Classical Theories of Accumulation and Growth

• SmithSmith: specialization virtuous circle

• RicardoRicardo: diminishing returns misery

• MillMill: enlightened intervention progress

• MarxMarx: contradictions crises revolution

Accumulate, accumulate! Accumulate, accumulate!

This is Moses and the ProphetsThis is Moses and the Prophets..

Capitalist must continuously expand his capital continuously expand his capital in order to preserve itin order to preserve it.

St. Joan’s Put-downsCambridge England v. Cambridge Massachusetts

Fundamental differences between orthodox & Marxian economics:Capitalism as part of the eternal order of Nature vs. Capitalism as a passing phase

Harmony of interests vs. Conflict between owners who do not work & workers who do not own

…The academics did not even pretend to understand Marx [whose] metaphysical habits of thought are alien to a generation brought up to inquire into the meaning of meaning.

…the questions [Marx] posed are still relevant today, while the academics continue to erect elegant elaborations on trivial topics…[T]he development of abstract argument has run far ahead of any possibility of empirical verification.

…The orthodox economists…identified themselves with the system and assumed the role of its apologists, while Marx set out to understand…capitalism in order to hasten its overthrow.

…they preach only the gloomy doctrine that all is for the best in the best of all possible worlds.

Joan Robinson, An Essay on Marxian Economics

Manchester's Factory Children Committee, 1836Campaign for the Ten-Hour Day

http://www.rhapsody.com/peteseeger/greatesthits/talkingunion/lyrics.html

Karl Marx, 1818 – 1883

Workers of the world unite! Workers of the world unite!

You have nothing to lose but your chains.You have nothing to lose but your chains.Manifesto of the Communist Party, 1848

Das Kapital, volume 1, 1868

Das Kapital, volumes 2 and 3, 1893, 1894

Theories of Surplus Value, 1905 - 1910

The boss won’t listen if one guy squaws,But he’s gotta listen if the union talks.

Frederick Engels, 1820 – 1895

Karl Kautsky, 1854 – 1938

Marx’s Biography•Law Philosophy Ph.D. (Jena by mail) Hegelian LeftUnemployed Editor, Rheinische Zeitung Unemployed•Marrried Jenny von Westphalen 7 children/4 survived•Paris/Brussels revolutionary 1848 Communist Manifesto

1849 London exile•British Museum Library/Das Kapital

•Engels collaboration and support•Communist politics/feuds

In the Communist Manifesto, Marx and Engels put forth a bold proposition about the inexorable collapse of capitalism. As ideology, the Manifesto was brilliant. As economics, it fell far short of scientific analysis. Marx needed to provide a scientific proof for what he and Engels had so boldly proclaimed. His response was Das Kapital (3 volumes, 2,100 pages).

Jürg Niehans, A History of Economic Theory

The The Communist ManifestoCommunist Manifesto, 1848, 1848• A spectre is haunting Europe — the spectre of communism.• The history of all hitherto existing society is the history of class class

strugglesstruggles. Freeman and slave, patrician and plebeian, lord and serf, guild-master and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another…

• The bourgeoisieThe bourgeoisie, historically, has played a most revolutionary part … The bourgeoisie cannot exist without constantly revolutionising the instruments of production …The need of a need of a constantly expanding marketconstantly expanding market for its products chases the bourgeoisie over the entire surface of the globe …The bourgeoisie, by the rapid improvement of all instruments of rapid improvement of all instruments of productionproduction, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilisation …The bourgeoisie has subjected the country to the rule of the towns. It has created enormous cities… It has agglomerated population, centralised the means of agglomerated population, centralised the means of production, and has concentrated property in a few hands. production, and has concentrated property in a few hands.

• The bourgeoisie, during its rule of scarce one hundred The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal years, has created more massive and more colossal productive forces than have all preceding generations productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, together. Subjection of Nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam-application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground — what earlier populations conjured out of the ground — what earlier century had even a presentiment that such productive century had even a presentiment that such productive forces slumbered in the lap of social labour?forces slumbered in the lap of social labour?

