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2SHAIKH: 2016 | In international real competition, the regulating capitals will essentially be those with the lowest integrated real unit labor costs. Anwar Shaikh - Capitalism Competition Conflict Crises
2MARX: Shaikh 1977 | the Law of Equal Profitability and the interplay of supply and demand Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
2MARX: Shaikh 1977 | There we have it: the /great /cause of the variations in the (relative) price of production of a commodity is the variations in the total labor time that goes, directly or indirectly, into its production. The total quantity of labor time was the center of gravity of the commodity's price of production, just as this price of production was itself the center of gravity of its market price. This was Ricardo's attempt to formulate a second great law of prices. Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
2MARX: Shaikh 1977 | What Ricardo perceived was that there was an intrinsic connection between the "quantitative worth," the exchange-value, of commodities, and the total labor-time required for their production.^24 This, according to Marx, was Ricardo's great scientific merit.^25 Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
2MARX: Shaikh 1977 | His [Ricardo's] failure to adequately distinguish between Value and price is, according to Marx, the first great source of error in his analysis.^26 Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
2MARX: Shaikh 1977 | Surplus-Value, if it is possible at all, can only arise from production. Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
1SHAIKH: 2016 | This establishes that production price–labor time deviations do not arise per se from competition, private property in the means of production, equalization of labor incomes, capitalist relations of production, positive profits, or even from the equalization of profit rates: they arise solely from differences among industry capital–labor ratios. Then we are led to ask how the variation among capital–labor ratios is mapped into the price–labor time dispersion. Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | Thus, the search for higher profits tends to diminish high profit rates and raise low ones. This gives rise to a general tendency for profit rates to be equalized across sectors. A roughly equalized profit rate is an emergent property: it is not desired by any, yet it is imposed on all. Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | One last defense of the standard operating procedure comes from the claim that without the assumption of hyper-rationality, “economic theory would degenerate into a hodgepodge of ad hoc hypotheses … which [would] lack overall cohesion and scientific refutability” (Conlisk 1996, 685). Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | Andrews (1949, 89) assumes that the minimum cost level of production is at the end of the first shift, so that one shift is normal. He assumes that avc is constant over the shift, so that ac declines with output due to the fact that afc does the same. As he points out, the fact that average variable costs are horizontal implies that marginal cost is also horizontal, which “makes nonsense of any idea that in a purely competitive market … equilibrium price would be that which equaled marginal prime costs.” Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | This process will continue until the induced movement in the price of iron is sufficient to (turbulently) /equalize the profit rates in both sectors/. Notice that while the changes in the supply of (gold-based) money may affect the adjustment process, they do not affect its outcome. In the end, the long-run relative price of commodities with respect to gold is structurally determined. Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | The more familiar neoclassical derivation of aggregate profit is rooted in production and abstracts from the heterogeneity of individual commodities. It is supposed that there exists something called a well-behaved aggregate production function which links real net output (YR) to inputs called capital (KR) and labor (L). Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | With regard to Marx’s own transformation problem, three sorts of reactions can be identified: completion, rejection, and revision. Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | But then the labor represented by aggregate profit (i.e., money profit converted into labor units) is generally not equal to aggregate surplus value—which is the central issue in the transformation problem. Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | *Table 7.3* Summary of Features of Real Competition Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | Neoclassical theory operates within a static and perfectionist framework (Mueller 1990, 4). Free entry and exit is presumed to ensure that firms within any given industry all operate with the same (most efficient) method of production and all produce the same (homogeneous) product. Within any industry, over the “short run” competition leads to a single common price, and since these firms are identical, to a single common profit rate for each firm. On the other hand, over the “long run” (which like the “short run” is peculiarly timeless), competition between industries leads to a single common rate of profit in each industry. Since all firms within an industry have the same profit rate, and all industries have the same profit rate, all firms everywhere have the same profit rate. This is the fundamental neoclassical hypothesis about competition. Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | classical economics, business and real competition vs. neoclassical economics on cost and pricing Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | The question now is: What difference does it make to the selection of new methods whether firms are active price-cutters or passive price-takers? Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | This means that under given costs conditions the rate of profit on a given plant is a linear function ... Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | The only way to ensure both lower “costs” and lower prices of production is to treat normal profit as a cost, which Marx quite rightly rejects. Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | The Quantity Theory of Competition collapses. Anwar Shaikh - Capitalism Competition Conflict Crises
1SHAIKH: 2016 | We now know that the deviations of relative prices of production from relative total labor times do not arise from competition, from private property in the means of production, from equalization of labor incomes, from capitalist relations of production and the attendant existence of profits, not even from the equalization of profit rates. Rather, they arise solely from sectoral variations among capital–labor ratios in the face of profit rate equalization. Anwar Shaikh - Capitalism Competition Conflict Crises
1MARX: Shaikh 2004 | In classical economics, and particularly in Marx, the profit motive gives rise to recurrent economic patterns. Anwar Shaikh - The Power of Profit
1MARX: Shaikh 1977 | just as the market price of a commodity was shown to be regulated by its price of production, Ricardo sought to show that this regulating price was itself subject to a hidden regulator—the total quantity of labor time required to produce the commodity, both in its direct production and in the production of its means of production. Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
1MARX: Shaikh 1977 | Clearly, /surplus-Value, the Value increment S = (C + L) — (C + V) = L — V which is necessary to match the money increment ΔM can arise if and only if the labor-time (L) put in by workers is greater than the labor-time (V) socially necessary for their reproduction./ Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
1MARX: Shaikh 1977 | If, and only if, workers can and actually do work longer than the time necessary to maintain themselves and the means of production, will there arise a continuing social surplus; the time spent by workers in producing this surplus, their surplus labor-time, is therefore the real basis of capitalist profit. Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
1MARX: Shaikh 1977 | This means that regardless of the actual money-prices involved, there can be no /real /increase in capitalist wealth through circulation. Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
1MARX: Shaikh 1982 | regulating capitals Anwar Shaikh-1982-Neo-Ricardian Economics A Wealth of Algebra A Poverty of Theory
0MARX: Sinha | Lipietz | Shaikh on the transformation problemAjit Sinha - Theories of Value from Adam Smith to Piero Sraffa
0MARX: Kliman | Shaikh (1977) on the transformation problemAndrew Kliman - Reclaiming Marxs Capital
0MARX: Kliman | ShaikhAndrew Kliman - Reclaiming Marxs Capital
0SHAIKH: The tendency towards mechanization is therefore the dominant capitalist method of raising the social productivity of labor.Anwar Shaikh - An Introduction to the History of Crises
0SHAIKH: 2016 | turbulent regulation | elkusthjAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: turbulent regulation has its roots in the method of Smith, Ricardo, and particularly of Marx | Most of the time, the patterns are directly visible, but sometimes formalization requires the tools of modern nonlinear dynamics and empirical testing requires the tools of modern econometrics.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This pretense is called general equilibrium.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | /Price/ is intimately connected to money: it is the /monetary/ expression of a commodity’s quantitative worth.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | industrial profit | positive aggregate profit only exists when there is positive surplus labor time and a corresponding positive surplus productAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The partial dependence of money profit on relative prices is completely general. It applies to neoclassical, Sraffian, and Marxian theories of price: in other words, /there is a “transformation problem” in all schools of thought/.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Section VI shows that Smithian, Sraffian, Keynesian, and post-Keynesian theories of aggregate profit actually rely on the existence of a positive surplus product by implicitly or explicitly assuming that the real wage is less than the productivity of labor.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is important to separate the explanation of profit from its justification.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Real competition generates specific patterns.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Supply and demand play a role in the process but not in the final outcome, since both are affected by price-cutting and entry and exit.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | An important point is that price and profit rate equalizations are /quintessential emergent properties/, unintended outcomes of constant jockeying for greater profits.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Competition is taken to prevail only if there is a multitude of small price-taking firms each of which pursues its own myopic interest. Jevons and Walras use this to build a story of a socially optimal and economically efficient market society, and this continues to dominate the profession.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Austrian economics also shares the neoclassical vision that firms are efficient servants of consumers and that union activity and government intervention are unwarranted intrusions into market processes.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Prices of production are competitive relative prices generated by three essential processes: selling prices equalized across sellers, labor incomes equalized across workers, and profit rate equalized across regulating capitals, all equalizations being turbulent.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Prices of productionAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | globalization has worked as expected—favoring low-cost producers over the high-cost ones.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | comparative cost advantage | Firms with lower costs tend to emerge more often as winners while those with higher costs are more likely to end up as losers. This is the central selection mechanism of capitalist competition.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | A country’s balance of paymentsAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | classical theory of absolute cost advantage | sufficiently large absolute costs advantages will not be overturned by real exchange rate effectsAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In the end, international competitiveness will be tied to differences in efficiency, real wages, and technical proportions, and there is /nothing in free trade itself that will eliminate absolute cost advantages or disadvantages/.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The application of real competition to the theory of international trade leads to several distinct propositions.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The end result will be that countries with absolute cost advantages will recycle their trade surpluses as foreign loans while countries with absolute cost disadvantages will cover their trade deficits through foreign borrowing. All of this will arise through the workings of free trade and free financial flows, though, of course, policy measures may produce similar effects.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | real exchange rateAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Finally, money is endogenous and non-neutral, and aggregate demand and supply are both rooted in profitability so that macroeconomics cannot be reduced to either supply- or demand-side approaches.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Section II outlines the basis structure of the pre-Keynesian macroeconomics that had replaced the classical analysis of real capitalism with a postclassical analysis of a fictitious idealized system (chapters 7 and 8). | Keynes took aim at certain core propositions which he attributed to the orthodoxy of his timeAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | An increase in supply of labor would lead an equal increase in employment but only at a lower real wage. Conversely, attempts by unions and the state to increase real wages above their market (presumed to be equilibrium) levels would only result in unemployment.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Section III takes up Keynes’s break with the teachings of his day. | absence of council | Keynesian Paradox of ThriftAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | investment | interest rate | For all of these reasons, in a crisis it would be far better to use fiscal policy and have the state directly pump up aggregate demand through deficit spending, just as he [Keynes] had earlier advocated in the aftermath of World War I.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | At this level of abstraction, the price level rises only when aggregate demand exceeds full employment output.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Kalecki | The interest rate is determined by monetary factors and the profit rate is determined by the wage share and the rate of capacity utilization.