political economy notes

8/13/2019 Political Economy Notes

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Political Economy ECON 3119 Notes

Lecture 1:

Mainstream economics

Free market solutions to economic problems are best

- Freely operating market forces (demand and supply) generate equilibrium

outcomes that allocate resources efficiently (or more efficiently if Govt.

intervention is minimised).

- Private sector enterprises are more efficient than those oned by the state

Price stability, i.e. zero inflation, is a oo! t"in# (lo inflation more accurate

description)

-!mplied policy bias toards achieving "price stability# as opposed to "full employm

ent#

- $mphasis on long%run neutrality of monetary and fiscal policy

- &i.e. Govt spending and changes in the money supply ill not affect real variables

in the economy (e.g. real output' employment) in the "long run#' they ill only

affect the general price level

$inancial institutions an! ca%ital flo&s are best !ereulate!.#

-llo financial capital to be allocated to most profitable opportunities nationally

and globally and markets to put a price on "risk# etc

- *oever' important to realise mainstream economics is not homogenous

- +e,tbook economics may sometimes understate lack of consensus actually

found to e,ist ithin mainstream economics

'"at are some of t"e (ey com%onents of mainstream economics)

- -ignificant role for "market forces# (demand and supply determined prices)

- !ndividual rational ma,imising behaviour (challenged by behavioural eco and

finance)

- $conomies are inherently stable and move toards equilibrium (espesh in "long%

run#)

- "Govt

intervention# only desirable under prescribed circumstances (e.g. "market failure#)

- Price stability' efficiency' competitive markets (etc) key to economic performance

- Financial theory dominated by efficient market hypothesis (and related theories)

- icroeconomic policy/ deregulation of markets normally supported (Govt


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intervention may be required to counteract "market failure#)

- acroeconomic policy/ tends to favour policy "rules# as opposes to "discretionary#

policy "rules# as opposed to "discretionary# policy (e.g. use interest rates to

achieve an inflation target (price stability)' balance Govt budgets ("across the

business cycle#) and set to ma,imum govt0debt0G1P ratio

- $conomic stability and performance key to achieving "social goals#

*istorical bac(roun!

Classical Economics (late 23th' early 24th centuries) dam -mith 1avid

5icardo' 6.-.ill' althus' ar,

7haracteristics/

- $,amined the determinates of groth of an economy e.g. -mith/ specialisation

associated ith division of labour (8productivity) 9 capital accumulation

- +he distribution of the economic surplus (particularly 5icardo)

- ain actors/ classes (orkers' capitalists' landoners) labour theory of value/

labour as a source and measure of value

1+-s: Marinal re/olution0 and emergence of "neoclassical# economics. (e.g.

6evons' enger' arshall (:)' ;alras.

"


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- $nvironmental economics/ emphasises the need for market based schemes to

overcome e,ternality and sustainability issues

More recently

- icroeconomics/ challenge to the logic of general equilibrium theory' emergence

of strategic behaviour models (game theory' e,perimental economics etc).

- *oever' +e,tbook analysis still dominated by equilibrium analysis and

individual optimising behaviour

- acroeconomics/ attempt to develop

"microeconomic foundations# combined ith "rational e,pectations# etc.


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Lecture : met"o! an! met"o!oloy

Met"o!oloical issues

ethodological !ssues- ethodology @ the choice of methods of analysis and ho e choose beteen

competing theories

- ;ithin history and philosophy of science' many debates on "scientific method#

$,amples/

- 1eduction vs. induction

- lternative positions adopted by Popper ("-cientific ethod#)A =uhn

("paradigms#)' Bakatos' Feyerabend ("gainst ethod#' "Fareell to 5eason# etcA

science as being essentially anarchistic)

-ore recently (:)' much of this debate proceeds at the level of "epistemology#(analysing the nature of knoledge) and "ontology# (study of the nature of being

or reality...)

