Elements of a Taxonomy of Capital

Here are some ways of classifying capital. This post does not talk much about profit on alienation (buying low, selling high). Nor does it talk about analogies (for example, "human capital", "social capital") extending beyond production and, maybe, even economics. The definitions are my attempt to give an off-hand elaboration of the meaning of terms. I have no objection to those offering more authoritative definitions.

First division:

• Physical capital: Physical goods that are used in the production of commodities for sale on the market.
• Financial capital: Assets that (can be expected to) generate a stream of money payments. Examples: Annuities, stocks, bonds, a deed for rental property.

Second division (A decomposition of physical capital goods):

• Fixed capital: Capital goods used in producing commodities that are not completely used up in one production cycle. Examples: Machinery, dams.
• Circulating capital: Capital goods used in producing commodities that are completely used up in each production cycle. Examples: fuel for machinery, semi-finished goods that are transformed into produced commodities.

Third division (A Marxist decomposition of financial capital?):

• Constant capital: Capital whose value is transferred unchanged into commodities produced with its aid. Includes both circulating capital and the proportion of constant capital used up, in some sense, in a production cycle.
• Variable capital: Capital whose value yields a surplus in the value of a commodity produced with its aid.

Fourth division (The physical analog in Marxism to the above decomposition):

• Means of production: The physical capital goods (commodities) with which commodities are produced.
• Labor power: The ability to labor under the direction of another. Under capitalism, labor power - not labor - is bought or sold.

Fifth division (From volume 2 of Marx's Capital; see diagram above):

• Money capital: Finance that the capitalist intends to use to purchase means of production and labor power or the money which produced commodities realizes when they are sold on the market.
• Productive capital: Capital embodied in means of production and labor power when they are being used to produce commodities.
• Commodity capital: Means of production and labor power or the commodities produced by the same for sale on the market.

Update (10 June 2014): I want to note this passage - more succinct than my writing - from Josh Mason:

"We shouldn't ask what capital 'really' is. It really is a quantity of money in a process of self-expansion, and it really is a mass of means of production, and it really is authority over the production process. But the particular historical questions Piketty is interested in may be better suited to thinking of capital as a claim on the social surplus than as a physical quantity of means of production. Seth Ackerman has some very interesting thoughts along these lines in his contribution to the Jacobin symposium on the book. "

Post Keynesianism Contrasted With Neoclassical Economics

The following is reproduced from "An Essay on Post-Keynesian Theory: A New Paradigm in Economics", Al Eichner and Jan Kregel's 1975 Journal of Economic Literature article. Of course, the table being a summary, all entries are highly stylized.

Aspect	Post Keynesian Theory	Neoclassical Theory
Dynamic properties	Assumes pronounced cyclical pattern on top of a clearly discernible growth path	Either no growth, or steady-state expansion with market mechanisms assumed to preclude any but a temporary deviation from that growth path
Explanation of how income is distributed	Institutional factors determine a historical division of income between residual and non-residual shareholders, with changes in that distribution depending on changes in the growth rate	The distribution of income explained solely by variable factor inputs and the marginal productivity of those variable factor inputs
Amount of information assumed to be available	Only the past is known, the future is uncertain	Complete foresight exists as to all possible events
Conditions that must be met before the analysis is considered complete	Discretionary income must be equal to discretionary expenditures	All markets cleared with supply equal to demand in each of those markets
Microeconomic base	Imperfect markets with significant monopolistic elements	Perfect markets with all micro units operating as price takers
Purpose of the theory	To explain the real world as observed empirically	To demonstrate the social optimality if the real world were to resemble the model

Against Biotechnological Determinism

1.0 Introduction

Perhaps arguments lasting between groups for decades have some underlying issues that are not immediately apparent by looking at the details. I often attempt to explain technical details of the Cambridge Capital Controversy (CCC). Is there something central, but hardly articulated by the participants and on-lookers, that helps in understanding the positions taken by economists on the CCC? I take the concept and the phrase biotechnological determinism from Stephen Marglin (1984).

