accounts for 30% of the country’s energy consumption—about 50% higher than the US or Europe—making it more insulated from rising global oil prices. (With its rapid solar and wind build-out, it already accounts for roughly one-third of renewable energy generation capacity worldwide.) A diverse energy mix, multiple suppliers and access to routes that bypass the Gulf mean only about 6% of China’s total energy consumption is directly exposed to disruptions in the strait, estimates Goldman Sachs.

So China is well placed to deal with any shortages; and it can still turn to more oil imports from Russia and from South America, where it has been increasing supply in recent years to avoid the Middle East. And ironically, Russia will benefit from increased revenues from its energy exports.

One recent study of all wars since 1870 found that: “output falls by almost 10 percent in the war-site economy, while consumer prices rise by some 20 percent (relative to prewar trends).” And “the economies of belligerent countries and even those of third countries witness similarly unfavourable dynamics if they are exposed to the war site through trade linkages.” Output in close trading partners falls by 2 percent relative to trend. This war will easily surpass these averages if it continues much longer.

Easter week is shaping up as a crucial turning point in the war.  Will a deal be reached or will the US launch a new stage in the conflict with ground troops?  Either way, what is certain is that all roads lead to stagflation.

Professor David Harvey is a highly influential Marxist geographer and economic theorist whose work spans several decades. He is the author of many important books over the decades analysing capitalism and its ever-changing features and contours. Although having turned 90 years old last October, he still teaches at the Graduate Center of the City University of New York.

Now in 2026 he has yet another new book, entitled The story of capital: What Everyone Should Know About How Capital Works.  To quote the blurb of his publisher, Verso: “In The Story of Capital, Harvey takes a synoptic approach to the conceptual architecture as a whole and guides us through the key moments, from labour and technology to the state and geopolitics, via the profit rate, social reproduction, the relationship to nature, fictitious capital and the return of the rentiers. In doing so, Harvey has produced a work which will become a key reference for all those trying to grasp the nature of contemporary capitalism.”  And Verso has a video of Harvey presenting some of the ideas in his new book.

All Harvey’s books been central to the education of many Marxist theorists over the decades. He has established himself as an icon in Marxist economic theory, in particular. But here’s the rub.  Harvey’s interpretation of capitalism in the 20th and 21st century is, in my view, misleading to his readers and his theoretical ‘innovations’ to explain developments in capitalism since Marx are basically wrong. I am going to argue my case for this conclusion, not through a review of his latest book, but instead by referring to various posts on my blog and papers where I have taken up Harvey’s analysis over the last decade or more.

Harvey has written many books both on the geography of capitalism as early as the 1960s and also its economic foundations – as early as the 1980s with his first seminal work, The Limits to Capital (1982) and through to the early 2000s with the New Imperialism (2003) and A Brief History of Neoliberalism (2005).  But I shall start my critique with his book, The Enigma of Capital (2010).

 As I explained in my blog post of that year, in that book, Harvey argues that the “limits to profitable investment” as a major cause of capitalist crisis do not lie in Marx’s law of the tendency of the rate of profit to fall (LRTPF).  Harvey specifically rejects the LRTPF as having any role in causing crises, particularly in the Great Recession. Instead, he sees the Great Recession as being caused by the neoliberal policies of the previous 25 years that suppressed wages and promoted excessive debt. That eventually created a lack of ‘effective demand’, Keynesian-style, which then led to a collapse in profitability, not the opposite, as Marx’s law of profitability would have it. 

For Harvey, ‘neoliberalism’ had “changed nearly every level of the Marx’s (reproduction) schema” as outlined in Volume Two of Capital. The nature of capitalist crises was different from what it was in the 1970s. Now capitalist demand was not enough to ‘absorb the surplus’ of profits. So it had to be filled by credit or borrowing.  And when that credit collapsed, there ensued a crisis of overproduction or underconsumption.