Cuestions/

- 7an e learn more about differences in economic analysis by e,amining the

methodological foundations e,plicit or implicit in the analysis being presented:

- 7an a particular methodological approach characterise' define or unite a school

of thought in economics:

- -hould arguments about methodology be left to philosophers:

ainstream economics/

- ethodological approach often associated ith "!nstrumentalism#' related to

Popper#s notion of "-cientific ethod#

- +he role of "falsification# is the key to a "science# (as opposed to dogma etc)

- Falsifiable/ something is capable of being shon to be false in the event that

contrary e,amples or e,ceptions actually e,ist

- !n mainstream economics' "falsification# usually associated ith discovery of

conflicting "empirical evidence#

- !n "mainstream economics#' "falsification# is usually associated ith econometric

testing (time series and0or cross%section)

- D methodological defence of much of mainstream that asserts test of good

theory is "predictability#' not "realism# of assumptions

- *oever Popper sa falsification as conflict beteen theory and evidence and

as resolved as a matter of collective Eudgment of scientists


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Problems ith "falsification# application/

- !f prediction based on comple, array of theories is false at least one premise

false' but hich one:

- !s it possible to separate the theory being tested from the initial conditions and

associated background theories:

- !t is not alays clear that if evidence contradicts a hypothesis that this is a sign

of flas in the hypothesis rather than of flas in the evidence

- bservation of phenomena is alays theory dependent

lternative ethodological Positions for Political $conomy:

abylonian mode

- abylonian ode of +hought (associated ith -heila 1o' possibly originating

from =eynes# usage of the term in his challenge to the conventional vie that

!saac


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happen#)

- s opposed to "closed system# theorising (deterministic/ "henever H then I#)

- *ere e have e,planation vs. prediction


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- 1enotes outcomes that' if achieved' ould be characterised by the absence of

any tendency for change in the absence of e,ogenous disturbing influences

- $conomic outcomes toards hich the economy tends to gravitate ("persistent

forces#)' or perhaps achieve under ideal or normal (natural) circumstances

- alanced0steady state groth (i.e. all variables gro at a constant rate)

$quilibrium analysis in neo%classical theory

- formal definition of equilibrium in neoclassical analysis/

- Prices and input%output combinations are said to be equilibrium prices and

input%output combinations if' hen they rule' no economic agent has any

inducement to change his method of production' and no input is in e,cess

demand (Frank *ahn again)

- 1ifferent types of equilibrium analysis/ partial vs. general equilibrium' short%run

vs. long% run etc.

- +he difference beteen these

approaches can be summarised

in terms of hat is included in the

ceteris paribus clause

- uch of neoclassical analysis is

based on the method of

comparative statics

- +his involves the comparisons of

values (e.g. prices and quantities) at different equilibrium positions

- 7omparative static analysis ould begin by assuming that an economy' or

market(s) is (are) in equilibrium. ;e then allo for an e,ogenous shock to the

system' or let the value of a parameter change. +he equilibrium price and input%

output combinations are then re% calculated' such that a ne set of equilibrium

price and input%output combinations are determined- simple e,ample ith partial equilibrium/ 7onsider the market for butter. ;hat

ould happen to the equilibrium price and quantity of butter if the price of

margarine increased:

- nser/ assuming the goods are substitutes' the demand curve for butter ould

shift to the right' and the equilibrium price and quantity for butter ould increase'

holding everything else constant

- uch of equilibrium analysis looks at the e,istence and stability of equilibrium

positions.

- $,istence (and uniqueness) requires correspondence beteen "knon and

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unknons# (mathematical properties)

- -tability/ if the system is not in equilibrium to begin ith' ill it gravitate toards

an equilibrium combination of prices and quantities:

+he role of equilibrium analysis

- Four vies/

2. nalyses economy in terms of static equilibrium position' allos that economy

may not alays be in equilibrium/ viK. neoclassical theory

- +he analysis of out%of%equilibrium positions is relegated to minor importance' if

discussed at all. y assuming that the equilibrium is stable' i.e. there are forces'

hich push the economy back to equilibrium if it deviates from it.

- !n this case the issue of the actual path the economy may take is ignored.

- +he time taken to get from one equilibrium point to another may depend upon

the nature of e,pectations and market rigidities

- $,ample/ most standard te,tbook theory

L. +he economy is alays in equilibrium $,ception/ temporary of random

departures from equilibrium caused largely by lack of complete information.