• Modern bourgeois society…is like the sorcerer who is no Modern bourgeois society…is like the sorcerer who is no longer able to control the powers of the nether world whom longer able to control the powers of the nether world whom

he has called up by his spells.he has called up by his spells. • The essential conditions for the existence and for the sway The essential conditions for the existence and for the sway

of the bourgeois class is the formation and augmentation of the bourgeois class is the formation and augmentation

of capital; the condition for capital is wage-labour.of capital; the condition for capital is wage-labour. The The advance of industry…replaces the isolation of the advance of industry…replaces the isolation of the labourers… labourers… What the bourgeoisie therefore What the bourgeoisie therefore produces… are its own grave-diggers.produces… are its own grave-diggers.

Some Marxian Vocabulary

• Historical materialism• Dialectic: thesis,

antithesis, synthesis• Productive forces• Surplus value• Transformation problem• Mode of production• Ideological

superstructure• Inherent contradictions

…As for the technical jargon of theCommunists, it is as far removed from common speech as the languageof a mathematical textbook.

George Orwell The Road to Wigan Pier

Historical Materialism: Progress and Revolution

• History as sequence of economic revolutions

Ideological Superstructure•Government, Laws•Religion•Culture

Productiv

e Forc

es

•Technolo

gy, Resourc

es

Initial Economic System (Mode of Production)•Class structure•Property rights•Distribution of income•Ownership of capital

Revolution! Revolution! New Economic SystemNew Economic System

Internal ContradictionsTension and Revolution

•Schumpeter: Innovation/Cycles•Olson: Vested Interests

•Kuhn: Scientific Revolution/Paradigm Shifts

Perpetuate ruling class dominance.•Suppress change!

Some Marxian Vocabulary• Historical materialism• Dialectic: thesis,

antithesis, synthesis• Productive forces• Surplus Value• Transformation problem• Mode of production• Ideological superstructure• Inherent contradictions• Class struggle

• Bourgeoisie• Proletariat

• Capitalism: M – C – M’• Profit maximization rules

• Rate of exploitation• Rate of profit• Reserve army of

unemployed• Accumulation• Immiserization• Underconsumption crisis• Overproduction crisis• Disproportion crisis• Organic composition

Debts to•Quesnay…balanced growth•Smith…growth dynamics•Ricardo…labor theory of value … but not diminishing returns

Flavors of Crisis

Invention

Investment

CapitalWidening

Capital Deepening

IncreasedEmployment

DecreasedEmployment

Rising WagesDecreasedWage Bill

Profit Squeeze

OverproductionCrisis

Too much capital

UnderconsumptionCrisis

Too little demand

Reserve

Army

DecreasedDemand

IncreasedOrganic

Composition

FallingRate

of Profit

Expropriatorsare

expropriated

EquilibriumCycles

Worker-capitalistecosystem

Contradiction& Collapse

A Summation (Jürg Niehans, A History of Economic Theory)• As a prophet, Marx was a failure…The predictions of the immiserization of

the working class, of the progressive deepening of economic crises (?), and of the imminent collapse of capitalism were patently falsified by events…capitalism appears to be capable of virtually infinite development, transformation, and variation without a revolutionary collapse. The dialectic model of history has failed.

• Marx did make a contribution to [economic science] that was mediocre. His most fundamental contribution was the clear formulation of the question of how political and social institutions interact with economic processes.

• For example, how does legislation affect income distribution and how do the consequent changes in income distribution, in turn, affect legislation?

» {Smith, Lectures on Jurisprudence, has precedence}

• Marx’s foremost contribution to economic theory was his model of (balanced) growth…His exposition was clumsy, fragmentary, and almost unintelligible but the basic notions are there.

• The sad truth was that his training had not equipped him for effective scientific research and he was constantly frustrated by his propensity to pose ambitious problems that he could not solve.