2.0 Neoclassical Economics As Embodying Biotechnological Determinism

A naive neoclassical economics embodies biotechnological determinism. The biology is to be seen in population demographics and in preferences, including over intertemporal consumption plans and over choices between labor and leisure. The technology is to be seen in production functions and endowments.

From about 1870 up to the 1930, neoclassical economists emphasized incoherent models of long-run equilibrium. To maintain biotechnological determinism after the transition to very short-run models of temporary and intertemporal equilibrium, neoclassical economists must adopt a theory of the short-run. The most congenial short run models to this determinism will assume all markets always clear.

3.0 Post Keynesianism Rejects Biotechnological Determinism

Post Keynesians, as I see it, reject biotechnological determinism. Here are some characteristic ideas of Post Keynesianism that, at least, are in tension with such determinism:

• An emphasis on open models.
• A view that appropriate models might vary among countries, sectors, and decades.
• An emphasis on historical time and the acceptance or development of models in which history matters.
• The adoption of models in which corporations are taken as having power to make decisions on the rate of growth and the markup of prices over costs.
• The rejection of the descriptive accuracy of the autonomous utility-maximizing consumers.
• The rejection of the natural rate of unemployment.
• The rejection of the Wicksellian concept of the natural rate of interest, in all runs.
• The acceptance of the idea that fiscal policy can be effective.

4.0 Can Mainstream Economists Reject Biotechnological Determinism?

Of course, markets do not always clear in neoclassical economics. For decades, economists have been talking about, for example, sticky prices, asymmetric information, and multiple equilibrium. Nevertheless, I am often surprised by how willing many economists who have studied such matters seem to be willing to talk as if the economy is always trending towards a unique, given long-run equilibrium. Forces that prevent the economy reaching equilibrium in the short run seem to have no effect on the long run theory. Maybe a tension exists in neoclassical economics between the formal properties of the theories that have been developed and the underlying vision of many economists.

Some argue that mainstream economics is no longer neoclassical and, at least at the research level is open to a wide variety of ideas. Some recent ideas, such as evolutionary game theory, seem compatible with outcomes emerging that cannot be calculated in a closed-form solution as uniquely determined by the givens of the model.

I think older trends, emphasizing perfect competition and instantaneous adjustment to equilibrium, are still widely prevalent among economists and how economists portray their ideas to the public. A skeptic might argue that newer trends will never replace such ideas because of their incompatibility with this underlying vision of biotechnological determinism.

5.0 Conclusion

Do different views on biotechnological determinism underlie the visions of various economists? Can contrasting views on this issue ever be settled by empirical evidence, and if so, how?

Bibliography

• Stephen A. Marglin (1984). Growth, Distribution, and Prices, Harvard University Press.

Selected Principles Of Microeconomics

This post presents a series of claims, without argument, references, or empirical evidence.

1. Raw materials & agricultural products, commodities produced by industry, and services are priced differently by firms producing each in advanced capitalist countries.
• Undeveloped, industrial, and post-industrial economies systematically vary in which of these three types of commodities they mainly produce.
• Thus, these economies may differ in their microeconomic and macroeconomic behavior.
• And even the performance of a single economy may vary among regions in that economy.
2. The prices and quantities produced of raw materials and agricultural products are mediated by supply and demand, in some sense.
• These commodities are traded on organized commodity markets.
• These markets have definite rules for matching bids and asks.
• Some speculators in these markets are willing to take either side of an exchange.
• Some firms in these markets are tasked with "making" the market.
3. The prices of industrial products are administrated, with firms setting a markup over cost.
• Typically, the ownership of a firm producing industrial commodities is separated from its control.
• Typically, such a firm operates multiple plants and produces multiple products, often in more than one industry.
• The allocation of overhead costs among the produced products is a challenge, and is mediated by accounting conventions.
• Plants typically face constant average variable costs, up to some maximum.
• Firms in these industries plan plants to operate at some average capacity below this maximum, so as to have room to respond to unforeseen demand.
• Firms in these industries respond to short-run fluctuations in demand more by varying output than by varying quoted prices.
• Firms set their markup over cost to generate internal finance for a planned rate of growth.
4. I should say something about the quantities produced and prices of services here.
• The concept of dual economies, in which some parts of a modern economy behave like an undeveloped economy, seems particularly appropriate for analyzing firms providing services.
5. Piero Sraffa's model, suitably modified, provides a framework to analyze how markets for these different kinds of commodities fit together.
• One modification involves dropping the assumption that the same rate of profits is earned in all industries.
• The absence of barriers to entry in an industry is the relevant notion of a competitive industry.
• One might consider how firm reaction functions or old Industrial Organization theory fit in here.