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The post-Keynesian tradition encompasses Keynesian and Kaleckian wings that share five central beliefs: aggregate demand drives output, money is endogenously created through the banking system, both persistent excess capacity and unemployment are the normal outcomes of market processes, and the state can achieve (effective) full employment with tolerable levels of inflation.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Section III begins the development of a classical approach to modern macroeconomics. The first point is that demand and supply are both regulated by profitability: production supply is based on profit, while consumption demand comes from wages, interest, and dividends funded out of profits and investment demand is regulated by expected profits. Classical macroeconomics is neither supply-side nor demand-side: /it is “profit-side.”/Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | real unit labor cost, the ratio of real wages to productivity, is of paramount importance to businessAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Like the real wage, the rate of unemployment also has two sides.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | But money is not a single thing. It is a series of layers:Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The analysis of the general rate of profit will provide us with our point of entry into the macroeconomics of growth and cycles.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | What is needed, therefore, is some measure of the rate of return on recent investment. The critical importance of this issue is highlighted in the next section.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | turbulent arbitrageAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Real competition, not perfect competition, must therefore be the point of departure for the analysis of technical change (“choice of technique”).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The price of any commodity can be represented as the product of two distinct elements.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | David Ricardo subsequently used a similar mode of reasoning to argue that the relative prices of any two commodities would be dominated by the ratio of their vertically integrated unit labor costs.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Once again, we see that growth in standards of living is a characteristic feature of successful capitalist development. But at the same time, in regions that are tangled in the coils of capitalism, such as Asia and Africa, we find stagnation and even decline for almost three centuries.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | A historical tendency toward rising inequality on a world scale is also evident. We have already noted that capitalist development is not just a matter of unequal gains, but gains for some alongside extended periods of loss for others.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Rising inequality is a general feature of capitalism on a world scale, and it tends to accelerate with capitalist development, as during the mid-nineteenth century, and during the neoliberal eraAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | These two aspects are inseparable, of course, because in this system, order is achieved through the collision of disorders. This is how the invisible hand works.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Constant technical change, as expressed in ever-rising labor productivity, is another characteristic feature. It provides the material foundation for the historical rise in real wages and real consumption per worker.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | However, since the ratio of real wages to labor productivity defines real unit labor cost, firms have a strong incentive to resist increases in real wage in excess of productivity growth.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Institutions matter, but they always operate within the limits provided by competition and accumulation.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | to distinguish between incremental and average rates of profitAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Relative rates of return also play a role in the determination of long-run competitive prices. | Ricardo's “93% theory” of relative priceAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | ways to raise productivityAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Real wages can be defined in two ways.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | incremental rate of profit vs. average rate of profitAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | We will see that the historical, empirical, and analytical evidence against hyper-rational behavior and representative agents is overwhelming.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Once it is understood that very different types of micro foundations can give rise to the same market-level or economy-wide patterns, we can partition microeconomics into two types of propositions:Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is worth noting that the current division of economic theory into micro and macro is relatively new.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Lucas took the very opposite tack: macro must be dissolved into micro.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The modern neoclassical micro foundations project builds on this general foundation by adding five additional claims.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The real function of the notion of a hyper-rational representative agent is that it serves the mission statement of neoclassical economics, which is to portray capitalism as efficient and optimal. | Finally, it is demonstrated that stable aggregate patterns arise from the underlying shaping structures (budget constraints and income distributions), not from the details of individual behaviors.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The second question posed by the consideration of actual empirical patterns leads us to the crucial distinction between the conventional concept of equilibrium as an achieved state and the classical concept of equilibrium as a gravitational process. | The consideration of various types of stable attractors and their behavior under recurrent shocks shows that turbulent gravitation is the general case.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Despite all of this evidence, neoclassical economics stubbornly insists on portraying individuals as egoistic calculating machines, noble in reason, infinite in faculty, and largely immune to outside influences.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | There are two dimensions that need to be addressed: (1) hyper-rationality as a model of actual behavior; and (2) hyper-rationality as a behavioral ideal.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Game theory is cut from the very same cloth. Its putative strength is that it allows for strategic interactions among hyper-rational self-interested agents.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Not surprisingly, game theory has been contradicted by the empirical evidence from the very start (Hargreaves Heap and Varoufakis 1995, 240).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Hence, Analytical Marxists “reject the point of view … [that] social formations and classes are depicted as entities obeying laws of behaviour that are not a function of their constituent individuals.” In other words, as a branch of neoclassical economics, it denies the notion of emergent properties. As Cohen puts it, “behaviours of individuals are always where the action is, in the final analysis.”Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | But hyper-rationality has also been defended as a behavioral norm. | The model of hyper-rationality celebrates a person who is a “social moron” (Sen 1977, 336). It is hard to swallow this representation except for one thing: it provides the foundation for the claim that the market is the ideal economic institution and capitalism the ideal social form. This is its immanent rationale.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | But once it is admitted that hyper-rationality is neither true nor desirable, the optimality of capitalism can no longer be sustained on theoretical grounds. | The remaining alternative is to stress capitalism’s undeniable historical strength as a source of growth and of rising standards of living for many within its effective boundaries. But then one must also address its equally undeniable history of violence, inequality, and persistent state intervention (Chang 2002a; Harvey 2005).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The first implication of emergence is that the average agent, which is another name for the aggregate, will generally be very different from the representative agent. ... The aggregate Gas Law now appears as an “emergent” property of the shaped (i.e., contained) ensemble itself and cannot be reduced to, or deduced from, any single “representative” particle.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This is a delicious historical irony because it implies that Samuelson’s competitive prices must conform to the simple labor theory of value (Shaikh 1973, 11–14, 66–83).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The representative agent hypothesis is therefore valid only in very special cases. In the case of consumer theory, it is sufficient that all individuals have exactly the same utility functions and all have the same income. In the case of production theory, it is sufficient that all firms have the same capital–labor ratio and the same wage and profit rates.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In economics, it would imply that what we really need is an adequate macro foundation for microeconomics, rather than the other way around (Hahn 2003).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | As noted at the beginning of section II.2, a general property of emergent phenomena is that they are insensitive to variations in individual behaviors.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The key factor in each case is the shaping structure of the budget constraint defined by the average individual’s level of income. The assumption of hyper-rationality is definitely not required.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In each of these cases, economic shaping structures create limits and gradients that channel aggregate outcomes: the positive profit survival criterion in the case of the firm, individual economic characteristics in the case of income distribution, and the budget constraint in the case of individual consumer choice. Each of these gives rise to stable aggregate patterns which do not depend on the details of the underlying processes.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Heterogeneity of individual behaviors gives rise to aggregate emergent properties, thereby destroying the notion of a representative agent. | In what follows, I will demonstrate that the major empirical patterns of consumer behavior can be derived from two key shaping structures: a given level of income, [90] which restricts the choices that can be made; and a minimum level of consumption for necessary goods which introduces a crucial nonlinearity.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is apparent from equations (3.5) and (3.6) that for each good the quantity demanded responds negatively to a rise in its price at any given income. This negative response is the bedrock of microeconomics (Becker 1962, 4).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Engel’s Law of consumer demandAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The representative agent is a convenient untruth.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | in the absence of budget constraints, we could say nothing about the aggregate patterns. Heterogeneity is indeed the general rule and its existence certainly invalidates any notion of a representative agent. But shaping structures are the critical elements.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | So we can specify five characteristics of rigorous aggregate analysis.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Neoclassical economics pronounces itself to be modern and rigorous because it claims to be based on micro foundations. But its reliance on the notion of representative agents vitiates all such claims.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The equalization of profit rates is driven by the reaction of industrial investment to profitability. The higher the profit rate, the greater is the incentive for firms to accelerate the expansion of output and capacity.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Business cycleAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Inventory and equipment cycles | The utilization of inventories is therefore a proxy for excess supply. Given that the inventory cycle is on the order of three to five years, one could view this as the time it normally takes for aggregate demand and supply to balance, that is, as the temporal dimension for the “short run.”Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | All of this points to the need to go beyond the standard distinction between the short and long run.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Yet this utterly inadequate construct continues to dominate standard economic discourse. I argue that a fundamental reason is that the doctrine of hyper-rationality plays an instrumental function in portraying capitalism as efficient and optimal.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | But otherwise, aggregates have emergent properties. The average agent, which is another name for the aggregate, will therefore be very different from the representative agent. Moreover, the average behavior will be insensitive to details of individual behaviors. /Aggregation is robustly transformational/.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The individual must be conceived as socially situated, structured and shaped by nationality, gender, ethnicity, and class.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | heterogeneity is not necessarily the source of stable aggregate patterns, since the latter can arise directly from shaping structuresAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Thus, macro relations are grounded at the micro level but not in the manner specified by neoclassical theory. This is where the social shaping structures play a key role because they provide limits and gradients whose effects channel individual actions.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Macroeconomic analysis was already rigorous before it was diverted by neoclassical analysis into the theoretical cul-de-sac of a hyper-rational representative agent.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | On the other hand, turbulent gravitation implies that balance is achieved only through recurrent and offsetting imbalances, so that the equilibrating process is inherently cyclical, turbulent, and subject to “self-repeating fluctuations” of varying amplitudes and duration. In modern parlance, a stable balance point is an attractor but not generally a state of rest.