Profit as Key to Understanding Political Economy?

Too long have the workers of the world waited for some Moses to lead them out of bondage. He has not come; he never will come. I would not lead you out if I could; for if you could be led out, you could be led back again. I would have you make up your minds that there is nothing that you cannot do for yourselves.

Eugene V. Debs, Socialist, 1905 speech.



Profit-Key to Understanding Political Economy 

George Hewison                      


Political Economy #2                                                                           August 2013



rofit is the most poorly analyzed concept in economics, yet it is the basic driving force of our society. Profit expectations determine private capital investment decisions, including where to locate operations, or where to shut them down; and government decisions for creating a business friendly climate for private capital. Collective bargaining and attempts by employers to resist worker demands (or undermine unions) are shaped by profit considerations. Government deregulation and privatization and cuts in social services (despite the arguments around rationalization) are really about expanding profit opportunities for private capital. Profit lies at the heart of environmental degradation, cyclical economic crises, unemployment, and growing poverty and inequality in society. Profit explains the shadowy world of hedge funds, credit default swaps, derivatives and much more.


If capital sees no opportunity to make profit, it parks, and economic growth stagnates or falls. If it sees more opportunity for profit in interest rate or currency speculation, or gambling and manipulating the down side of the stock market rather than meaningful production to satisfy human need, it goes to whatever lengths possible, both legal or otherwise, to extend its mass, and in the process stretching the rationality (and the democracy) of society.


Profit making is above all blind, or as one leading American neo-Keynesian economist put it:

Although financial firms have a collective long-term interest in being regulated, financiers are too stupid to recognize this—or they simply expect to make their pile and then say, ‘Aprés moi, le deluge.’ [1]


With this opening, let us begin. How does capital maintain “legitimacy” on such profit-taking given what should be obvious? The answer: through its iron grip on the “ideas factories” of society. Few question this legitimacy; and most economists never analyze the essence of capital, i.e. the vast accumulation of past profits. The economics spin factory NEVER, EVER addresses profit fundamentals.


Here is how Lord Keynes addressed profit in his seminal work in 1936:


“The excess of the value of the resulting output over the sum of its factor cost and its user cost is the profit or, we shall call it, the income of the entrepreneur. The factor cost is, of course, the same thing, looked at from the point of view of the entrepreneur, as what the factors of production regard as their income. Thus the factor cost and the entrepreneur’s profit make up, between them, what we shall define as the total income resulting from the employment given by the entrepreneur. The entrepreneur’s profit thus defined is, as it should be, the quantity which he endeavours to maximise when he is deciding what amount, of employment to offer.”[2]


Get it? Basic economics, right? Not so fast. Economics texts before and since Keynes[3], have other obtuse formulations amounting to the same thing. They describe profit similarly as the “income of the entrepreneur” and flowing from “factors” and “agents” of production. Who says the entrepreneur gives employment to the worker?  What happens if one starts from a different premise, e.g. that it is the worker who, in fact, gives (exchanges) his or her ability to labour to the boss in exchange for a wage or salary? We are at a completely different vantage point to examine labour, capital and profit. Labour is the only indispensible factor in production as bosses find out when workers collectively refuse to exchange their labour during a strike. The next point about the necessity of private capital needn’t be made. We simply know that society most often circumscribes the conduct of labour, but not capital.


Reading Nobel Prize winning economist and popular New York Times’ columnist, Paul Krugman’s, “End This Depression Now” and a new article by another well known economist, Brad DeLong, entitled “The Second Great Depression”, the picture they paint for working people and society looks exceedingly grim. DeLong, initially hopeful about the prospects of avoiding another Great Depression says “I now suspect I was wrong. Compare the on-going crisis to the Great Depression, and there is hardly anything ‘lesser’ about it. The European economy today stands in a worse position compared to 2007 than it did in 1935 compared to 1929, when the Great Depression began. And it looks as if the U.S. economy, when all is said and done, will have faced certainly one lost decade and perhaps even two.”[4]


DeLong’s pessimistic economic analysis does not stop there. It’s in the realm of politics that he sees the biggest problem for the economy: a combination of lack of political will and the influence of big money in politics ensuring we continue down a “wrong” path. The wrong path to DeLong is the fixation of policy makers throughout the industrialized world on austerity to head off the potential of inflation, while unemployment and stagnation remains the greater danger, or as a British economist during the Great Depression put it “cry ‘Fire! Fire!’ In Noah’s Flood!”[5] In this, DeLong (and Krugman and others) is right.


Whether one agrees with DeLong’s assertion that the problem is merely limited to “political will” and the “power of money” (and there is no doubt these are enormous problems), DeLong’s addition of politics into the discourse on economics is welcome. There is an urgent need to reintroduce the two disciplines to one another as political economy after a one hundred year hiatus. Both economists and politicians seem to have forgotten why it is that we, as human beings, organize our society in the ways that we have. But if “capitalism” and “profit” are basic postulates by apologists for capital, and placed out of bounds for analysis and discourse, we must inevitably join DeLong on the pessimistic sidelines, or rely on prayer alone to produce a “Moses” to lead us out of the wilderness and solve the contradictions of a very deep hole that current economic wisdom has created.


