Thursday, February 23, 2012

How To Defend Capitalism

"It is possible to defend our economic system on the ground that, patched up with Keynesian correctives, it is, as he put it, the 'best in sight'. Or at any rate that it is not too bad, and change is painful. In short, that our system is the best system that we have got.

Or it is possible to take the tough-minded line that Schumpeter derived from Marx. The system is cruel, unjust, turbulent, but it does deliver the goods, and, damn it all, it's the goods that you want.

Or, conceding its defects, to defend it on political grounds - that democracy as we know it could not have grown up under any other system and cannot survive without it.

What is not possible, at this time of day, is to defend it, in the neo-classical style, as a delicate self-regulating mechanism, that has only to be left to itself to produce the greatest satisfaction for all.

But none of the alternative defences really sounds very well. Nowadays, to support the status quo, the best course is just to leave all these awkward questions alone." -- Joan Robinson, Economic Philosophy: An Essay on the Progress of Economic Thought (1962): p. 140.

These days, economists are not trained to competently address these questions. For one thing, economists would have to read both history and philosophy as part of their academic work.

The defenses Robinson offers for capitalism do not say any particular embodiment of capitalism does not require a lot of patching up.

I think Robinson's position that markets cannot be regarded as a "delicate self-regulating mechanism" has become even stronger in the last half-century. For my purposes, never mind looking out your door at our current situation. Consider what we now know about economic theory. My point is not merely that economists have no proof of the stability of a (unique?) equilibrium in models of markets. My point is that what we know about the question suggests that markets, in such models, are not likely to approach equilibrium. I am thinking of, for instance:

  • the Sonnenschein-Mantel-Debreu theorem.
  • Franklin Fisher's demonstration that one should impose the assumption of "no favorable surprise" to ensure an approach to general equilibrium.
  • Fabio Petri's explanation that the Arrow-Debreu model cannot allow production to occur along the approach to equilibrium (since production will change part of the data defining the equilibria, namely the initial endowments).
Apparently, the situation is no better from the perspective of game theory.

I think that this perspective on equilibrium leads one to disbelieve that capitalism can be made self-regulating by establishing or restoring competitive forces that do not seem to be operative today. In short, Mark Thoma is simply wrong.

David Ruccio and "Larry, the Barefoot Bum" also have comments about Mark Thoma's editorial. I've previously noted that Marxist exploitation is compatible with perfect competition and every factor receiving the full value of their marginal product. I've also previously expressed my opinion that Marxist exploitation is not about describing an injustice when capitalism is viewed under the aspect of eternity.


  • Franklin M. Fisher (1983). Disequilibrium Foundations of Equilibrium Economics, Cambridge University Press.
  • Franklin M. Fisher (1989) "Games economists play: A noncooperative view", RAND Journal of Economics. V. 20, N. 1 (Spring) [To read].
  • Fabio Petri (2004). General Equilibrium, Capital and Macroeconomics: A Key to Recent Controversies in Equilibrium Theory, Edward Elgar.
  • Joan Robinson (1962). Economic Philosophy: An Essay on the Progress of Economic Thought.


Magpie said...

I've just read your series of posts "Marx And Commentators On Marx On The Justice Of Capitalism".

Excellent work, congratulations. I will take the liberty of linking to them in one of my posts, which relates to this topic.

A said...


Magpie's comment drew my attention to those links to the mentioned series of posts.

They reminded me of a section of William Baumol's article, Marx and the Iron Law of Wages (AER, vol. 73, no. 2, May 1983), discussing the morality of surplus value. He brings up the very quote you do in part 3, among others. For example, from Marx's notes on Adolph Wagner:

[Wagner] foists on me the idea that "the surplus-value produced by the labourers alone improperly remains with the capitalist entrepreneurs" .... In fact, I say the direct opposite: namely that at a certain point commodity production necessarily becomes 'capitalist' commodity production and that according to the law of value governing the latter, the "surplus-value" is necessarily the capitalist's and not the labourer's. [p. 61]

Hope that's useful to you!

Robert Vienneau said...

Thanks for the comments. I read that Baumol article years ago. I don't recollect that bit on the morality of surplus value. I do remember that Baumol's theme is that many assign views to Marx that he constantly denied. I remember, specifically, that Baumol argues that volumes 1 and 3 of Capital are not in contradiction, if you read them from the standpoint of Marx's stated goals. (This is not to say that you might not still quarrel with Marx's solution to the transformation problem.)

Anonymous said...

I've come to expect that any time a mainstream, neoclassical economist says anything about Marx -- be it positive or negative -- it will be such ignorant rubbish as to detract from public understanding. Why is this? I suspect that for most of these people, "Marx" signifies a simple, obviously mistaken viewpoint that they have never seriously sought to understand. To even give Marx the respect of reading his work (beyond maybe the Manifesto and the beginning and ending of Capital vol. I) would be an indignity to them.

Beyond that, mainstream economists (though not Thoma, to be sure) often make it clear that they have not read *any* of the classics of economic thought, even Adam Smith, and express open contempt for the study of history of economics.

These are not signs that I would associate with intellectual vitality.