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | hyper-rationality , Once we admit this, we are no longer captive to the claim that so-called free markets and free trade always make us better off, or to the host of associated claims about the untrammeled virtues of capitalism and the intrinsic defects of state activitiesAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is Walras who spirits away all the turbulence and turmoil associated with the real process, substituting in its place an idealized notion of immediate and optimal social articulation (i.e., general equilibrium). Neoclassical economics has sought to justify this idealization ever since. And much of heterodox economics has also accepted this as an appropriate benchmark, thereby being forced to portray the real world (rather than the theory itself) as being full of “imperfections.” This bipolar arrangement may be comfortable for both sides, but it does not provide an adequate framework for the analysis of capitalism.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is an inescapable fact that aggregate outcomes (group, market, and national) have emergent properties which are quite different from those of individual outcomes.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Evolutionary feedback is scientifically more interesting than the calculus of rational choice, bounded or not.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The law of one price is essentially tacked onto the theory of perfect competition (Mirowski 1989, 236) because “the received theory of perfect competition … contains no coherent explanation of price formation” (Roberts 1987, 838).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The theory of perfect competition also assumes that all firms within an industry are exactly alike, so that a uniform selling price for each product implies a uniform profit rate for each firm, even in the short run. But since short-run profit rates can differ among industries, it is assumed that in the long run the mobility of capital will have driven down higher profit rates and driven up lower ones until all are exactly equal. Both short-run and long-run outcomes refer to equilibrium-as-an-achieved-state.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The theory of real competition developed in this book is constructed very differently from the theory of perfect competition (chapter 7). , competitive law-of-roughly-one-priceAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | theory of real competition , competitive law-of-roughly-one-profit-rateAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Both perfect and real competition theories assume arbitrage as a fundamental shaping structure. But while perfect competition envisions exact equalities in some achieved states of equilibrium, real competition envisions ever-present differences in a turbulent process of fluctuations around moving centers of gravity.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Walras vs. post-Keynesian vs. classical economists on consumer/firm relation | Profit is the survival condition for firms (Simon 1979, 502). | Competition is a war among firms, and it is this, the imposed rationality of warfare, which their objective guiding principle (Shaikh 1978, 7).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Note that in the classical case, we are concerned with fluctuations around equilibrium, that is, with /disequilibrium/ paths. This is different from the standard notion of a business cycle as a fluctuating /equilibrium/ path (Kalecki 1968, ch. 13).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | engineering capacity and economic capacity | Economic capacity in turn is also different from “full employment output.” Even though standard economic theory typically assumes that full capacity and full employment occur simultaneously, in actual practice, there is no reason to suppose that production at economic capacity would serve to fully employ the existing labor force (Garegnani 1979).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | neoclassical theory and its derivatives define “cost” in a different way from classical economics and from business practiceAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | change in output (circulating capital) / change in capacity (fixed capital)Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | production and non-production laborAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In the neoclassical tradition, an activity is considered a production activity if it is deemed socially necessary.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The history of the labor process is a sobering reminder that the length, intensity, and average or marginal productivity of labor are not technologically determined.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Hence, on the whole, we may say that labor productivity rises with the length and intensity of the working day, but at a decreasing rate, and after some point of over extension, it may even decline.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The existence of production-curve re-switching even under simple plausible conditions destroys any possibility of characterizing an individual method of production by a microeconomic neoclassical production function. | The latter result is a delicious historical irony because it implies that an aggregate pseudo production function requires that prices must conform to the simple labor theory of value (Shaikh 1973, 11–14, 66–83).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Suppressing this fundamental social fact gives rise to the illusion that production coefficients are purely technical.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The central lesson at this point is that production coefficients are generally not “technically” determined. Technology itself is an eminently social artifact whose shape and character varies greatly across time and space. And even within any given technology, production coefficients generally depend on the specific social conditions under which labor functions.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | By conflating reserve capacity with excess capacity, post-Keynesian economics typically downplays supply-side considerations and exaggerates the influence of the demand side.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The hypothesis of a smooth U-shaped marginal cost (mc) curve suffers great damage from the empirical evidence. The discrete changes in productivity, material requirements, and wage premia between the end of one shift and the beginning of another create discontinuous spikes in the marginal cost curve, while the practical limit of engineering capacity creates a vertical segment at the end. Then the rule p = mc yields a multiplicity of points, so that it is of no use in delineating the true point of maximum profit (Inman 1995, 64–67, fig. 66).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Counting the two respondents who chose flat cost curves, 94.3% of the business people surveyed contradicted the fundamental postulate of neoclassical theory on cost curves (836–838, table 3).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Such findings have led many writers to argue that the textbook U-shaped avc and mc curves should be jettisoned in favor of a single flat avc = mc curve (Andrews 1949, 58–59, 61, 79, diagram I, 80; Marcuzzo 1996, 7).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Marx distinguishes between commodity capital, which is the finished product, and total product, which also includes semi-finished goods.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In standard Marxian notation, total value of the finished product isAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The distinction between circulating and fixed investment appears in Quesnay, Smith, Ricardo, Marx, Keynes, Kalecki, Harrod, Hicks, and Robinson (Shaikh 1991, 325).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In standard theory, an activity is “production” if someone would be willing to pay for it—that is, if it is potentially marketable (Bach 1966, 45).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | /capital/ utilization and /capacity/ utilizationAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The mc is a spiked function rather than a step function because productivity varies over the length of a shift. Thus, the beginning of a shift has a different cumulative daily productivity and hence a different cost from the end of the previous one.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | As noted, standard neoclassical analysis added a normal profit per unit output to the ac curve to get what is in effect a price of production curve. It is also typically focused on net output, which excludes any possible influence of changing material costs across shifts. And it typically assumes the same wage for all shifts, which excludes the possibility of wage premia across shifts.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Capitalist production has three characteristic features: production activities are undertaken by many individual entities with no direct regard for their concordance with social needs; distribution is accomplished through exchange; and profit is the dominant motive of all of these activities. | Exchange is the arena in which individualized production is forced to confront its anticipations (Marx 1970, 86). | It might be said that the signal task of neoclassical economics has been to direct our gaze away from the din of real markets toward some heavenly state in which individual production plans are assumed to perfectly mesh with social needs. This fantasy is called general equilibrium.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Exchange | PotlatchAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The distinctions between exchanges, payment obligations, and debt obligations play an important role in the theory of money and credit.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Money is the grammar of exchange. It arises naturally out of the process of exchange when the latter is extended in its reach and regularized in its occurrence. Like grammar, money is codified and controlled by the state at some point in its development. But neither grammar nor money requires the state for its invention. On the contrary,the state is a rather late entry into either field.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Price is something quite distinct from a mere exchange ratio between any two commodities. Price is intimately connected to money: it is the monetary expression of a commodity’s quantitative worth. | And salt, as proper money, can pass regally from one commodity to another, briefly transubstantiating each before moving on.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | How does one treat the case in which fiat money is no longer linked to gold? I argue that the national price level is then directly determined by monetary and macroeconomic factors but in a manner different from Monetarist, Keynesian, or post-Keynesian approaches.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Money is the expression of the quantitative worth of an object in some other medium. It is the externalization of a commodity’s quantitative worth in a common form.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Cowry shells satisfy all the ideal properties of money: they are portable, durable, recognizable, countable, and cannot be counterfeited.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This implies that in addition to functioning as means of purchase and means of payment, money must be able to take a form in which it is valid across boundaries and across time, even outside of circulation itself (i.e., it must occasionally function as universal equivalent).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | A convertible token is one in which is intrinsically worth less than its face value, but nonetheless functions at this value because some private or public authority stands ready to convert the token into (say) silver at some fixed exchange rate.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | All of these bank notes were convertible tokens, but each could only be redeemed by money of a higher generality than that of the particular issuing bank. Thus, the reserves of country banks consisted of London private bank notes, Bank of England notes, and gold; the London banks in turn held reserves in Bank of England notes and gold; and the Bank of England held its reserves in gold.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Periodic financial crises introduced yet another complication, because the ensuing demand for liquidity made all bank notes suspect. Private bank notes were validated by a promise of redemption in some higher form of money, of which gold or some other universal equivalent was the highest. Bank notes rested on faith in the issuing bank, whereas the universal equivalent rested on the higher faith in commodity circulation itself. In this contest of faiths, one can understand why the latter trumped the former whenever the wheel of circulation threatened to stop.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It did not take individual goldsmiths very long to realize that some of these idle deposits could be put to profitable use by lending them out at interest | With this, private guardian (100% reserve) banks turned into private credit-creating (fractional reserve) banks. | When individual banks operate on a fractional reserve basis, the golden nugget at the base of this inverted pyramid gets even smaller.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | An even more appealing possibility is for the state to support its expenditures through the issue of /fiat money/. This is money which is both forced and inconvertible (i.e., only convertible into the money commodity in the market). | That is to say, the real worry is the effect of an unrestricted supply of inconvertible tokens on the general token-price level.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The American Revolution shed the yoke of monetary, as well as many other, restrictions.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The French Revolution was also funded by paper. , assignats: In appropriate quantities they could even be directly exchanged for land.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The gradual understanding that deposits made in gold by one set of people could be profitably lent to another set led to a shift from full reserve banking to fractional reserve banking. And with this came the power of banks to create the medium of circulation out of thin air, for now a deposit in cash from one source could beget a deposit created by a loan. Unlike the private and public mints of the past, no hot and sweaty transmutation of bullion into coin was required: just a signature, a handshake, and a mutual sense of satisfaction.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | We have now arrived at two equivalent general expressions for the quantity of money: money is the sum of cash and deposits; and it is the sum of high-powered money and loans.^6 The first focuses on the manner in which economic agents hold their money, while the second focuses on the manner in which money is generated (Ahiakpor 1999, 439).