Nell's Diagram Of A Capitalist Economy

Figure 1: Nell's Diagram

Over at Naked Keynesian, Matías Vernengo explains some aspects of how he teaches the surplus approach. Vernengo presents a diagram created by Garegnani. Garegnani's diagram shows the logical relations among the endogenous variables and the givens in the Classical theory of value.

I thought I would take this opportunity to present the (complementary?) diagram above. Nell's diagram shows flows among three foci: production, markets, and the social classes comprising the population of an idealized capitalist economy.

Nell represents industrial production with an icon in the lower right of his diagram. The arrows connecting the factories in a circle suggest the production of commodities by means of commodities. Sraffa's book expresses this viewpoint in rigorous theory, and Leontief applied it empirically. Gross industrial output consists of a heterogeneous odd-lot of commodities. This output is divided into:

• The replacement of the existing means of production (represented by the previously mentioned arrows within the icon for industry)
• The surplus (represented by the arrow labeled "Net social product").

The net social product presents itself as an immense accumulation of commodities. It is further decomposed into:

• Necessities, consumed by the workers and the Unemployed
• Luxuries, consumed by the owners (i.e., capitalists)
• New capital goods, channeled back into industrial production from the markets on which industrial firms sell them.

Each component of the net social product also consists of a heterogeneous collection of commodities.

The diagram also shows money flows. The diagram illustrates the simplifying assumption that workers consume all their income. And the diagram also abstracts from the existence of government and of foreign trade. (All of these abstractions are removed in more advanced political economy, for example, in Kalecki's work.) Anyway one can identify a couple of accounting identities under these assumptions:

Total Receipts = Worker Consumption + Capitalist Consumption + Investment

Total Receipts = Wages + Profits

I like the clarity with which monetary flows and commodity flows are distinguished in this approach. It is not the case that capitalists own blast furnaces sitting in their backyard, which they then loan to firms. Mainstream economists are deliberately and consistently obfuscating on this issue, from introductory teaching to beyond. Perhaps there's a reason for this widespread confusion:

"From the point of view of Political Economy, however, the most important fact is that while wages are paid for work, and one can (and in some circumstances should) think of the wage bill, equal here to Worker Consumption, as reproducing the power to work, profits are not paid for anything at all. The flow of profit income is not an exchange in any sense. The Samuelson [circular flow] diagram...is fundamentally misleading; there is no 'flow' from 'household supply' to the factor market for capital. The only flow is the flow of profit income in the other direction. And this, of course, leads straight to that hoary but substantial claim that the payment of wages is not an exchange either, or at any rate, not a fair one. For Wages plus Profits adds up to the Net Income Product; yet profits are not paid for anything, while wages are paid for work. Hence the work of labor (using the tools, equipment, etc., replacement and depreciation of which is already counted in) has produced the entire product. Is labor not therefore exploited? Does it not deserve the whole product?" -- Edward Nell

References

• Edward Nell (1972). "The Revival of Political Economy"

Principles of Neoliberalism

Some of these strike me as too absurd (e.g., 7, 9) to bother refuting:

1. "...contrary to classical liberal doctrine, [the neoliberal] vision of the good society will triumph only if it becomes reconciled to the fact that the conditions for its existence must be constructed and will not come about 'naturally' in the absence of concerted political effort and organization...
2. ...'the market' is posited to be an information processor more powerful than any human brain, but essentialy patterned on brain/computational metaphors... The market always surpasses the state's ability to process information...
3. ...for purposes of public understanding and sloganeering, market society must be treated as a 'natural' and inexorable state of humankind...
4. A primary ambition of the neoliberal project is to redefine the shape and functions of the state, not to destroy it...
5. ...Neoliberals treat... politics as if it were a market and promoting an economic theory of democracy...
6. Neoliberals extol freedom as trumping all other virtues, but the definition of freedom is recoded and heavily edited within their framework... Freedom can only be 'negative' for neoliberals (in the sense of Isaiah Berlin)...
7. ...capital has a natural right to flow freely across national borders. (The free flow of labor enjoys no similar right.)...
8. ...pronounced inequality of economic resources and political rights [is] not ... an unfortunate by-product of capitalism, but as a necessary functional characteristic of their ideal market system...
9. Corporations can do no wrong, or at least they are not be blamed if they do...
10. The market (suitably reengineered and promoted) can always provide solutions to problems seemingly caused by the market in the first place...
11. The neoliberals have struggled from the outset to make their political/economic theories do dual service as a moral code..."

-- Philip Mirowski, "Postface", in The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective (edited by Philip Mirowski and Dieter Plehwe), Harvard University Press (2009)

(I've miscategorized this post since neoliberalism encompasses more than economics.)

The Sociology Of Mainstream And Non-Mainstream Economics

"I admit that my criteria of falsifiability does not lead to an unambiguous classification. Indeed, it is impossible to decide, by analyzing its logical form, whether a system of statements is a conventional system of irrefutable implicit definitions, or whether it is a system which is empirical in my sense; that is, a refutable system. Yet this only shows that my criterion of demarcation cannot be applied immediately to a system of statements - a fact I have already pointed out... The question whether a given system should as such be regarded as a conventionalist or an empirical one is therefore misconceived. Only with reference to the methods applied to a theoretical system is it at all possible to ask whether we are dealing with a conventionalist or an empirical theory. The only way to avoid conventionalism is by taking a decision: the decision not to apply its methods. We decide that if our system is threatened we will never save it by any kind of conventionalist stratagem." - Karl Popper (1968): 81-82

John Davis (2009) distinguished between two ways of dividing economists up: based on the content of their theories and based on more sociological criteria of citation networks, conference attendance, professional society membership, textbooks, etc. I think Davis' taxonomy remains of interest even if one does not agree with his views on trend in the economics profession.

Davis distinguishes between orthodox and heterodox economics on the basis of the substances of their theories. In the last column of Table 1, I have listed some distinguishing precepts of orthodox economics. The last three precepts roughly correspond to the opposite of the distinguishing features, according to Davis, of heterodox economics around 1980. I think one could also call orthodox economics "neoclassical". Heterodox economics rejects some combination of the precepts of orthodox economics. For Davis, mainstream economics is a sociological category. The first two columns of Table list some examples. Mainstream heterodox economics may become orthodox in time, with game theory perhaps already having succeeded, at least partially. At any rate, mainstream heterodox economists have access to the leading journals, a presence in the graduate schools generally rated to be the top, and so on.

Table 1: Divisions Among Economists

Non-Mainstream Economists	Mainstream Economists
Heterodox Economics		Orthodox Economics
Marxism Radical political economy Institutionalism Post Keynesianism Austrian school Regulation schools Circuitists Feminist economics	Game theory(?) Behavioral economics Experimental economics Evolutionary economics Neuroeconomics Complexity economics	Formal models Atomistic, non-socially embedded individuals Equilibrium models set out of historical time Methodological individualism, social structures explained by aggregation over individuals

Both mainstream and non-mainstream heterodox economics can be broken down further. This can be seen in the table. The first two columns each contain more than one school of thought as an exemplar of that category. Davis makes further schematic distinctions. One is between an inward or outward orientation of heterodox economists. Another is among differents ways schools of economists can become heterodox. With these distinctions, Davis argues that the content and understanding of mainstream, non-mainstream, orthodox, and heterodox economics has been evolving over time.

Davis argues that non-mainstream economists should work harder to engage mainstream heterodox economists and that mainstream economists are more open to theoretical innovation than some non-mainstream economists claim. Without such engagement, he thinks, mainstream economists might be excessively conservative, with consequences that mainstream economists will continue to fail to incorporate worthwhile insights of non-mainstream heterodox economists. In the present historical conjuncture, I think, the odds of mainstream economics being suddenly swept away have increased. If so, Davis's strategy might be unnecessary, though I am not very optimistic either way.

