 When you focus on unequal exchange or on trade as one source of profit as opposed to surplus value, it also leads to the theme and the topic of the conference that we're at here on. You gave the senior lecture yesterday and it's about international trade and free trade. And your critique is that free trade or the theory of free trade is not only empirically, historically false, but it's also false on its own premises. Could you elaborate a little bit on that? Let me say a little bit more, if I may, about the transformation problem. Because I argue in the book that that problem is misposed, misunderstood by the Marxist tradition. Many, many people have tried to rescue Marx by showing that if you introduce time or introduce an accounting system, like Dominil, Levi and Foley, or that somehow that'll make profits equal to surplus value. The problem I pose is more fundamental to that. If you know that profit has two sources, then you are responsible for showing how those two sources interact. And what I show there is that you can totally account for the deviation of profits from surplus value above or below, which can also be below, by explaining this idea of transfers. Transfers from one industry to another and transfers from the circuit of capital to the circuit of revenue. Then the sum of the values transferred is equal to the sum of the values received, but it's not true that the sum of the profits is equal to the sum of the surplus value. And that's because, like in a balance of trade issue, I can say that the trade of every nation, being such that one has a balance of trade surplus and the other has a deficit, I know that the sum of the two is zero. It doesn't follow that every country has to have a zero. And I think that's where the fundamental difficulty in the transformation problem literature has been. They're trying to rescue Marx in a way that's contradictory to his own foundation. And they think they're saving him, but they're actually abandoning him, in my opinion. So the trade issue. It is a very striking thing that Marxist literature has nothing to say about international trade until Emanuel's Unequal Exchange. And most of the theory of trade is based on the idea that trade is regulated by monopoly power. And that's a very common explanation in the Marxist tradition. It seems to me it's not much of an explanation because all the empirical evidence shows that there's not much relationship between monopoly power and profit. In fact, often no relationship. So it comes about because of an absence of the theory of trade. You could argue Marx had a theory of trade and it's not true now. But Marx doesn't present any theory of trade. So people are essentially jumping over this whole by creating a different explanation rather than following systematically through and bridging the gap and showing where it would go. That led me to recognize that in the... It's a very strange thing. Marx reads so carefully and comments in such detail on the writings of others. But he has almost nothing to say on Ricardo's theory of comparative advantage. Now, this is amazing because Ricardo's theory of comparative advantage depends on the quantity of money on which Marx has a lot to say. So you can deduce that he was waiting for that bombshell later. And in fact, in Volume 3 he mentions just in passing, this is nonsense that the quantity theory of money will work to make every nation equal. On the contrary, we know that if money goes from a country with a deficit to pay for its deficit, that money leaving will tighten interest rates because liquidity will loosen up. And where it lands, it will tighten liquidity where it's leaving and loosen it where it's arriving. And that will create an interest rate differential, which will give an incentive for capital with the bounce of payments surplus, bounce of trade surplus to lend the money to the trade deficit. So you get the finality that you observe everywhere. Deficit countries borrow. It doesn't have to be for any reason except that the capital market gives it to them. Now, that ends up providing an alternate theory of trade. And what is that alternate theory? It's the same as Smith that trade is based on the profit incentive of individual capitalists. It has nothing to do with countries being better off through trade or benefited. They may or may not. But in fact, trade is motivated by the profit motive. But if anyone shows that the profit motive does not benefit people, it marks. So it seems perfectly consistent and sensible to say that if you apply the same analysis that Marx does for the competition within a country to competition between countries, you're going to get a set of patterns. And that happened to be the patterns that we observe that free trade benefits profits. But it can damage people. It destroys environments. It destroys communities. Marx had already shown this in history of capitalism. So it's nothing new. But when we have that framework, and it requires more than just saying that you can carry it over, you have to show how it works. You have to show the real exchange rate is determined. You have to show that empirically. You have to show why the Eurocardian mechanism is wrong, why the standard textbooks are wrong. Then you have a very powerful tool that helps you understand that what happens with globalization and neoliberalization is precisely the opening of the world to international competition where the bigger capitals or the more developed capitals or the more international capitals are able to come in and destroy their weaker competitors. But that's competition. That's always been like that. It's interesting that you know about the critique of political Marxism of world systems theory and world systems analysis. And you wrote a critique of Robert Brenner yourself about his analysis of post-war capitalism. And the political Marxist tradition criticized world systems theory as an euphemism and Marxism. But based on the idea that there is two sources of profit, it actually connects in a way to world systems theory. That's a good point. I hadn't thought of that, but I think that's quite true. World systems theory, at least in its formulation by people like Gunder Frank and Wallerstein and all had always argued that capitalism was around for a long time. And that surely is correct. And it's easy to find Marx making the same argument, which is why they focus on that. And it doesn't follow that the laws of motion, so to speak, of that earlier capitalism are the same as this industrial capitalism. So here's the exact point about Stuart and Marx. Marx says, yes, of course there is another source of profit. And he actually says it is the central explanation of pre-industrial capital, merchant capital, historical. But industrial capital has a different law. So the fact that they're both capitalisms doesn't mean that they're the same capitalism. One is a capitalism founded on transfer of threat, expropriation, violence, and so on. And the modern one founded on the production of surplus value, which also involves threat, exploitation, and expropriation, but of a different sort and a different root. And the enormous growth and standards of living that comes from industrial capitalism is very different than the concentration of wealth in some countries from merchant capitalism. So it is a fundamentally different principle yet, and this is a point, both elements coexist in industrial capitalism too, because you cannot have industrial capitalism of production of surplus value without the distribution of surplus value and the distribution of value, which is different than the distribution of surplus value, and that gives rise to different sources of profit. In the book, I make the following point, which could be viewed as a kind of steward point. If someone goes to your house and they steal your expensive TV, and then they walk two blocks