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In chapter 3, section V.3, I argued that the appropriate time interval for the turbulent equalization of aggregate demand and supply is three to five years (thirty-six to sixty months).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In the first place, it [money] must be the medium in which the quantitative worth of commodities is expressed. ... The quantitative worth of a commodity expressed in money is its /price/.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | When money is used to buy commodities, it functions as means of purchase. The money moves away from the buyer, who receives a commodity in its place. But when it is used to pay a monetary debt, it functions as means of payment, and the money being lent out is actually returning to the original lender (along with interest if that is part of the agreement). | Therefore, the amount of money corresponding to the circulation of commodities will depend on the mixture of purchases and debt payments.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The fact that fiat money does not have an official exchange rate vis-à-vis gold hardly means that fiat money is “inconvertible.” /Functioning money is always convertible into commodities/. That is it salient purpose, and should it fail in this, it ceases to be money.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | But events such as world wars and global crises can cast doubt on all fiat currencies, just as in earlier epochs similar events could cast doubt on all convertible currencies. Convertible currencies were backed by the faith in the gold or silver reserves of the issuing central banks. Modern fiat money is backed by faith in the issuing nation. What specifically underpins this faith? Not the probity of the government, surely not the proclamations of its leaders, but rather the actual performance of the economy. And so we are brought back to the world of commodities. But then, which commodities?Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Quantity theories of money, ancient and modern, say that in the long run the general price level in local currency is determined solely by the quantity of money. p ≡ (M/XR)*vAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Ahiakpor (1995) argues that while the full employment assumption of the modern Quantity Theory of Money implies that long-run output is driven by the labor supply, classical economists assumed instead that long-run output growth was driven by profitability. The latter does not require full employment.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The Quantity Theory of Money has the virtue of simplicity: in Milton Friedman’s famous aphorism “inflation is everywhere a monetary phenomenon” (Snowdon and Vane 2005, 182).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The question then became: how was the price level determined?Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Marx | convertible vs. inconvertible moneyAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | So when did gold cease to be the effective medium of pricing? I argue that gold lost this function during the Great Depression.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | But when gold is the effective medium of pricing, then both convertible and inconvertible monies represent tokens of gold, and both fall under the general laws of money deriving from commodity circulation.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | What happens when a money commodity no longer serves as direct or indirect medium of pricing? What changes, and what remains the same?Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Marx | The long-run price level is the product of the relative price of the average commodity vis-à-vis gold and the absolute token price of gold, the latter determined by the monetary regime in operation (convertible or inconvertible tokens of gold). The long-run supply of money adapts to this price level, given the velocity of circulation and the long-run level of output. Long-run output is in turn determined by the normal level of capacity utilization of the capital stock generated by profit-driven accumulation. The classical approach to capacity utilization was developed in the chapter prior to the present one (chapter 4), the theory of profit will be addressed in the chapter subsequent to this one (chapter 6), and the macroeconomic analysis of effective demand, output, and growth will be developed in chapters 12 and 13. One can see why Marx left the treatment of output to a planned later stage in his analysis.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | elkusthj | The first step is Marx’s theory of the price level, which itself has two moments. First, competition between industries implies that relative prices are regulated by underlying centers of gravity which the classical economists called natural prices and Marx called prices of production. Part II of this book is devoted to the detailed analysis of this mechanism. And second, that the money price of gold depends on the monetary regime.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | todo | p. 195 & note 16Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The Bretton Woods Agreement of 1944 set up an international monetary system of fixed exchange rates and a fixed price of gold, so that “currencies were exchanged into gold at stable rates” (Green 1999, 14).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In the end, under commodity-based money it is /competition which disciplines the general price level/. Changes in the money supply may affect the path of the process, but not its eventual outcome. This I believe is the central difference between Marx’s analysis of money and various versions of the Quantity Theory of Money.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The classical point is that profitability drives capital accumulation. The resulting growth of aggregate capital drives the growth in potential supply while the growth in aggregate investment drives private aggregate demand. | From this point of view, modern inflation is explained by two basic variables: (1) the supply resistance, which is measured by the extent to which the actual growth rate approaches the profit rate; and ② the demand-pull, as measured by the degree of aggregate excess demand.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In his published works, Marx abstracts from differences between individual prices of production and labor values, since these were to be addressed at a later stage in his argument (which, as we noted, he did not live to publish). At this stage, he therefore expresses the relative price of the average commodity as its labor value relative to the labor value of gold. Marx was well aware of Ricardo’s empirical hypothesis that individual relative prices are closely approximated by individual relative amounts of total (direct and indirect) labor time. It turns out that Ricardo was essentially correct (see chapter 9, sections V–VIII). We can therefore also view Marx’s initial assumption as an extremely powerful approximation to the subsequent full development of the relation between prices of production and labor values.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Profit drives capitalism. If profit fails, the firm goes into shock and its capital begins to atrophy. Economic theory and business sentiment are in complete agreement on this point. What then is capital?Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | So it is not the qualities of the thing but rather the process within which it operates that turns it into capital. | Private gain is not the same as social benefit, despite the assiduous attempts of neoclassical economics to conflate the two.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This compulsion is the source of capitalism’s historically revolutionary role in raising the productivity of labor to great heights, through the routinization of production, the reduction of human activities into repetitive and automatic operations, and the continual replacement of this now machine-like human labor by actual machines. Whereas the tool is an instrument of labor in earlier modes of production, it is the laborer who becomes an instrument of the machine in capitalist production. The Industrial Revolution is the consequence, not the precursor, of capitalist relations of production (Marx 1967a, pts. III–IV).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Not all labor activity or means of production function as capital.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Capital is not defined by its durability. Within the category of capital itself, the distinction between circulating and fixed capital depends on the relation of a particular item to the production cycle in which it operates, not on the length of its economic life with respect to some arbitrary temporal period such as a year.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Classical economics occasionally mixed up the distinction between wealth and capital.^3 Neoclassical economics, on the other hand, always conflates the two by simply defining “capital” as wealth that lasts more than one year (Alchian and Allen 1969, 261).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | What determines the amount of aggregate profit under conditions in which businesses are able to sell the commodities they have collectively produced (i.e., when aggregate supply is equal to aggregate demand)?Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is here that we encounter Sir James Steuart’s intriguing claim that there are actually two sources of aggregate profit.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | What Steuart calls relative and positive profit, Marx recasts as “profit on alienation” and “profit on production of surplus value,” respectively. The key feature of profit on alienation is that it arises from transfers. | According to Marx, if relative profit was the only source of capitalist profit, then when “all commodities are sold at their value, no profit would exist” (Marx 1963, 42).^4 | transformation problemAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The central result of this section is there can be no positive profit without surplus labor time. Nonetheless, aggregate profit can change when relative prices of commodities change even when the surplus product remains the same. | transformation problemAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | current-cost accounting (Lovell 1978, 772; Mohun and Veneziani 2007, 143)Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | rule for measuring economic profits | Then at any given set of relative prices within a given technology, real profit will be a positive function of surplus labor time. This is the essence of the classical theory of positive profit (Dobb 1973, ch. 4, sec. 4; Morishima 1973; Shaikh 1984b, 59–62). However, as we will see next, this is not the same as saying that aggregate profits can only change when surplus labor time changes.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | What are we to make of the fact that the relation between real profit and surplus labor time depends on relative prices? | For instance, price set /D/ happens to represent prices directly proportional to Marxian labor values, which I call direct prices.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Value is conserved across time here, just as it was previously conserved across space when it was transferred from the circuit of revenue to the circuit of capital.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | transformation problemAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | transformation problemAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In a capitalist economy, the prices of most assets are derived from the potential gains to be made from them.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Without the production surplus all of these secondary forms of profit would collapse, for then there would be neither the business base nor the household revenue (itself derived from wages and dividends) to support the secondary flows. All that would remain would be the ancient form of profit, pure merchant profit arising from transfers between regions.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | One of Marx’s signal contributions was to make the length and intensity of the working day as important as the level of the real wage in the determination of the surplus product. His concern was to demonstrate that the surplus product is the material reflection of surplus labor time in all modes of production, and of surplus value in the capitalist mode.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Neoclassical theory actually has two different theories of profit. Its traditional starting point is the theory of “pure” exchange. ... This problem is evaded by assuming that each individual involved in the exchange process begins with some positive “initial endowment” of goods. | In their influential early postwar textbook, Alchian and Allen provide a particularly revealing illustration of the neoclassical derivation of profit on transfer. Their story, originally penned in 1964, begins in “a camp where Cuban and Hungarian refugees are temporarily housed.”Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is important not to confuse the explanation of aggregate profit with its justification.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In neoclassical theory, the explanation of profit is often buried underneath the attempt to justify it.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Marx | simple commodity productionAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | transformation problem | “Our present analysis does not necessitate a closer examination of this point” (Marx and Engels 1975, ch. 9, 165).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | I have argued in this chapter that the problem [Marxian “transformation problem”] is generic because it obtains in every school of thought which deals explicitly with the question of aggregate profit.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | I will argue in chapter 7, section VI.5, that the rate of profit on new capital can be well approximated by the incremental rate of return on investment, defined as the ratio of the change in gross net operating surplus to current gross investment in fixed capital and inventories.^22Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The characteristic trick in neoclassical economics is to begin by assuming away all contradictions between private gain and social benefit, and then, after the whole apparatus has been laboriously constructed on this foundation, admit certain discrepancies under the rubric of “externalities.”Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is necessary to bear in mind that there is always the possibility of an error if the cost-price of a commodity is identified with the value of the means of production consumed by it (Marx 1967c, ch. 9, 164–165).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Real competition | turbulent equilibration | elkusthjAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Prices tend to equalize because buyers gravitate toward the lowest price, which forces other sellers to adjust their own prices. Similarly, profit rates tend to equalize because investors flock to higher rates of return. This accelerates supply relative to demand in the favored industries and drives down their prices and profits.