- $.g. ". ;hile an economy ill tend toards equilibrium' final equilibrium position is path%

determined.

- +here are at least to interpretations of path determinacy

- a. ;here there are multiple equilibria' so that the one hich the system actually

achieves is dependent on the path it takes hen not in equilibrium

-b. Path dependency associated ith hysteresis/

- +he movement of the system hen it is out of equilibrium may change the data

on hich the static equations hich define the equilibrium are based

- +hese equations ill change and determine a different equilibriumM +his means

that the (set of) equilibrium point(s) is not independent of the dynamic movement

of the system D path dependency

- Problem ith comparative statics/ even if it is possible that an economy can

reached a (path% determined) equilibrium point' the analysis must primarily be

concerned ith disequilibrium and tell a dynamic story of ho the economy

moved from one equilibrium to another


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- nalyse the path of the economy outside equilibrium/ the traverse

- $ach equilibrium has a unique history/ a unique capital stock and set of

e,pectations

N. +he economy is never in equilibrium and does not tend toards it

- +his vie is most directly associated ith Post =eynesian economics and

$volutionary $conomics

- *ere equilibrium analysis can only be used in a very abstract form (e.g. to derive

analytical techniques) or in a negative sense to sho hy equilibrium is not a

characteristic of the system being analysed (ar,#s reproduction models have

been interpreted in this conte,t)

7umulative causation

- $,tremely destructive of the concept of equilibrium

- ny movement aay from an initial equilibrium position ill be amplified and

generate further and further movements aay from that initial equilibrium

- 7hange becomes progressive and propagates itself in a cumulative ay

- !dea developed from earlier ork (on increasing returns to scale) of llyn Ioung/


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individuals' hich ill impinge upon his. ! do not think that it is right to praise the

logical elegance of a system hich becomes self%contradictory hen it is applied

to the questions that it is designed to anser (5obinson' *istory versus

$quilibrium 7ontributions to odern $conomics. 2LQ).

-R+o move from one point to another e ould have either to rerite past history

or to embark upon a long

future.R 6. 5obinson.

$conomic *eresies'

- 1ras the distinction beteen

closed deterministic models

that operate in logical time'

and open historical models

hich operate in historical

time

- *istorical time is irreversible'

determined by events/ here e go depends on history' on here e have

been/ future uncertain' e,pectations shaped by past and are themselves

irreversible

- +he siKe and composition of the capital stock' together ith the set of economic'

social and political institutions' is a reflection of irreversible decisions made in the

past.

- s time passes' individuals change not only ith respect to the knoledge in

their possession' but they also e,perience unforeseeable modifications in their

economic endoments and in their perceptions of e,ternal institutional

structures' environments and the possibilities of action taken by others.

$volutionary $conomics

-

!n sum' the mechanistic metaphor &equilibrium e,cludes knoledge' qualitativechange' and irreversibility through time. !t entraps economics in equilibrium

schema here there are no systematic errors and no cumulative development.

7learly much is missing here. +he strength of the alternative' biological

&evolution metaphor is that a place can be found for these important features of

economic life (*odgson $volution and !nstitutions' p.QN)

- +reats the economy as an evolving system' along the lines of 1arin#s theory of

evolution

-1ifferent methodology and analytical techniques to mainstream economics

- -imilar attempts have been made in other social and physical sciences

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"universal 1arinism# (e.g. 1akins)

E/olutionary /s. mainstream e2uilibrium economics: /ie&s

2. $volutionary economics is supplementary to mainstream economics

(-chumpeter)

L. $volutionary economics is a preferred alternative to mainstream economics

(Oeblen)

- +hese vies often involve Eudgments as to the relative merits of mechanical and

biological analogies in economics

- odern biological sciences/ almost universal acceptance of 1arin#s theory of

evolutionary change assigned to principles of adaptation and natural selection'

(bolstered by endel#s theory of genetics)A there remains some dispute over the

possible processes involved in evolutionary change (e.g. punctuated equilibrium

to e,plain periods of rapid change alternating ith periods of relative stability

(stasis))

- *o can these biological concepts be applied to other sciences:

uilding blocks

- 1iversity gives a range of possible solutions to challenges thron up by the

environment

- +he $nvironment interacts ith these diverse forms to favour some over others

and feedback effects beteen it and nely emergent species may alter the

environment itself

- daptation occurs at the systematic level through the differential survival of

these diverse forms hichA hile some die out' others prosper and thus their

characteristics are passed on more strongly to subsequent generations.