In Volume Two Marx rejected that any crisis was the result of the disproportion between the two sectors of consumption and investment or an inability to ‘absorb’ a surplus.  Increased investment means that the capital goods sector is likely to grow faster than the consumer goods sector over time.  But, to quote Andrew Kliman: “what the reproduction schemes show is that growth can occur indefinitely, despite shrinking consumption demand, by means of an increase in the demand for machines to produce new machines and a relative expansion of machine production” (unpublished manuscript).  Capitalist demand, either for new investment or for consumption, can still be sufficient to realise value production. 

So the cause of crises in capitalism is not to be found in Marx’s reproduction schema. The need for credit in capitalist mode of production is NOT because there is a lack of demand or a need to ‘absorb’ a surplus of consumer goods.  It is because funding fixed capital like plant, offices and new technology cannot be delivered from the value created in just one production cycle.  So credit must be supplied to enable capitalists to buy means of production that cost more than profits in one cycle.  Credit is supplied on the promise of delivering enough value down the road to pay back the debt and any interest. 

The risk here is that this money capital or credit turns out to be ‘fictitious’, as Marx put it, because investment is not productive enough to deliver sufficient surplus value to pay back the debt and interest. That is especially the case when investors plough their funds into stock market speculation rather than directly invest in productive sectors. So crises in capitalism are ultimately caused by insufficient surplus value to fund investment and credit, not by the inability to absorb too much surplus value, as Harvey suggests.  For more on this, see Paul Mattick Jnr’s excellent critique of Harvey’s work,

In 2014, Harvey had a new book out, enticingly called Seventeen Contradictions of Capitalism, which is well worth reading (http://davidharvey.org/2014/03/new-book-seventeen-contradictions-end-capitalism/). He takes his ‘correction’ of Marx’s crisis theory a step further in saying that the “contradiction at the heart of capitalism” is a drive to accumulate capital “that leads to consumers with no means of consumption…” Lack of consumption causes crises, not lack of profit. So Marx’s law of profitability is irrelevant as an explanation of crises.  According to Harvey, the double-dip recession of the early 1980s that devalued and destroyed capital and restored profitability had nothing to do with it.  Instead, “it was all about politics”.  

Harvey does not just reject Marx’s law of the tendency of the rate of profit to fall as having any significant role as a cause of crises under capitalism. In The enigma of capital, he states that “There is no single causal theory of crisis formation as many Marxist economists like to assert. There is, for example, no point in trying to cram all of this fluidity and complexity into some unitary theory of, say, a falling rate of profit”.

Indeed, Harvey singled out those like me who consider capitalist crises are based on Marx’s law of profitability. In a paper written in 2014, he writes, “In the midst of crises, Marxists frequently appeal to the theory of the tendency of the rate of profit to fall as an underlying explanation. In a recent presentation, for example, Michael Roberts attributes the current long depression to this tendency”. He continues: “Roberts bolsters his case by attaching an array of graphs and statistical data on falling profit rates as proof of the validity of the law. Whether the data actually support his argument depends on (a) the reliability and appropriateness of the data in relation to the theory and (b) whether there are mechanisms other than the one Roberts describes that can result in falling profits.” 

Harvey accepts the views of the MEGA scholars like Michael Heinrich that Marx also probably became sceptical of his law of profitability and dropped it. “I find Heinrich’s account broadly consistent with my own long-standing scepticism about the general relevance of the law” Indeed, Harvey has doubts that it is a law at all: “we know that Marx’s language increasingly vacillated between calling his finding a law, a law of a tendency or even on occasion just a tendency”.

Harvey thus argued that proponents of Marx’s law as the basis of a theory of crises are one-sided and monocausal in our approach because: “proponents of the law typically play down the countervailing tendencies”. Thus we LTRPF theorists rule out many features of capitalism that may be better causal factors in crises like a financial meltdown. Apparently, we “suggest financialization had nothing to do with the crash of 2007-8. This assertion looks ridiculous in the face of the actual course of events. It also lets the bankers and financiers off the hook with respect to their role in creating the crisis.”  This was a bizarre charge, considering that I and many others had made much of the role of finance in the 2008 crash (see my book: The Great Recession – a Marxist view (2009), or my chapter in World in Crisis (2018) entitled, Debt matters.