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Section VII then takes up the all-important question of exactly how the regulating capital itself is itself selected in the competitive battle.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Law of Correlated Prices (LCP) (Shaikh 1980c) vs. neoclassical notion of the Law of One Price (LOP)Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It follows that competition within an industry tends to /disequalize profit margins and profit rates/ precisely because it tends to equalize selling prices. This is the second characteristic result of intra-industry competition.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This conclusion follows from the neoclassical assumption of perfect competition, in which all firms are assumed to be /price-takers/. But in the theory of real competition, /price-setting and price-cutting behavior/ are fundamental. ... It follows that the highest profit that is sustainable in the face of price-cutting behavior is generally different from the price-passive profit assumed in theories of perfect and imperfect competition.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | However, ongoing technical change means that individual plants have different costs in reflection of their different vintages. Thus, the same process which equalizes prices also disequalizes profit margins and profit rates. The advantage in this perpetual jousting for market share goes to the firms with the lowest cost.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | At this point, we run into a question: competition within an industry disequalizes profit rates because it equalizes selling prices, while competition between industries equalizes profit rates because it promotes entry and exit of capitals in response to profit rate differentials. How is it possible for both tendencies to coexist?Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The equalization process is turbulent, and ceaseless: it is gravitational process, not a state of equilibrium. | elkusthjAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | How then do we distinguish between competitive and monopolistic industries? The latter must have regulating rates of profit that are persistently higher than the average regulating rate. This, as we shall see, is a very different criterion for monopoly power than that derived from perfect competition.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | If the theory of perfect competition were empirically valid, all firms would have the same profit rates: firms within an industry would have the same profit rate, since they would be all the same, and competition between industries would equalize profit rates. The empirical evidence always contradicts these neoclassical expectations. On the other hand, this same evidence is quite consistent with the theory of real competition.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In the battle of competition, the price-leader becomes the one with the lowest costs.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | So for Andrews’s theory of price, the central question becomes: What determines the long-run gross margin of the price-leader?Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This statement completes Andrews’s theory of competition. The market price in any industry depends on the prime costs and gross margin of the most efficient producer. In the long run, competition eliminates any abnormal (net) profit from this gross margin—that is, reducing it to a level which essentially reflects the normal rate of profit on the “efficient” producer (Moudud 2010, 42–43). The resulting normal price of the price-leaders then determines the profit margins of the non-leaders in conjunction with their own particular costs.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The allowance for normal profit is added into fixed cost on the claim that the normal rate of profit may be treated as a given “opportunity cost” to the firm. In other words, neoclassical economics assumes that average “cost” consists of prime cost plus a normal gross margin. ... The profit-inflated measure of average cost is the neoclassical equivalent of the classical price of production, since it incorporates a normal rate of profit on capital advanced.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Firms set their selling prices in light of the defensible output, and entry and exit of plants ensure that in the long run these selling prices conform to the minimum normal price yielding a normal rate of profit on new plant and equipment.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is quite clear: firms with lower costs can cut prices and take market share from their competitors, knowing that if they are successful the “temporary hit” in their own profit margins will be attended by “revenue growth for years to come.”Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | And, of course, everyone but the economics orthodoxy knows that competition is merely war by other means.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The theory of real competition implies that there will be systematic cost and profit differences among firms. In chapter 4 we surveyed the empirical evidence on how fixed, variable (prime), and total average costs changed with the level of utilization of a given plant, and now we consider how operating costs vary in relation to plant size.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | As a corollary, there is no such thing as the traditional long period equilibrium, because the requisite assumption of a single technique is inconsistent with the standing spectrum of technique produced by technical change (6–7): hence, as a state of existence, this “long-term equilibrium is never reached” (59).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Salter still sees price-cutting as something outside of competition (i.e., as oligopolistic behavior). Andrews, on the other hand, insists that the competitive firm is a price-setting and price-cutting entity whose success in the battle of competition depends on its cost advantage.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Nonetheless, the profit rate on the most efficient plant (D) was lower than that of its closest competitor (C). According to Salter’s (orthodox) criterion based on the notion that the market price is beyond the control of the firm, method D would not be adopted. But if we instead adopt the views of Andrews and Brunner, we see that the cost advantage of D gives it the power to lower its price and that competition among sellers then forces the others to follow suit. ... Only the theory of real competition implies that a potential method which has the lower rate of profit at the ruling market prices will be the dominant method because of its cost advantage.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Price-cutting behavior in the face of cost differences gives rise to the further possibility that price differentials are related to cost differentials.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | If the theory of perfect competition was empirically valid ... This is the expectation underlying most studies of firm-level profitability, and it is always falsified. The question is, why?Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In a growing economy, new capital flows are generally positive. However, if the regulating profit rates in a given industry are higher than the economy-wide average regulating rate, production in this industry will accelerate until the supply in the industry grows more rapidly than its demand. The rising excess supply will in turn drive down the industry’s relative price,thereby reducing its regulating rate of profit. The latter may well fall below the general rate, which would then cause supply to grow less rapidly than demand, and so on.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The generalized Austrian model of competition shares many features with the classical–Marxian one, except that it makes no distinction between regulating and non-regulating capitals.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Hence, if we are to consider the issue of profit rate equalization from a classical viewpoint, we must find a way to measure the rate of return on regulating capitals.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The incremental rate of profit has two major virtues.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | For now, it is important to recall that the average rate of profit of a firm is the average of the rates of return on its plants of different ages and technological vintages, whereas the regulating rate of profit is the return on its reproducible best practice plants.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In both cases, the new regulating capital is the one with the lower cost because competition is a selection process in which lower cost is the principal means to survival and growth (Foster, Haltiwanger, and Syverson 2005, 1).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In other words, we are concerned with the pure effects of technical change on prices and profit.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This is where a difference arises: Alternative 2 is superior to the incumbent in the price-cutting scenario but inferior to it the price-taking scenario.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This is an example of the theoretical result known as the Okishio Theorem: if a new method has a higher rate of profit at existing prices of production, its adoption will raise the general rate of profit (Okishio 1961). This is the same approach as in Samuelson and Sraffa.^36Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Standard price-taking theory says that the higher profit method will be chosen even if it has a higher unit cost. Hence, it predicts that technical change will always raise the average rate of profit at a given real wage. As a corollary, the average rate of profit will fall only if real wages increase to the point where they reverse the unalloyed benefits of technical change.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | perfect competition , imperfect competition , Post-Keynesian theoryAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | regulating capital is different from Steindl’s notion of a marginal capitalAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Post-classical economics generally retreated from the analysis of actual capitalism into the analysis of its idealized form (section I.3). Within the domain of competition, the price-setting and cost-cutting firm is replaced by a passive price-taker and the anarchical movement of market prices around prices of production is replaced by their exact equality within equilibrium-as-a-state. ... From these foundations, in the midst of the Long Depression of 1873–1893, Jevons and Walras construct a story of a perfect market society (although Walras meant this to be a model for state-guided markets). This view dominates modern-day economics and is used to ground the claim that capitalism is socially optimal and economically efficient.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Schumpeter proclaims Walras’s model of price-taking firms and maximizing agents to be the Magna Charta of economics, but then also says that its static nature is incompatible with the fact that new methods and new commodities are always being created. In the end, he proposes to extend the perfectly competitive model by allowing for perturbations: innovations create temporary monopolistic profits while competition erodes them away. | The Austrian emphasis on competition as a process that bids away excess profits has many similarities to the classical theory of real competition. But it makes no distinction between regulating and non-regulating capitals, and its explicit assumption of rapid profit rate equalization is quite different from the turbulent equalization in real competition. Most important, it shares with neoclassical economics the claim that firms are servants of consumers and that union activity and government intervention are unwarranted intrusions into market processes.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Within economic orthodoxy, the theory of imperfect competition is also driven by the attempt to make standard theory more realistic.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | elkusthjAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Smith | gravitation | elkusthjAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | “93%” hypothesis about relative prices (Ricardo 1951b, 33–43) to which we will return in chapter 9Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Marx , The battle of competition is fought by the cheapening of commodities.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Marx , And it is competition of capitals in different spheres, which first brings out the price of production equalising the rates of profit in the different spheres.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The general rate of profit is never anything more than a tendency, a movement to equalise specific rates of profit. (Marx 1967c, 366) | elkusthjAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Marx spends the next 200 pages of Volume 3 analyzing the details of rent. These remarkably rich and insightful sections of his work are seldom mentioned in the Marxian literature, and even less understood. But the point is clear: regulating conditions must play a central role in the analysis of competition (Shaikh 1979, 3; 2008, 167).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | todoAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The essential elements of modern neoclassical economics are all present in Walras.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Price-taking behavior is essential to the Walrasian story in several domains. , ‘Walrasian auctioneer’Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Neoclassical theory further claims that the pursuit of self-interest makes capitalism the ideal model of allocative perfection (Makowski and Ostroy 2001, 480, 483).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In perfect competition, firms take the market price as given. Then when demand and supply are unequal the “market” is assumed to modify the price. But in the absence of a mythical auctioneer, there is no agent to undertake this adjustment. Hence “the received theory of perfect competition … contains no coherent explanation of price formation” (Roberts 1987, 838). By contrast, in classical competition firms set prices and adjust them in the light of demand and supply.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | 4. Perfect competition requires irrational expectationsAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This Quantity Theory of Competition is the bedrock of the theory of perfect competition.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It follows that under the conditions of perfect competition each firm must know that it faces a downward sloping demand curve. It would therefore be completely irrational for any firm to assume that its demand curve is horizontal. The theory of perfect competition is internally inconsistent because it requires firms to hold irrational expectations.