- daptations come about gradually' cumulatively and organisms inherit

adaptations not to their on environments but to those of previous generations'perhaps crucially different.

- +his implies that change does not lead to optimal configurations.

!n economics/

- 1iversity @ heterogeneity of consumers and orkers' differential qualities of

entrepreneurs and business managers' variety of products etc'

- $nvironment @ economy (endogenously created by actions of individuals' social

groups' and corporations)

- daptation @ structural change' innovation' ne products' ne institutions etc


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- 1espite the "Sniversal 1arinists# claims' it does not necessarily follo that the

biological processes of evolutionary change should correspond directly to the

analogous changes being e,amined in the other sciences.

- $volution' irrespective of the precise e,planations' invokes the notion of a slo

process of change that does not envisage a predetermined or optimal outcome.

7hange is perceived to be an ongoing' endogenous and irreversible process' a

process that cannot be reduced to mechanical las.

*o does this differ from $quilibrium analysis:

- $quilibrium analysis depicts a deterministic orld in hich economic agents can

react (though markets) "rationally# to available information

- 7hange generally occurs as a result of economic agents reactions to e,ogenous

shocks ne equilibrium positions

- 7hange is associated ith progress and optimality


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Notes from rea!ins/ *istorical time and economic theory' ark -etterfield

- rgument/ the pervasive influence of history in determining long run economic

outcomes cannot be overlooked' even though mainstream economic models

overlook such

- Paper introduces historical time into economic models

- =eynes famous remark T "in the long run e are all dead# T there is a readily

identifiable concern that current economic activity takes place in the present'

beteen and uncertain future and an unchangeable past

- -imilar interest found by ar,ian' institutional economics' marshal and

Geogescu%5oegen

'"at is "istorical time)

- ;hat is current' is in conte,t to hat has come before it T thus history of events

may matter T effecting current or future outcomes

- +hus historical time is meaningful

- *istorical time is discontinuous T can#t really conceive "periods# of historical time

- Future cannot be predestined

6oan 5obinson/

- t any moment in logical time' the past is determined Eust as much as the future

T logical time in this sense can be thought of as mathematical space e,isting at a

given point in historical time

- +oday is a break in time beteen an unknon future and an irrevocable pastM

movement can only be forard. T time points one ay to the future

Georgescu 5oegen

- 5eversible process/ eg. in any system ith a unique' stable equilibrium' a once%

over shock may induce disequilibrium in the present period' but the removal of

this shock ill facilitate the subsequent restoration of initial (equilibrium)

conditions- !rreversible T cannot be inverted to restore initial conditions

- !rreversible and reversible conditions e,ist in logical time but not historical time

- *istorical time is irrevocable % all current action is' of necessity' conducted in the

conte,t of a set of given and immutable past actions' and this conte,t is

inescapable.

*icks

- *icks distinguishes beteen three types of causality % static' contemporaneous

and sequential

- 7ontemporaneous causality is based on givens or permanencies ithin a period


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- 7ontemporaneous causality found in =eynes % short run outcomes are

determined by a given state of long run e,pectations' even though the state of

e,pectations may vary beteen short runs

+he importance of historical time in economic theory

-


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Lecture 3 : Marian 4%%roac"es to Economics

1. 5ac(roun!

- =arl ar, (2323%233>)/ Philosopher' Political' $conomist' 5evolutionary

- !t is foolish to refuse to learn from the ideas of an economist hose ideology

e dislike. !t is equally unise to rely upon the theories of one hose ideology

e approve

5obinson' 6. (24) ar,' arshall and =eynes/ +hree Oies of 7apitalism'

6. 5obinson (24Q3) 7ontributions to odern $conomics' p. Q2).