Harvey doubted the validity of the mounting empirical evidence supporting Marx’s law of profitability because “there is plenty of evidence in the ‘business press’ that the rate of profit, or at least the mass of profit, in the US has been rising, not falling”. And even if it is correct that there was a post-war fall in the rate of profit, “profit can fall for any number of reasons”. He cites a fall in demand (the post-Keynesian explanation); a rise in wages (the neo-Ricardian profit squeeze explanation); ‘resource scarcities’ (neoclassical); monopoly power (the Monthly Review school view of rent extraction from industrial capital).

But many authors have since shown that Marx’s law of profitability is not logically incoherent or ‘indeterminate’ or that he dropped it in his later years, as Heinrich suggests. See here and Cristos Balomenos here, and my own Engels 200, pp106-111. As for being monomaniacal or one-sided, as Carchedi put it: “if crises are recurrent and if they have all different causes, these different causes can explain the different crises, but not their recurrence. If they are recurrent, they must have a common cause that manifests itself recurrently as different causes of different crises. There is no way around the ”monocausality” of crises.”

By 2015, Harvey wanted his readers to think that Marx saw crises as a result of ‘mutual interaction’ between different parts of the circuit of capital: production is determined by ‘other moments’. Thus the causal sequence is not ‘mono-causal’ or one-way: from the profitability of capital to investment and production and then consumption, but is one of ‘mutual interaction’.  In a paper at the time, I interpreted Marx’s view differently. Marx says “a definite production thus determines a definite consumption, distribution and exchange as well as definite relations between these different moments”. Only in a “one-sided form” is production determined by other moments. Production leads and sets off a chain reaction that feeds back on production in a crisis.

But you see, said Harvey, crises under capitalism are multi-causal: “In the same way that the human body can fall sick and die for all sorts of different reasons other than sheer old age, so there are multiple points of stress and potential failure within the organic whole of capital. A failure at one point, moreover, typically engenders a failure elsewhere.”  Every crisis is different with different causes and so “the job of the Marxist diagnostician is to figure out what ails capital this time around” – without reference to any previous crisis. And we can’t do any better than this because what causes illness in a human body can change with time e.g. genes mutate, environments change and diets and healthcare vary etc.

In my post at the time I offered a alternative metaphor for crises in capitalism: that of a pinball machine. The ball could represent the accumulation of capital. It whizzes round hitting various obstacles in a chain reaction. They light up, representing various crises, each slightly different. One crisis bounces onto another (from housing to stocks to banks etc), as in Harvey’s metaphor. But the pinball machine’s raison d’etre is that its level slopes down so that gravity takes over; that is the essence of its working. The ball is always tending to drop to the bottom and even intervention by levers from the outside (government action etc) cannot stop that tendency which eventually overrides the obstacles and levers (counter tendencies) and the ball drops into the hole at the bottom. Accumulation stops.

In a later book, Marx, Capital and the Madness of Economic Reason, Harvey argues that, while Marx gives a great analysis of the production part of capitalism in Capital Volume One, his later volumes are not complete and have been scratched together by Engels.  And thus Marx’s analysis falls short of explaining developments in modern capitalism.  That’s because production is “just a small sliver of value in motion”.  Harvey reckons that crises under capitalism are at least as likely, if not more so, to be found in a breakdown in circulation or realisation than in the production of surplus value (Volume 2).  And crises are more likely now to happen in finance and over debt due to ‘financialisation’ (from Volume 3).

Consequently, the more crucial points of breakdown and class struggle are now to be found outside the traditional battle between workers and capitalists in the workplace or point of production. They are in communities and streets and not in the workplace.

In contrast, In my view, Volumes One, Two and Three link together to give us a theory of crises under capitalism based on the drive for profit and the accumulation of surplus value in capital, which falls apart at regular and recurring intervals because of the operation of Marx’s law of profitability. As Paul Mattick Snr put it back in the 1970s, “Although it first appears in the process of circulation, the real crisis cannot be understood as a problem of circulation or of realisation, but only as a disruption of the process of reproduction as a whole, which is constituted by production and circulation together. And, as the process of reproduction depends on the accumulation of capital, and therefore on the mass of surplus value that makes accumulation possible, it is within the sphere of production that the decisive factors (though not the only factors) of the passage from the possibility of crisis to an actual crisis are to be found … The crisis characteristic of capital thus originates neither in production nor in circulation taken separately, but in the difficulties that arise from the tendency of the profit rate to fall inherent in accumulation and governed by the law of value.”