By the way, I could have cited previous work by Davis for this post. I wanted to mention that Davis's is the second essay I've read in Fullbrook (2009). McFarling (2009), which is at least a stretch for me, is the first essay I read in this book. So far, I find in the little I've read in this book a broad agreement that heterodox economists reject the orthodox overemphasis on social explanations from atomistic, non-socially embedded individuals.

References

• John B. Davis (2009) "The Nature of Heterodox Economics", in Fullbrook (2009)
• Edward Fullbrook (editor) (2009) Ontology and Economics: Tony Lawson and His Critics, Routledge
• Bruce R. McFarling (2009) "Finding a Critical Pragmatism in Reorienting Economics", in Fullbrook (2009)
• Karl R. Popper (1968) The Logic of Scientific Discovery, Revised edition, Harper

Pasinetti's Principles

Luigi Pasinetti, in his new book, Keynes and the Cambridge Keynesians: A "Revolution in Economics" to be Accomplished, summarizes what he takes to be characteristic features of the Cambridge school:

1. Reality (and not simply abstract rationality) as the starting point of economic theory.
2. Economic logic with internal consistency (and not only formal rigour).
3. Malthus and the Classics (not Walras and the Marginalists) as the major inspiring source in the history of economic thought.
4. Non-ergodic (in place of stationary, timeless) economic systems.
5. Causality vs. Interdependence.
6. Macroeconomics before Microeconomics.
7. Disequilibrium and instability (not equilibrium) as the normal state of the industrial economies.
8. Necessity of finding an appropriate analytical framework for dealing with technical change and economic growth.
9. A strong, deeply felt social concern.

Ten Principles of Feminist Economics

I've previously referenced expositions of principles of institutional economics and principles of heterodox economics. Geoff Schneider and Jean Shackelford have put forth some principles of feminist economics, also. Since in keeping with an antireductionist view the first principle is that there is no such thing as a definitive list of principles, I will not reproduce the list here.

Some Principles Of Heterodox Economics

1. Methodology (rather than just method) is important to understanding economics.
2. Human actors are social and less than perfectly rational, driven by habits, routines, culture and tradition
3. Economic systems are complex, evolving and unpredictable - and consequently equilibrium models should be viewed sceptically.
4. While theories of the individual are useful, so are theories of aggregate or collective outcomes. Further, neither the individual nor the aggregate can be understood in isolation from the other.
5. History and time are important (reflecting (3)).
6. All economic theories are fallible and, reflecting (4), there is contemporary relevance of the history of thought to understanding economics.
7. Pluralism, i.e. multiple perspectives, is advocated (following on from (3) and (6)).
8. Formal mathematical and statistical methods should be removed from their perceived position as the supreme method - but not abandoned - and supplemented by other methods and data types.
9. Facts and values are inseperable.
10. Power is an important determinant of economic outcomes.

-- Andrew Mearman (2007). "Teaching Heterodox Economics Concepts", The Economics Network (June)

(I previously posted a quotation of ten principles of institutional economics.)

10 Principles of Institutional Economics

• Economics is about social provisioning, not merely choices and scarcity.
• Both scarcity and wants are socially defined and created.
• Economic systems are human creations; no particular economic system is "natural".
• Ecological literacy (economy-ecology interface) is essential to economics.
• Valuation is a social process.
• The government defines the economy; laissez faire capitalism is an oxymoron.
• The history of economic thought is critical to the study of "basic principles" of economics.
• Economic theory ("logical economics") and real world economics are often very different things.
• Race, gender, and class shape economic processes, outcomes, and policies in the real world economy.
• There are many types of economists who do not agree on many things. This reflects the fact that economics is not "value free" and ideology shapes our analyses and conclusions as economists.

From: Janet Knoedler, Jennifer Long, Reynold Nesiba, Janice Peterson, Geoff Schneider, James Swaney, and Daniel Underwood (1998). "10 Things for Economic Pedagogy", Association for Evolutionary Thought, Western Social Science Association, Denver Colorado. (See here.)