P"iloso%"ical 6nfluences

- +he dialectical method and historical orientation of *egel

- *egel/ ll real phenomena changes according to the dialectical pattern of

thesis T antithesis T synthesis. -ynthesis conserves thesis and antithesis and

transcends both of them

- e.g. in ar, capitalist T orkers D socialism

- *istorical materialism is the e,tension of the principles of dialectical materialism

to the study of social life' and of its history.

- 5eEection of *egel#s #idealism#A instead influenced by Feuerbach (+he $ssence

of 7hristianity) and runo auer

- $ngels +he 7ondition of the ;orking 7lass in $ngland in 23NN led ar, to

conceive of the historical dialectic in terms of class conflict

aterialism

- ethodological approach to the study of society' economics and history

- +he material ay and economy orks T economics is the basis of society

- -lavery' feudalism' capitalism T system hich pushed obEectives forards Tthe

more they did this the more they undercut their system- Sltimately the system leads to their on donfall

- +he orld of our senses has an obEective reality and is the sole reality (matter

precedes thought)

- -ociety has an economic base % $conomic relations shaped social' cultural'

legal and other relations

- +he mode of production in material life determines the general character of the

social' political and spiritual processes of life. !t is not the consciousness of

men that determines their social e,istence' but on the contrary their social

e,istence determines their consciousness (Preface to the 7ritique of Political


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$conomy).

- ar, also influenced by French socialists (e.g. 5ousseau)

- (early philosophical ritings included +he Poverty of Philosophy' a reaction to

Proudhon#s +he Philosophy of Poverty reflecting split beteen the "anarchists#

and the "ar,ists#)

- here does profit come from: !f people e,change goods equally must

happen in production not in the e,change market

- the value of anything is the hours it takes to produce: T basic amount to keep

living is the amount capitalists pay them

5evolutionary/

- Philosophers have only interpreted the orldM.A the point hoever is to

change itR'

- ;hat the bourgeoisie therefore produces' above all' are its on grave%diggers.

!ts fall and the victory of the proletariat are equally inevitable

- Providing activists ith the tools to understand historical change J to play an

active part in it

- "scientific socialism# based on the discovery of the "las of history# unlike

"utopian socialism# (based on belief that the course of history can be changed

by personal preferences' ithout regard to the "scientific las# of social change)

L. Political $conomy

- $,pressed most completely in the > vols of "7apital#' but scattered repetitiously

and unsystematically through' 7ritique of Political $conomy' +heories of

-urplus Oalue' 7ritique of the Gotha Programme' German !deology'

7ommunist anifesto

- 1eveloped from a critique of classical political economy (based on "labour

theory of value#)' especially dam -mith and 1avid 5icardo

ethodology

- ar,#s method as e,plicitly historical in the sense that it focused on the

changing structure of social relations as the result of the historical unfolding of

capitalism. +he obEect of study is #the las of motion of capitalism#. (1o)

- *istory can be e,plained in terms of hat as happening in the economy'

particularly in terms of class struggle. (+he history of all hitherto e,isting

society is the history of class struggles)

- -cience according to ar, must not be satisfied ith surface appearances. !t


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must dig beneath to unveil hat lies behind those appearances D theory of

value rather than a theory of market prices is the starting point

- $conomists kno the price of everything and the value of nothing' quote

sometimes incorrectly attributed to scar ;ilde

- 7apitalism is dominated by commodity relations rather than human or personal

relations. ll transactions reduce to an e,change of commodities' including the

hire of labour.

- lienation/ labour treated as Eust another commodity D separable from the

orker

- +his is related to "commodity fetishism# (things that people produce'

commodities' appear to have a life and movement of their on to hich

humans and their behavior merely adapt.)

3. Mar0s Political Economy0: 5asic

7oncepts

- Oalue/ Babour +heory of Oalue

- Sse value/ related to the #utility# of a commodity/ a necessary condition for

value in e,change.