Economics, they say, is an “inexact science”. That is the understatement of the millennium: the further it gets removed from its scientific/theoretical political economy roots (and reality), the more it descends into metaphysical solutions closer to the “bleeding” of medical healers of the Middle Ages. Today’s Keynesians (some prefer neo-Keynesians), like their inspirational leader in the mid-1930s, wish “to reconstruct macroeconomic thought from the ground up”, a noble objective; but they wish to do it without discussing the essence of profit. They get into the endless (and increasingly losing) debates about “austerity” versus “stimulus”, or “stimulus versus “debt” with their Chicago School (or Hogwarts School of Wizardry) adversaries and with one another[6], i.e. whether or not we are in a “liquidity trap”; whether or not we have too little or too much “quantitative easing”; whether we should abolish or limit the “activist” Fed and other central banks; nuances over the size, scope, future and quality of the bond market; or how much faith we should put in the “confidence fairy”. Meanwhile these learned folks, as they debate the finer points of a system in crisis, are in danger of spiralling into a black hole from where no light can escape. We all know who the victims are.


There is no doubt that the greatest danger to working people in the field of economics emanates from the Hogwarts School in Chicago, and any Keynesian measures that ameliorates the suffering of people should be supported. But the degree of success of those measures must stem from a deeper going analysis (and widespread support for measures) that strike at the heart of profit and the profit-taking system. A couple of small examples should illustrate. The Democrats and Republicans in the United States are locked in mortal combat over Obamacare. The Democrats defending and the Republicans calling for repeal…until someone suggests they don’t like either option and attempt to shift debate to universal health care, at which point even the most rabid conservative acknowledge that Obamacare, while distasteful, is superior to “European or Canadian socialism”. The second example has to do with banks. The extreme Right Wing argues against further regulation of the financial institutions, until the issue of public ownership of banks is raised, at which point, capital scurries back to its default position, and i.e. regulation of the financial sector becomes the lesser of the evils.


In these examples where the debate is confined somewhere between Right-Centre and Right Field, large profits are guaranteed and the debate is really about the acceptable level of profit. There is no BASIC countervailing debate on the issue of profit. Imagine for a moment, the outcome of society’s debate where there is a powerful logical and ethical argument against private profit (and the obscene recent levels should provide an obvious opportunity). There would likely still be private profit, at least in the foreseeable future, but capital would be on the ideological defensive and Brad DeLong would be back in vogue.


Brad DeLong may not be aware that within the political and social climate underlying Roosevelt’s New Deal and Keynes, was not only a growing and profound disaffection with capitalism as a legitimate social and economic system, but a powerful and growing critical analysis of this system precisely because it was predicated on the primacy of private profit. Political economy was-and remains- a powerful tool in the hands of people striving to organize, not just into unions, but for a new distributive system for the wealth they themselves create. When the battle of ideas is joined to the battle for economic survival by working people, capital is placed on the defensive having to argue real economic science.


If society at one time viewed usury as pejorative before it morphed into private profit with an attendant consensus that it was necessary and beneficial to society, there are overwhelming grounds today for revisiting the scientific, historical, ethical and practical premises upon which usury/private profit stands or falls.


The quotation from Eugene V. Debs is appropriate for today. We need a mass of self-informed citizenry. That means a higher level of literacy on politics and economics, and especially on the essence of the profit-taking system that we live and work under. Working people are capable of learning political economy because they live it every day. If, in the past, we have learned that what we win in the economic sphere can be taken away in the political sphere, we must also learn that what we win in the economic AND political sphere can be taken away, IN BOTH, if we lose the struggle with capital in the battle of ideas.






Thank you for all for the feedback on the last blog on the Fraser Institute.


I send out special thanks to those who had words of caution or outright disagreement on some of the formulations, or debated or questioned, certain points. That’s what it’s all about. Debs was right. None of us has all the answers, but our collective and accumulated wisdom and willingness to probe and debate, will enable us to offer a better alternative to the elitist nonsense currently doled out in the realm of economics and politics by “think tanks” such as the Fraser Institute.

[1] Brad DeLong a leading economist from the University of California-Berkeley. Basically saying “After I make mine, bring on the disaster”.

[2] John Maynard Keynes, “General Theory of Employment, Interest, and Money”, Chapter 3-“Principles of Effective Demand”.

[3] Influential economists, neo-classicist, Alfred Marshall, and neo-Keynesian, Paul Samuelson, all start from the same basic point.

[4] DeLong, J. Bradford, “The Second Great Depression”, Foreign Affairs, Journal of the Council on Foreign Relations, July/August 2013.

[5] Sir Ralph Hawtrey.

[6] For example, note the ongoing polemics between DeLong and Krugman.