Harvey claims that crises occur mainly because wages are squeezed down to the limit, as they were in the neo-liberal period after the 1970s (thus it is a ‘realisation’ not a production problem).  But was the first simultaneous slump in post-war capitalism in 1974-5 due to low wages?  On the contrary, most analysts (including Marxists) at the time argued that wages were ‘squeezing’ profits and that caused the slump.  And most Marxists now agree that this was a profitability crisis leading to the ensuing slump in 1980-2.  DH reckoned capitalism worked well in the 1950s because wages were high and unions strong, presumably creating effective demand. The alternative explanation is that capitalism had a golden age because profitability was high after the war and capital could thus make concessions to maintain production and accumulation.  When profitability started to fall in most of the major economies after the mid-1960s, the class battle intensified (in the workplace) and, after the defeat of labour, we entered the neo-liberal period.

In 2018, Harvey took it on himself to revise Marx’s theory of value for the modern era. In a paper, entitled Marx’s refusal of the labour theory of value, he argued that Marx did not have a ‘labour theory of value’ at all. Instead, Marx argued that value was a reflection of labour embodied in a commodity which is only created/revealed by exchange in the market.  As DH puts it: “if there is no market, there is no value”.  If this were correct, then it is in money that value emerges, not in the production process as such.

Here Harvey adopts the so-called ‘value form’ theory that has many exponents who also reject Marx’s law of profitability. But the value of a commodity is still the labour contained in it and expanded during the production process before it gets to market.  Value is expended physical and mental human labour, which is then abstracted by the social process of production for the market. Value is not a creature of money – on the contrary.  Money is the representation or exchange value of labour expended, not vice versa.  As Marx says in Capital Volume One: ‘The value of a commodity is expressed in its price before it enters into circulation, and it is therefore a pre-condition of circulation, not its result.”

In 2019, when the evidence supporting a long-term trend fall in profitability of capital globally had become overwhelming in Marxist circles and even in some mainstream circles. Harvey devised a new argument to refute the relevance of the law. He argued that Marxists paid too much attention to the rate of profit in looking at capitalism and not what is happening with the mass of profit.  It is really the mass of profit that we must look at for an indication of what is happening in a modern capitalist economy.

But this does not in any way refute Marx’s law of profitability.  On the contrary, as the rate of profit falls in a capitalist economy, it is perfectly possible, indeed likely, that the mass of profit will rise.  Henryk Grossman devoted a major part of his masterpiece creating tables showing how the rate and mass of profit affect each other and still ended up with a crisis theory based on insufficient profit to sustain further investment.  In a debate with Harvey in 2019 at the Historical Materialism Conference, I presented strong empirical evidence to show how falling profitability eventually leads to slowing growth or an outright fall in the mass of profit, thus provoking an accumulation crisis in capitalism, well before any downturn in consumption or credit.

In an article in Jacobin, which offers extracts from his new book, Harvey praises Marx for seeing capitalism as a global system. But the problem is how to distill a few universal concepts and relations from the myriad and voluminous record of social practices of, for example, market exchange and capitalist production everywhere and how to ensure that whatever conceptual apparatus is derived is “adequate to” (as Marx would put it) valid interpretations of the “laws of motion” of capital in general.

For Harvey, Marxist crisis theory has not matched up to the task. Instead, Harvey suggests that Marxists should concentrate on the cause of social inequality and on the ‘alienation of labour’ rather than on crises of accumulation in capitalism.  You see, the class struggle is now not so much based on the conflict between labour and capital, but in the ‘circulation of labor capacity’ ie the lack of consumer power and rising debt.  

I leave the reader to decide whether that is the way to go for Marxist economists in the 2020s.