and they sell it to a merchant for cut rate price, and the merchant sells it back to someone else. Well, in the first place when you bought the TV, you paid for the surplus value in the TV. So that was the realization of the original production of the TV. The second moment where the TV is stolen and sold again creates another profit over and above the first time. So the same TV creates two profits. In the first instance in its production, the second instance in its circulation. And that second profit comes about because you have transferred the value of the TV to the thief against your will, and the thief is able to give a discount to the merchant who then sells it to someone else. Now that is a circuit which explains many concrete phenomena in capitalism, not just the transformation problem but the rise of finance capital, the ability to create profit, what looks like out of thin air, but it's actually through a transfer. If you're saying that capitalism existed because of the two sources of profit, the big fuss of transfer existed for a longer time than just since the English Revolution, since primitive accumulation. The critique that Ellen makes and what it would have is that it would make capitalism appear more natural than it actually is, and that markets operate function differently in pre-capitalist societies as opposed to capitalist societies. I should be precise and say that. I'm not saying that capitalism exists and I said capital exists. There's a difference. My skin word is right to say that if you elide the difference between the partial existence of capital within non-capitalist systems, the merchant capital existing within feudal society or Chinese society or Indian caste system, that's capital in this earlier sense of merchant capital but it's not capitalism. I agree with her that one should not fall into the mistake of making capital equivalent to capitalism as a social system. The place where both of those capitals, merchant and industrial capital exist is in modern capitalism. In relation to finance capital, there's a debate among people who loosely tie themselves to the Marxist political economy tradition and there seems to be two main trends of currents, one that falls more in a stagnationist explanation that says that essentially post-Fordist or says that neoliberalism was not a stable formation but that neoliberalism essentially was a way, including financialization, to stabilize a system in demise. You mentioned the monthly review school that would include also Alietta and people from the regulationist school, Joachim Hirsch in Germany, Joachim Bischoff in Germany. On the other hand, those who have maintained that neoliberalism was a stable and dynamic formation and at the other extreme would be maybe Sam Ginden and Leo Panitch saying that financialization was actually functional also to neoliberalism and to global capitalism in a system of free-floating currencies and then you have people falling in between like David McNally saying that it was dynamic until the dot-com bubble burst and etc. What's your take on those? Well, there are many takes. I am generally resistant to the idea of creating stages of capitalism because they really mention ways of expressing the stages of our lack of knowledge. Usually when someone invents a new stage it's because they're representing the previous stage as being different. And so the first question I always ask when I know all these people, all the Fordists and so on, often good friends of mine ask what is your representation of the prior stage? For instance, I knew all the monthly review people, Sweety, Magdoff and all. There were two blocks from my office at the new school and given the politics that I have I knew them. And I remember asking them, well, you say that there is a stage of monopoly capitalism. So what does the stage of competitive capitalism look like? And their answer was it looks like the textbooks that you're reading. Now that seemed to be completely false. It implies first of all that Marx was essentially a follower of Milton Friedman which seems to be pretty hard stretch anyway. And so right away what this brought out to me is that the Orthodox economics had won the battle of the representation of competitive capitalism. And one of the central features of my work is to show that Marx develops a very powerful analysis of competitive capitalism which is completely different. Now if that's the case then you have to ask the same question for all of the other stages too. There's Japanese schools like Uno and others who also talk about monopoly capital. There are stages that talk about social structure accumulation, affordism. I find those not persuasive because the past appears as a kind of thin category and then the present is identified as being due to one thing or another. Now it's clear that capitalism reinvents itself periodically and after every major crisis. So if that's the case should we give every invention a new name? I tend to say the not because the thing that it keeps central to it is profitability. It's the dominance and dynamic of profitability. So to jump to the other end the current crisis. I argue in the book that the profit rate in the United States which is after all the hegemonic capitalist country. But I also did that for the critique of Brenner in Japan and the US and I don't remember the two or three other countries I did in Europe. They have a falling profitability. Now that falling profitability has an impact on growth. That leads to a question which is in the modern era of interventionist state is there anything that can be done about that? Well one thing we know that can be done is a state can join forces with capital to push back on labor. That's very clearly the source of neoliberalism and it did that to offset in my opinion a long and secular decline in the profit rate. But something new was done that was never been done before. And this again comes back to paying attention to the foundations of the theory. Marx specifically argues that what motivates accumulation of capital is not just the profit rate. It's a difference between the profit rate and the interest rate. He calls that difference profit rate of enterprise. With that difference is large, capital is very happy and full of energy and where it's small it's not. Well that is exactly the argument made by Keynes. Keynes says investment is determined by the profit rate which he calls a marginal efficiency of investment and the interest rate. So here you find a very interesting link from the theory of accumulation Marx to the theory of effective demand in Keynes. But also to the empirical historical phenomena that beginning in the 80s capitalist countries all across the world intervened to lower the interest rate. Why were they doing that? Falling profit rate then the profit rate stabilizes due to attack on labor and the welfare state across the whole globe. But that gap was still the interest rate was still the gap was small. By lowering the interest rate you've increased the gap and you create not just a fictitious boom a real boom. A boom in output, in employment, in profitability. But at the same time because the interest rate is low you give a tremendous incentive for financial capital to flow across the world. An incentive for the state to act to support and enforce that flow across the world to take investment capital with it and also a tremendous incentive to bubbles. To bubbles, real estate bubbles, financial bubbles. So the system creates a solution not because there's a set of people planning this but because it's a natural reaction to the pressures and then that solution gives rise to the crisis in 2008. And everything comes tumbling down and now the battle is how you get out of the crisis. One answer austerity, the other answer stimulus. In my opinion both answers are partially true but they're not correct.