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is difficult to imagine an Austrian economist issuing Adam Smith’s forever relevant warning againstAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Kalecki’s theory of the monopoly markup image has three significant problems.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In the end, two central claims separate the price theory of real competition from that of post-Keynesian theory: turbulent equalization of long-run rates of return of the price-leaders, and turbulent fluctuations of actual capacity utilization rates around normal rates.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Indeed, gravitation was the normal concept of equilibration in economics up to the 1920s (Kurz and Salvadori 1995, 19–20). | Prices of production never exist as such: they are invisible centers of gravity whose influence is manifest only in the perpetual over- and undershooting of market prices. | elkusthjAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | There are three basic positions on the relation of market prices to prices of production.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Marx | elkusthj | the equalization of profit rates is “never anything more than a tendency” (Marx 1847, 174–175; 1967c, 208; 1971, 464–465)Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | For Ricardo and Marx, the theoretical argument goes in the following order: total labor times → prices of production which are systematically different from them → market prices which gravitate around prices of production.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | “authors working in the Neoricardian tradition have produced little evidence that prices of production are point attractors of market prices and that uniform profitability is a tendency in capitalism in its earlier or later phases” (Flaschel 2010, viii) | elkusthjAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Those who assume both long period equilibrium as a state-of-existence and price-taking behavior by firms end up with a version of competition which is indistinguishable from that of perfect competition.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The empirical debate about monopoly and competition is dominated by the notion that competition is the same thing as perfect competition. Evidence against the latter is then taken as confirmation of oligopoly and monopoly power.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In the theory of perfect competition, average “cost” is defined to include an allowance for a profit sufficient to ensure a normal rate of return, and long-run equilibrium is defined as the point at which price equals average cost at the minimum value of the latter.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Ricardo 7% | see appendix 6.5, section III.1, on quality adjustment | themhzAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Ricardo's 7%Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Ricardo's 7%Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This establishes that industrial profit is perfectly compatible with the sale of commodities at their labor values: it does not originate “from the sale of the commodity /above/ its value, it is not profit on alienation” (79).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Marx viewed Smith’s simple commodity production as an analytical device. It is Engels who attempts to extend it back in historical time (Dobb 1973, 146–147n142; Meek 1975, 180–181).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | quality-adjusted labor | themhzAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | todoAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In an earlier work (Shaikh 1998a, 231–232), I took up the issue of individual standard prices. I showed that these can be decomposed into the sum of three terms: a Ricardian term equal to integrated labor times only; an integrated equivalent of Marx’s price–value deviations which depends only r/R and the percentage deviations of each sector’s own integrated industry organic composition relative to the standard one (R); and the Wicksell–Sraffa effect consisting of the “feedback” of price–labor time deviations on input and capital costs.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | re-switchingAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | elkusthj | The classic theory of relative prices begins from market prices that fluctuate turbulently around moving prices of production acting as invisible centers of gravities of the former. Prices of production never exist as such, and all actual decisions are made in terms of market prices by heterogeneous actors with heterogeneous speculations about the future. A technique is evaluated on the basis of its lower cost of production because this is what facilitates the price-cutting behavior which is the /sine qua non/ of real competition. If a new method of production is close to an existing one, the mere uncertainty in future outcomes may be sufficient to inhibit its adoption. These considerations put the choice of technique “off” the wage–profit frontier (chapter 7, section VII).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The second key point is that production prices within a given technique are the product of two structural factors: integrated unit labor times that link a given industry to the production network in which it is situated; and integrated capital intensities that distinguish a particular industry from the standard. What is important here is that the integrated capital intensity of a given industry is a weighted average of its own intensity and those of all the industries that enter directly or indirectly into the means of production of this industry.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Ricardo's 7%Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Such matters are of little relevance at the aggregate level because individual differences wash out when commodities are aggregated, so that for empirical purposes money and labor value aggregates are likely to be “virtually indistinguishable” (Shaikh 1984b, 58). Indeed, Sraffa himself makes this point when in his notes he says that the “propositions of Marx are based on the assumption that the composition of any large aggregate of commodities (wages, profits, constant capital) consists of a random selection, so that the ratio between their aggregates (rate of surplus value, rate of profit) is approximately the same whether measured at ‘values’ or at the prices of production corresponding to any rate of surplus value…. This is obviously true”^19 (Bellofiore 2001, 369, quoting from Sraffa’snotes).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | These considerations raise the interesting question of what constitutes a “representative” small model of the economy.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | To summarize the argument so far, the classical theory of the interest rate has five main implications.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The classical theory of finance is founded on four major propositions.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In order to facilitate comparisons to other theories, I have not dwelt upon the distinction between the general (regulating) rate of profit and the profit rate on regulating capitals proxied by the incremental rate of profit (chapter 6, section VIII; chapter 7, section VI.5).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | exports will be exchanged for an equivalent amount of imports | Given the widespread use of terms such as comparative and absolute costs, I can only try to remind the reader that in the international trade literature it refers to the price of production. | It should be said that the term “cost” in the Ricardian literature refers to prices of production (i.e., cost-based competitive prices). Neoclassical theory builds the normal profit rate into average costs so that it represents a price of production (chapter 7, section I). On the other hand, Smith and Marx distinguish between unit cost (unit wages, materials, and depreciation) and price of production, since no capital is guaranteed a normal rate of profit.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | A normative proposition that trade should be aligned with comparative cost (-based prices) has little value unless it can be shown that free trade among market economies operates to actually bring it about. | Therefore, when (if) conventional trade theory seeks to appear more realistic, it moves to a second stage in the argument in which a quite different, positive claim, is substituted for the previous normative one. Here it is argued that free trade will always move the terms of trade of a nation to the point which equates the values of exports and imports. Hence, even when the actual agents of international trade are multitudes of profit-seeking firms, the end result is the same as if each nation directly barters a particular quantity of exports for an equivalent value of imports (Dornbusch 1988, 3).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | the principle of comparative costs claims that the terms of trade of every nation will automatically adjust so as to balance international trade. | On the dual assumptions that trade is ruled by comparative costs and that full employment always obtains, the Hecksher–Ohlin–Samuelson (HOS) model of comparative advantage claims that differences in national comparative costs are rooted in differences in national “endowments” of land, labor, and capital.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Ricardo now considers the macroeconomic consequences of an imbalance in international trade. | One can see why this story has become the mantra of neoliberalism.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016: All of this obtains through the actions and reactions of individual profit-seeking producers in the two countries.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This procedure has the additional virtue of instilling the false notion that the very purpose of free trade is to benefit all nations, rather than to make profits for their businesses.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Ricardo’s implicit reduction of the balance of payments to the balance of trade is extremely important to his construction.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Ricardo’s argument solves three distinct problems that any theory of trade must address.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is only in the Ricardian range...Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Within the theory of real competition, the price-leader (regulating capital) in any industry is the one with the lowest unit operating cost, the term “cost” now defined in the proper business sense as the sum of unit wages, materials, and depreciation. [509] Then the first difficulty with the Ricardian argument is that changes in the /relative/ international prices of goods will also affect the relative /costs/ of these same goods.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Ricardo | Absolute costsAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The Smithian decomposition of price developed in chapter 9, section III, is particularly useful in exploring this issue.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | free trade | The empirical evidence strongly favors the classical hypothesis over the Ricardian-neoclassical one.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | First, the real exchange rate of a country will follow the time path of its relative real unit costs. | PPPAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This evidence supports the classical hypothesis that long-run variations of the real exchange rate are regulated by real unit labor costs adjusted for the mixture of tradable/nontradable goods.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The central difficulty in constructing empirical measures of the necessary variables arises from estimating best practice vertically integrated unit labor costs. | note 17Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Figures 11.4 and 11.5 | real effective exchange rates gravitate around the corresponding real unit labor costs (adjusted for nontradable/tradable effects)Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It remains to provide an econometric test of our general hypothesis that the real exchange rate is determined in the long run by real unit labor costs, with the real interest rate differential as a possible explanatory variable of short-run deviations.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | the sustainable real exchange rate is that which corresponds to the relative competitive position of a nation, as measured by its relative real unit labor costs. | Second, it tells us that since the real exchange rate is pinned (through competition) by real unit costs and other factors, it is not free to adjust in such a way as to eliminate trade imbalances. | It follows that currency devaluation will not, in itself, eliminate trade deficits. Rather, it would be successful only to the extent that it affects the real unit costs (via the real wage) and/or the nontradable-tradable price ratio of consumer goods (Shaikh 1995, 72).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | USA/China | From the classical point of view, free trade does not automatically eliminate trade imbalances. On the contrary, it reflects imbalances in international competitiveness.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Of the expectations that matter, none is more important than that of profit.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The theory of perfect competition is internally inconsistent because it requires firms to hold irrational expectations.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | all variants of neoclassical economists build upon the quantity theory and Say’s Law, while Keynes and his followers reject both.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Marx specifically argues against the notion that supply creates its own demand. He points out that in monetary economies, commodities first exchange against money, and there is always the possibility that conditions may arise in which money received from sale is held back from being spent again, thereby interrupting the progress of reproduction.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Since aggregate supply is fixed at the full employment level, aggregate demand does all the adjusting through the effects of the real interest rate. This is a version of Say’s Law. | In the end, the system quickly and efficiently produces an aggregate quantity of output that provides full employment and simultaneously generates an aggregate demand sufficient to realize that same output (Snowdon and Vane, 39–54).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This is Keynes’s Law, his answer to Say’s Law.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Kahn–Keynes’s multiplierAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Non-Accelerating Inflation Rate of Unemployment (NAIRU)Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Soros’s notions of reflexive expectationsAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | New Keynesians reject perfect information, perfect competition, zero transaction costs, and the assumption that there are markets for all things, in favor of “asymmetric information, heterogeneous agents and imperfect or incomplete markets.” Continuous market clearing is rejected because prices and wages are sticky, which makes room for substantial quantity effects. Perfect competition is rejected so that firms can be treated as price-setters.