- *oever' a use value has (e,change) value only because human labour in the

abstract has been embodied or materialiKed in it (!' 2/2)

- $,change value and -ocial


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subsistence age. ;ages kept at subsistence level due to "reserve army of the

unemployed#

- e,ploitation/ +he profit gained by the capitalist is the difference beteen the

value of the product made by the orker and the actual age that the orker

receivesA i.e. capitalism functions on the basis of paying orkers less than the

full value product of their labour. ar,#s arguments emphasises the distinction

beteen pure commodity e,change and a monetary economy.

- 7apitalism is about creating and accumulating value/ happens not during the

circulation % e,change but during the production process.

- !n the realm of production' money is the beginning and the end. 7apitalists buy

factors of production and combine them to form some finished product' hich is

sold for its value.

- Final product is orth more than its constituent parts.

- D 7 D 7U D U ( @ money' 7 @ 7ommodity)

+echnical composition of capital/

7onstant 7apital &c

- +hat portion of the value of machinery and materials used up in production and

added to the value of the product

- 1oes not undergo any quantitative changes in value during the production

process

- easured in terms of "indirect labour#

Oariable capital/ &v @ labour poer

- +he capitalist is obliged to pay for labour poer only the value hich (like that

of any commodity) is fundamentally determined by the labour%time necessary

for its production (and reproduction).

-!ts value is equal to its subsistence (defined as a cultural minimum plus thee,penses of education and training.)

-urplus value &s @ source of capitalist profits

- rigin/ the value of labour poer is only its subsistence. Babour' combined ith

Vc' is able to earn the value of its subsistence (i.e. age) ith only a fe hours

ork' the value of its output for the remainder of the orking day is

appropriated by the capitalist as surplus value

-(i.e. orkers receive subsistence age' but contribution to value of output

e,ceeds this)


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verall value of a commodity ()

- 7an be decomposed into constant capital' variable capital and surplus value

- @ c 9 v 9 s

5ate of -urplus Oalue @ s 0 v (

- surplus labour0necessary labour) "measure# of e,ploitation

- 5ate of Profit (r) @ ratio of surplus value (s) to total capital

- (c9v) @ s 0 (c 9 v)

rganic composition of capital/ @ c 0 v

- s capital accumulates' the technical

- composition of capital changes c / v

- i.e. capital accumulation leads to more capital intensive technology

- Oalues and arket Prices

- ;hatever may be the ay in hich the prices of the various commodities are

fi,ed or mutually regulated' the la of value alays dominates their

movements. !f the labour%time required for production of these commodities is

reduced' prices fallA if it is increased' prices rise' other circumstances remaining

the same

- +he assumption that the commodities of the various spheres of production are

sold at their values implies' of course' only that their value is the centre of

gravity around hich prices &market values fluctuate' and around hich their

rise and fall tend toards equilibrium &!!! 2?

N. -ome Predictions from Mar0s Political $conomy

2. 7apitalism is a historically specific temporary mode of production

L. Groth of big business/ related to increasing c0v-


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7apital 7risis/ can take the folloing forms/

a. +endency for the rate of profits to fall

- 5ecall r @ s 0 (c 9 v) @ (s0v) 0 (c0v 9 v0v)

- !mplies 8s0v D 8r A 8c0v D Wr

- 5ecall also that ar, concluded c0v tends to increase through time (more

capital intensive technology)

- !f s 0 v remains constant D W r

- +herefore unless 8s0v by increasing rate of e,ploitation or increasing labour

productivity' there ould be a tendency for the rate of %rofit to fall t"rou"

time 7 crisis in capitalism

- *oever' ar, identified countervailing tendencies/

- +here must be some counteracting influences at ork hich thart and annul

the effects of the general la' leaving it merely the character of a tendency 0

- 7heapening in the elements of constant capital (i.e.W c)

- !ncreasing in rate of e,ploitation (8s0v) by prolonging the orking day or

reducing ages or increasing ork intensity

- 5elative overpopulation D 8 reserve army of unemployment

- Foreign trade (may' for e,ample' reduce cost of ra materials D Wc) or cost of

subsistence goods

- !ncrease in the stock of capital may lead to increased industrial concentration

leading to economies of scale in usage of capital (Wc)

- 1ecrease in ages belo the value of labour poerA equivalent to raise rate of

e,ploitation (s0v)

