Profitable question

As always I really enjoyed Lynn Walsh’s recent article, Behind the Stock Market Surge, (Socialism Today No.167, April 2013). Lynn’s expert grasp of the dynamics of finance and the stock market is excellent and very informative, and I fully agree that the present share bubble could ‘pop’ at any time.

However, I am left scratching my head about some things he says about the economy in general because it is contradictory. For example, Lynn says the following: "Now, most of the big corporations are reaping huge profits. But because of overcapacity in many industries and weak consumer demand (because of reduced incomes and public spending cuts), corporations and their financial masters see insufficient openings for profitable investments".

Leaving aside the issue of investment, the problem I have is in understanding how it is possible for big corporations to be reaping huge profits but for consumer demand to be weak at the same time?

US gross profits are indeed booming. Since the trough of 2008 they are up over 40% and are now 7% above the previous peak in nominal terms set in 2006. There are suggestions that this means that the US economy is moving into recovery mode. My point is very simple. If the profits of US capitalism have recovered that means they must be selling their output.

It isn’t possible to make profit out of thin air (unless it’s imaginary as in parts of the financial system). As profit is surplus value congealed within the material packet of the commodity, in order to realise this surplus value as profit, in money form, the commodity must be sold through market exchange. Therefore the capitalists have to be selling their goods otherwise profits couldn’t be made.

So could Lynn clarify exactly how it is possible for profits to be increasing to record levels when the demand for output, in Lynn’s explanation, is decreasing at the same time? In line with what the Keynesian economist Paul Krugman argues, and who Lynn appears to agree with? Doesn’t this violate the laws of physics?

Bruce Wallace, Scotland