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | incremental rate of profit (chapter 7, sections VI.4)Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Then the profit rate is subject to two conflicting pressures: a rise in the wage share lowers the normal capacity profit rate while a rise in capacity utilization raises the actual profit rate.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Kalecki | Deficit spendingAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The post-Keynesian tradition encompasses Keynesian and Kaleckian wings. They share five central beliefs: that aggregate demand drives output, that money is endogenously created through the banking system, that both persistent excess capacity and unemployment are the normal outcomes of market processes, and that the state can achieve (effective) full employment with tolerable levels of inflation. Beyond this, the post-Keynesian tradition is quite diverse and I can only touch on its main features here.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In Davidson’s view, post-Keynesian economics rests on five propositions. | Davidson , post-Keynesian economics , money is endogenous because it is credit-driven and has real effects on production, growth, and employment , “money cannot be neutral” as neoclassical economists assert | Hence, “money cannot be neutral” as neoclassical economists assert. The non-neutrality of money has nothing to do with agents suffering from some putative “money illusion.” Rather it is rooted in the fact that money has real effects (Davidson 2005, 459–460).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | I have argued for the opposite causation, in which profit rate equalization reduces the interest rate to a “price of provision” for finance, and the general price level affects the nominal interest rate by affecting the nominal operating and capital costs upon which all prices of production, including the interest rate, are founded (chapter 10, section II).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Markup pricing translates quite naturally into a wage-driven theory of inflation. In Godley’s hands, this becomes a conflict theory of inflation. | Godley therefore does not even accept the (price) Phillips curve, let alone the vertical curve required for the Friedman–Phelps–NAIRU story (Godley and Lavoie 2007, 275, 302–304, 341–342). | note 17Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | At the most abstract Structuralist level, wage struggles cannot affect the real wage because money wage increases provoke proportional money price increases. However, this changes somewhat when we consider the dynamics of the conflict-driven wage–price process.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In a similar vein, chapter 7 of this book began with two general principles: price equalization within an industry and profit rate equalization between industries. | Chapter 11, section VI and table 11.4 show how a similarly constructed general theory of the real exchange rate can explain both why the PPP hypothesis does not hold at low rates of inflation and why it does roughly hold at high rates.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Lavoie, who is a leading post-Keynesian, summarizes the features that distinguish post-Keynesian economics from other heterodox schools.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The presumed independence of investment is the foundation of two key post-Keynesian arguments. | Paradox of Thrift | Paradox of CostsAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The stability of the Harrodian path is established in chapter 13, section II.5. | It should be added that a normal rate of capacity utilization is perfectly consistent with a persistent rate of involuntary unemployment (chapter 14). | note 20 (p. 595)Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Harrod’s argument has been largely ignored by the post-Keynesian tradition. This is quite curious because it represents an important form of /stock-flow theoretical consistency/—as opposed to mere accounting consistency (Shaikh 2009, 462).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | “normal” rate of unemployment vs. “natural” rate of unemploymentAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Path-dependence implies that a variable’s gravitational center is itself dependent on the particular historical path taken by the variable.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | An ergodic stochastic process is one in which “averages calculated from past observations cannot be persistently different from the time average of future outcomes.”Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Tobin | natural rate of unemploymentAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Neo-Walrasian macroeconomics rests on three central premisesAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Keynes | time dimension of the multiplier processAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | With a given level of equilibrium output and a rising level of capacity, the capacity utilization rate must be steadily declining: the static argument is stock-flow inconsistent.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Shaikh vs. Keynes on unemploymentAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Neoclassical macroeconomics is supply-side because it claims that in the short run the level of output is determined [616] by the profit-maximizing utilization of the stock of capital and the full employment of the stock of labor. If the labor supply is growing, then, over the long run, output and capital will adapt to the growth rate of labor. At the same level of abstraction, Keynesian macroeconomics is demand-side because it claims that the short-run output (and hence the utilization of capital and the employment of labor) is regulated instead by the relatively autonomous component of aggregate demand (autonomous consumption and investment). Then output growth derives from the growth of autonomous demand which may or may not be sufficient to maintain full capacity utilization and/or full employment of labor. Classical macroeconomics is neither supply-side nor demand-side: /it is “profit-side.”/ Profit operates on both demand and supply, on their levels and on their growth paths.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | endogeneity of the savings rateAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | To begin with, the classical measure of profit is inclusive of interest and taxes paid, which makes it the same as the business measure of “Earnings before Interest and Taxes” (EBIT).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This is the pre-Keynesian loanable funds argument discussed in chapter 12, section II.3.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | national accounting identityAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This is the law of bank credit reflux (Rist 1966, 56, 197–198).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Notice that this picks up the Keynesian relation that accumulation is driven by expected net profitability, the classical relation that expected profitability is regulated by normal profitability, the Keynesian notion that demand may be relatively autonomous due to injections of new purchasing power, and the Harrodian notion that the actual rate of capacity utilization is regulated by the normal rate.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In addition, the equilibrium paths depicted here embody conditions in which demand and supply are equal (traditional short-run equilibrium) and output and capacity are equal (traditional long-run equilibrium)Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | I stress that equilibrium paths do not represent actual outcomes but rather the centers of gravity around which the observed variables turbulently gravitate. | short run | medium-run | long runAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | But the real question concerns the economic forces that determine the equilibrium level of output around which actual output fluctuates. Figure 13.8 depicts the effects of a drop in the rate of growth due to a persistent drop in net profitability and/or a fall in the capacity–capital ratio (equations (13.41) and (13.42)). This changes the trend of output. But once again, the question is: Why these particular path levels and not others?Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This is the classical equivalent of the Keynesian multiplierAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | A growth perspective leads quite naturally to the distinction between deterministic and stochastic time trends.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The emphasis here is on demand stimulation through policy. The classical model that I have outlined generalizes the Keynesian point: private, public, and foreign injections of purchasing power can drive the system to new heights until consequences such as rising debt and possible wage and price increases exert their influence to bring things spiraling back down.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The global crisis of 2007 was just the latest instance of this recurrent problem (chapter 16).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | And second, despite known episodes of hyperinflation in [639] the American and French Revolutions, generalized persistent inflation is a relatively recent phenomenon.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | As in neoclassical theory, workers have no influence on their real wage, which is entirely determined by the full employment condition at any given level of productivity (Shaikh 2003a, 135–137).^1Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Post-Keynesian theory is notably eclectic, but almost all models rely on some form of monopoly markup pricing (Lavoie 2006, 44).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Goodwin’s model is built around four main elements.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | We will see that the particular form of the endogeneity of the natural rate of growth will be important (section III).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In what follows, I will group Post-Goodwin models according to whether they treat long-run capacity utilization as a free variable as in post-Keynesian theory, or as gravitating around normal capacity utilization as in classical and Harrodian theory. One could also count Keynes in the latter camp, given his rejection of Kalecki’s paper on the grounds that its assumption of long-run excess capacity was not credible (Sawyer 1985).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | connection between real wages and profitabilityAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | From this point of view, productivity sets the abstract upper limit to the real wage while some general minimum real wage image sets the lower limit. The latter is itself linked to the historically determined productivity of labor as shown in equation (14.2). It will be recalled that the productivity of labor depends not only on the historical path of technology but also that of the length and intensity of labor.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | normal rate of unemploymentAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | natural rate of growth (the sum of the productivity and labor force growth rates)Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Goodwin and classical models | natural rate of growth | In this light, forces that shift the curve downward by lowering the strength of labor can suppress any increase in the wage share and thereby maintain or even raise the profit rate. We will see that this is exactly what happens during the neoliberal era that began in the 1980s.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Normal Versus “Natural” Rates of UnemploymentAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | VII. Summary and Implications of Classical Macro DynamicsAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | That leaves the question of how government deficits necessary to maintain an ELR policy are to be financed.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Under pure fiat money, relative prices continue to be regulated by the equalization of profit rates, but now the price level is determined by the relation between aggregate demand and aggregate supply.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In the case of fiat money, the crucial feature of the modern QTM is the assumption that inflation is a full-employment phenomenon and that the growth of output is determined by the sum of the growth of the labor supply and the growth of productivity, that is, Harrod’s natural rate of growth (chapter 14 sections II–III). The Friedman–Phelps innovation was to redefine existing long-term unemployment as effective full employment and the corresponding inflation rate as the only one that could remain stable (NAIRU).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | 4. Maximum rate of growthAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Then modern inflation is the balance between a demand-pull generated by new purchasing power and a supply-response depending on profitability and the degree of growth utilization.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Then modern inflation is the balance between a demand-pull generated by new purchasing power and a supply-response depending on profitability and the degree of growth utilization.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Keynes , When a further increase in the quantity of effective demand produces no further increase in output and entirely spends itself on an increase in [prices] fully proportional to the increase in effective demand, we have reached a condition which might be appropriately designated as one of true inflation.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The general rate of profit is therefore the maximum sustainable rate of growth.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | In other words, /it becomes possible to have rising inflation alongside rising unemployment/—the dread phenomenon of “stagflation” that led to the overthrow of Keynesian theory described in chapter 12, sections III–IV.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The classical theory of inflation is derived from three hypotheses.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Capitalist accumulation is a turbulent dynamic process. , Business cycles are the most visible elements of intrinsic capitalist dynamics.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | This brings us to the fundamental question: How can the capitalist system, whose institutions, regulations, and political structures have changed so significantly over the course of its evolution, nonetheless exhibit recurrent economic patterns? The answer lies in the fact that these particular patterns are rooted in the profit motive which remains the central regulator of the system throughout its evolution.