2X

b. +he disproportionality beteen different branches of production

-ar, developed L sector model1epartment 2 produces the means of production (i.e. constant capital)

1epartment L produces consumption goods for orkers and capitalists (v 9 s)

- 1 = 1 +1 +1- 2 = 2 +2 +2- -imple reproduction/ no economic groth occurs/

- For the system to be maintained' 1epartment 2 must produce sufficient

constant capital for both departments @ 1+

2

- 1epartment L must produce sufficient consumption goods for orkers 1 +2


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and capitalists 1 +2

- +herefore e require

- 1 +1 +1 = 1 +2

- 2 +2 +2 = 1 +2 +1 +2- oth of these require cL @ v2 9 s2

- +his is required for simple reproduction

- therise disproportionality problem arises

- However, there is nothing in Marxs scheme that ould ensure this condition is

met

- +he logic of capitalism' especially due to competition' imposed an imperative to

firms to gro and to accumulate capital D e,panded reproduction.

-+he conditions for non%problematic groth' in terms of flos beteen the L

departments' become comple, and e,tremely unlikely to eventuate (see

numerical e,ample in ppendi, 2 in Bucarelli)

- instability and disequilibrium groth

- c. 5ealiKation of surplus value into profits and problems of effective demand

- 5elated to (b) and includes an attack on "-ays Ba# (Vmetaphysical equation of

sales and purchases)

- -ays Ba/ there can be no general overproduction (5icardo/ no man produces

but ith a vie to consume or sell' and he never sells but ith an intention to

purchase some other commodity)

- 7risis emerges because of the inability of society to consume hat it produces

D overproduction (under consumption) due to the nature of capitalism

- +he process of making profits involves L stages' separated in time and space/

2. +he creation of surplus value through production

L. -ale of commodities on the market

- Problem/ (L) is limited by the consuming poer of society. +he process of

e,ploitation and competitive struggle over accumulation (more capital intensive

production) D consuming poer kept lo

- 5esult/ Periodically' overproduction of necessities reduces the realiKation of the

surplus%value

- +hrough the disEunction beteen the direct production process and the

circulation process' the possibility of crisis hich became apparent in the

simple metamorphosis of the commodity is once more and further developed.

;hen these to processes do not pass from one to the other in a continuous

stream' but become independent of each other' the crisis is there. V+he


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economists ho deny crises therefore insist only on the unity of these to

phases (+heories of -urplus Oalue' 7/ !!' Nc)

- +he conditions of direct e,ploitation and those of the realisation of surplus%

value are not identical. +hey are separated logically as ell as by time and

space. +he first are only limited by the productive poer of society' the last by

the proportional relations of the various lines of production and by the

consuming poer of society (7apital ar, 234N/ HO' !' LNN).

- $conomic crisis reaches its peak as e reach monopoly capitalism/

certralisation of capital

- less demand for labour (reduction in consumption poer) D increased misery'

oppression and revolt D V+he knell of the capitalist private property sounds.

+he e,propriators are e,propriated(!' >2). L2

. $valuation

7riticisms of ar,ian $conomics

- !nclude/ =ey forecasts about the development of capitalism have been rong

- Cualification/ must recognise ar,#s "countervailing tendencies#

- 5easons for #failure#

- Failed to foresee forces that developed ithin capitalism hich permit the

increasing ealth produced by capitalist societies to be shared among the

population rather than being entirely appropriated and monopolised by the

capitalists

- i.e. failure to recognise capitalism0s propensity to change0evolve

Bogical and operational problems ith labour theory of value

- +he #transformation problem#/ (studied in 7hapter 4 of 7apitalUs Oolume !!!

through a set of numerical e,amples) @ problem of finding a set of functions

that transform the ratios beteen amounts of embodied labour into relativeprices.

- pplicability/ Babour theory of value difficult to apply in a quantifiable manner in

central planning models (i.e. calculating prices' also ho do e treat interestA

as a cost of capital:)

Basting Begacy

- +heory of 7risis/ foreshadoed (often in a much more sophisticated ay) much

of hat political economists have emphasised as the inherent instability in

capitalist economies.


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political economy notes

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