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Kondratieff | long waves in national price levelsAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It was pointed out in chapter 6, section VIII, equations (6.12) and (6.13), that the profit rate can be decomposed into structural and cyclical factors. | Since U_K = 1 when output is at normal capacity, the normal profit rate can be written as the product of the normal profit share σ_n calculated as its HP-filtered trend, and the capacity–capital ratio: r_n = σ_n ⋅ R_n.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | It is clear that technical change steadily erodes the level of the normal profit rate in all three periods, and that it is only in the neoliberal era that a rising normal profit share (steadily decreasing normal wage share) is able to counteract the effect of the steady fall in the normal maximum profit rate and negate the trend of the normal rate of profit.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | However, in the long term, structural factors predominate. These include the secular increase of the profit share during the neoliberal era arising from a structural decline in the strength of labor (chapter 14, section 6).Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The secular postwar decline in average and incremental rates of profit was reversed in the 1980s by means of an unparalleled slowdown in real wage growth. But this is only part of the explanation for the resulting great boom for at the same time there was an extraordinary fall in the interest rate that greatly increased the net rates.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | The historical solution to this crisis was an attack on labor and a great reduction in the interest rate. Both of these worked to substantially increase profitability, making the real average and incremental rates rise dramatically. This is the real secret of the great boom that began in the 1980s: cheapened labor and cheapened finance.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | What then prevent governments from creating programs for direct employment? The answer is that such actions would subordinate the profit motive to social goals, which is seen as a threat to the normal capitalist order. Direct employment would also interfere with the neoliberal agenda of lowering wages relative to productivity wages through actual and threatened unemployment. The latter pressure has been central to maintaining profitability from the 1980s into the crisis itself.Anwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | Classical theory postulates that competition turbulently equalizes prices for equivalent types of products, wage rates for equivalent types of labor, and profit rates for equivalent risks. | elkusthjAnwar Shaikh - Capitalism Competition Conflict Crises
0SHAIKH: 2016 | A Centenary Estimate/, 285–310. London: Routledge.Anwar Shaikh - Capitalism Competition Conflict Crises
0MARX: Shaikh 2004 | vs Smith: because capitalism is ruled by the profit motive, not mere self-interestAnwar Shaikh - The Power of Profit
0SHAIKH: In this regard, it is worth noting that modern economics alsoAnwar Shaikh - The Power of Profit
0SHAIKH: 2004: neoclassical economicsAnwar Shaikh - The Power of Profit
0SHAIKH: 2004: post-Keynesian economicsAnwar Shaikh - The Power of Profit
0SHAIKH: 2004: equilibriumAnwar Shaikh - The Power of Profit
0MARX: Shaikh 1977 | what Marx means by the law of value: "in the midst of all the accidental and ever fluctuating exchange-relations between the products, the labour-time necessary for their production forcibly asserts itself like an overriding law of Nature."Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | Precisely because exchange is a social process which quantitatively compares and equates different products, it is only in those societies which produce for exchange that the product of human labor acquires the property of "quantitative worth."Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | to the question on the cause of exchange-value, Marx's answer is: abstract labor, i.e., labor actually engaged in commodity production, is the cause of exchange-valueAnwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | Marx consequently refers to this total sum of abstract labor-time as the /immanent measure /of a commodity's exchange-value, what he calls its "Value."Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | the commodity's exchange-value represents the total amount of abstract labor-time socially necessary^13 for its productionAnwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | the Value of a commodity is the /average /amount of abstract labor-time required for its productionAnwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | In exchange, however, all commodities of a given type are treated alike; each commodity is merely "an average sample of its class,"^15 and as such represents the average expenditure of abstract labor-time.^16Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | It is clear in Marx, for instance, that it is not the historical cost of a commodity in labor-time, but rather its current cost of reproduction, which determines the magnitude of a commodity's Value. /(Capital. /Vol. I, Ch. 1, p. 39).Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | One immediate implication of this is that the categories of circulation are thereby limited by those of production.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | What in other societies is a direct evaluation of the importance of a particular type of labor in terms of its concrete product, becomes in commodity producing societies the indirect evaluation of this labor—through the "quantitative worth" of its product.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | It is only in exchange that the true social nature of commodity production is made apparent; and precisely because commodity production is undertaken for personal gain, for the money which is to be made, /it is the money-prices of commodities that serve as the immediate regulating mechanism of the system. /Far from being a "veil," money constitutes a very important feedback mechanism.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | It follows from the above that the laws which determine money magnitudes such as prices, profits, and wages, are of the utmost importance in understanding the laws of motion in capitalism.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | The name given to these regulating prices in classical political economy was natural prices; Marx calls them prices of production. Their discovery was the first great law of prices.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | Ricardo: The great cause of the variation in the relative value of commodities is the increase or diminution in the quantity of labour required to produce them.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | how profit arises. And this, as we shall see next, leads Marx to the concept of surplus-Value.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | where then does the profit of the capitalist class as a /whole /come from?Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | From the point of view of Value, therefore, the means of production only contribute as much Value as they actually contain. As such they cannot be the source of the increment in Value upon which any nonillusory aggregate profit must be based; Marx therefore calls the capital advanced in the form of the means of production "constant capital."Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | The Value of the means of subsistence of the total workforce is therefore the abstract labor-time socially necessary for their maintenance and reproduction, and hence is the measure of the Value of their labor-power (V).Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | From the social perspective of Value, therefore, workers add a quantity of Value /(L) /to the Value (C) contained in the means of production they use up.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | Without a proper understanding of the quantitative and qualitative relationships between the sphere of production and the sphere of circulation, of the /limits /imposed on circulation by production, the laws of circulation must remain a mystery. Neoclassical economics is a testament to this.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | direct pricesAnwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | "abstract" labor-timeAnwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | Even right here, Value (100 hours) and price (£200) are both qualitatively and quantitatively different (though related) magnitudes, with different units.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | If indeed price and Value are always distinct, what exactly is the "transformation" issue about? Clearly, it is about a /transformation in the form-of-Value; /it is a transformation from the direct expression of Value (direct prices) to a more complex expression (prices of production). What we have to do, therefore, is to see what is altered by this change in form, and what is not.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1977 | What the transformation brings about is a different division of the total pool of surplus-Value among individual capitalists.Anwar Shaikh-1977-Marxs Theory of Value and the Transformation Problem
0MARX: Shaikh 1982 | law of valueAnwar Shaikh-1982-Neo-Ricardian Economics A Wealth of Algebra A Poverty of Theory
0MARX: Shaikh 1982 | law of valueAnwar Shaikh-1982-Neo-Ricardian Economics A Wealth of Algebra A Poverty of Theory
0MARX: Shaikh 1982 | prices of production | direct pricesAnwar Shaikh-1982-Neo-Ricardian Economics A Wealth of Algebra A Poverty of Theory
0MARX: Shaikh 1982 | Okishio theoremAnwar Shaikh-1982-Neo-Ricardian Economics A Wealth of Algebra A Poverty of Theory
0MARX: Moseley 2016 | The basic reason for these problems in Shaikh’s interpretation is that he essentially accepts the Bortkiewicz-Sweezy interpretation of Marx’s logical method. As long as one accepts the basic Bortkiewicz-Sweezy framework (dual system, simple reproduction, system of simultaneous equations), then it is impossible to escape the conclusions that follow from this framework. But I argue that the Bortkiewicz-Sweezy framework is a fundamental /misinterpretation /of Marx’s logical method. Missing are the key features of Marx’s logical method discussed in Part I of this book: the prior determination of the total surplus-value and the general rate of profit, a single system throughout, the circuit of money capital as the logical framework, with the initial money capital M taken as the initial given in the theory of how this initial pre-existing M becomes M+ΔM. Therefore, the conclusions that follow from the Bortkiewicz-Sweezy misinterpretation do not in fact apply to Marx’s theory, correctly interpreted.Fred Moseley - Money and Totality
0MARX: Ramos-Martínez & Rodríguez-Herrera 1996 | In the numerical examples which Marx drafted to illustrate the transformation of values into prices of production, the sum of surplus values equals the sum of profits and the sum of values equals the sum of prices. In the wake of Tugan Baranowsky and Bortkiewicz, virtually all other authors writing on the transformation agree that this result only arises in Marx’s tables because ‘the transformation has not been concluded’: the inputs are exchanged at their values and not at their production prices. There have been several dualistic attempts ‘to correct the transformation’, either through simultaneous equation systems – such as Bortkiewicz’s (1984), Winternitz’s (1948) and Seton’s (1957) – or through iterative approaches – such as Shibata’s (1933), Bródy’s (1970) and Shaikh’s (1977). All these attempts have reached the same conclusion: insofar as Marx ‘is corrected’, his double equality is invalid.Freeman Carchedi - Marx and Non-Equilibrium Economics
0MARX: Kliman 1996 | Thus, Marx argued from the inner nature of capital outward: mechanization, the growing preponderance of dead over living labour stemming from the drive to expand relative surplus value, results in falling profitability; this in turn unleashes a cut-throat competitive struggle (Marx 1981:361, 365). For Shaikh and Nakatani, conversely, cut-throat competition induces mechanization.^4Freeman Carchedi - Marx and Non-Equilibrium Economics
0MARX: Kliman 1996 | See also Marx (1976a:433): ‘The general and necessary tendencies of capital must be distinguished from their forms of appearance … a scientific analysis of competition is possible only if we can grasp the inner nature of capital, just as the apparent motions of the heavenly bodies are intelligible only to someone who is acquainted with their real motions, which are not perceptible to the senses’. Nakatani actually reverses the causation to a greater extent, rooting cutthroat competition in a prior lack of aggregate demand, whereas Marx roots the shortfall in demand in the antecedent fall in the rate of profit. Shaikh does not explain the source of the cutthroat environment but, given that competition induces mechanization in his approach, the source could not be falling profitability stemming from mechanization itself.Freeman Carchedi - Marx and Non-Equilibrium Economics
0MARX: Shaikh 1984 | redundancy of value?Mandel Freeman-1984-Ricardo Marx Sraffa
0MARX: Shaikh 1984 | In the neo-Ricardian conception, however, these double-edged relations are separated and alienated into ‘physical data’ and ‘distribution’. The labour process, a fundamental social relation which involves the performance of labour and the forcible extraction of surplus labour, disappears from view. It is replaced instead by so-called given conditions of production.17Mandel Freeman-1984-Ricardo Marx Sraffa
0MARX: Shaikh 1984 | We might then fall into the simple error of confusing our estimation process with the real determination of values. We might even naively believe that since we can calculate estimates of values and prices of production with almost equal facility from the physical data,19 they are indeed co-equal in reality—ignoring completely how this so-called physical data comes into being. We might then, in this idealist fashion, arrive at the neo-Ricardian conception of production, in which input proceeds magically to output without the toil and misery of real labour, and in which values acquire a real existence only if we deign to consider them. The production of things by means of things.Mandel Freeman-1984-Ricardo Marx Sraffa
0MARX: Shaikh 1984 | In what follows we shall show that Marx approaches the question of how and why a given mass of surplus-value materialized in a given surplus product can nonetheless have a variable monetary expression in circulation. How and why, in other words, profits can deviate from surplus-value and still remain determined by it.Mandel Freeman-1984-Ricardo Marx Sraffa
0SHAIKH: Real macroeconomics is therefore neither supply side nor demand side: /it is profit side/.Shaikh:Shaikh Zachariah
0SHAIKH, Ph.DTheories of Value and Theories of Distribution
0MARX: Some economists and computer scientists, such as Prof. Anwar Shaikh <https://en.wikipedia.org/wiki/Anwar_Shaikh_(economist)> and Dr. Paul Cockshott <https://en.wikipedia.org/wiki/Paul_Cockshott>, argue with statistical evidence that even just a "93% accurate Ricardian labour theory of value",^[96] <#cite_note-96> is a better empirical predictor of prices than other theories.^[97] <#cite_note-97> That is, the only real proofs of Marx theory and its applicability, beyond showing its internal logical consistency, are to be found in the evidence of experience.price of production