Care to debate that?
Yeah, “regrettably”.
Sir,
The argument in the OP is not an ad hominem attack on Marx. This should be crystal clear from even a cursory reading. You do your cause no good when you swoop in from out of the great blue and attack an argument which was never even forwarded, then just as quickly drop away as if nothing further was necessary.
If you’d like to challenge an ad hominem argument, here’s one: It’s no wonder your economics are so confused.
The observations that I “swoop[ed] in from out of the great blue” and made a " cursory reading" are both correct, and I apologise for them. There were both time and content issues, which I’ll come back to when I have time to do a more customary solid read and engage properly with the arguments. This will be no earlier than the first week of May.
I look forward to it.
At the very least, Keen gets bonus points for humility.
I’ve been waiting for Steve Keen to return and finish up here. It is now the end of the second week of May.
Paging Steve Keen. We’d like to an answer to the critique of “Nudge Nudge, Wink Wink, Say No More”
My apologies but you’ll need to wait a bit longer. I have an invited paper for the Australian Economic Review that has to be completed by next Friday–May 23rd. That is currently taking priority and I won’t be able to spend the time needed for my reply until I finish it.
I wonder if your article is based upon the same premise that is being challenged here?
We’ll wait Steve. I’ll remind you in a couple weeks.
Firstly I want to thank Astroglide for critiquing my paper on Say on this site. One thing that happens all too rarely in economic debate is for adherents from one position to even read the arguments put forward by another. As one who has spent a lifetime doing reading across the spectrum of economic thought, I’m glad to see Astroglide engaging with my non-Austrian ideas here.
I will respond to his critique in a spirit that I hope encourages more such cross-pollination. I will also make my next entry in my own blog a direct and detailed consideration of the topics I raise here, because I know that I can’t cover all the issues as deeply as they need to be within the confines of an email-style discussion.
Let me begin by noting one point raised by another discussant that is a minor misinterpretation best dispensed with: David Z’s statement that in talking of M-C-M+, “What Marx is really describing is an arbitrageur, although painted as a thief and usurer”. Carefully read, Marx doesn’t see this as theft but a legitimate aspect of capitalism. He was at pains to describe even the labour contract as not constituting theft from the worker by the capitalist:
“The circumstance, that on the one hand the daily sustenance of labour power costs only half a day’s labour, while on the other hand the very same labour power can work during a whole day, that consequently the value which its use during one day creates, is double what he pays for that use, this circumstance is, without doubt, a piece of good luck for the buyer, but by no means an injury to the seller.” (Capital I, p. 188 [Progress Press edition])
The argument that JonBostwick made–“He’s wrong becuase adding money doesn’t actually change anything. Profit and interest are not monetary phenomenons, they exist with in barter economies as well”–doesn’t undermine the critique of Say’s Law either. I’ll argue below that there are at least three perspectives in which the “C–M–C/M–C–M+” insight operates, and in one of them the presence of profits in a barter and/or subsistence economy is unremarkable.
Thanks also to mash for getting rid of the notion that my critique of Say’s Law depends on Marx’s “Labour theory of value”. As mash notes, arguing that Marx’s own logic contradicted the labour theory of value (LTV) was my first major contribution to economics. So as Astroglide later concedes–and just before I mistakenly “swooped in” on this very point–the fact that the LTV is false doesn’t undermine my support for Marx’s critique of Say’s Law.
Thus Marx’s critique of Say’s Law is independent of the LTV–though it’s still arguably dependent on a difference in theories of value. I say arguably because, as seemed to develop in discussion here, you could also make the proposition that the M–C–M+ notion exists in Austrian economics as well, as a way to characterise what Austrian theory argues is the temporary excess profits that an entrepreneur earns by innovating or exploiting a mis-pricing phenomenon. I think that’s a very good insight, by the way–a productive way to bring an insight in from a rival approach to economics and thus enrich your own.
The distinction that a theory of value then brings is to this issue as to whether the M–C–M+ circuit is temporary or permanent, not as to whether it exists at all. The difference then becomes one of degree: entrepreneurial profit is seen essential to capitalism from an Austrian point of view, but also as temporary in duration. Marx sees the M-C-M+ circuit as essential to capitalism too, but as permanent.
I would hope this point would be accepted here, because it then means that while the “100% Say’s Law” argument is strictly wrong, maybe a “99% Say’s Law” is OK. Then Austrians and Marxists (non LTV ones–those who still hold with the strict LTV aren’t worth the energy of discussion) could get down to a sensible debate. I wouldn’t see concession on this point as being an “I win, you lose” outcome by the way: I’m not out to defeat one ideology in the name of another, but to find a cogent means to understand capitalism.
Astroglide’s critiques of my version of Marx’s theory of value then comes down to this question of degree. The Austrians (and in this sense their companions the Neoclassicals) have a theory of value in which profit opportunities come into being but are then quickly eliminated by the process of competition. Since these profit opportunities pop up and are then eliminated all the time across the whole economy, the M–C–M+ circuit is a permanent (but small) aspect of capitalism. I have a theory of value in which competition doesn’t eliminate M–C–M+, though it will limit it to being not enormously more in one sector of the economy than it is in another.
On this point Astroglide, some more reading is required. You challenge my exposition of this theory of value as you read it in the “Marx for Post Keynesians” paper. In fact I give a fuller exposition of the origins of that theory in my unpublished Masters thesis on Marx (Use, Value and Exchange: The Misinterpretation of Marx), which is linked on my blog.
You should also read my critiques of the Neoclassical theory of competition, because while the Neoclassical theory differs from the Austrian theory in degree–through the Neoclassical myth that the market will be in equilibrium, as opposed to the Austrian realism that it will normally not be so, giving rise to the prospect of entrepreneurial profit–it is also a “supply and demand” theory which argues that competition will drive price towards a level set by the intersection of a demand and a supply schedule.
This argument is false, even when working within a subjectivist theory of value. If firms are competitive non-colluding profit maximisers, then price at the market level will tend to the point at which market-level marginal cost equals market-level marginal revenue. The Neoclassical (and Austrian) belief that this outcome will only apply under monopoly (and that free competition will undermine monopolies so that they too are transient) is incorrect.
So what does a “99% Say’s Law” argument do to Austrian theory and its analysis of money, etc.? I’ll leave that for my own blog entry on this topic, but I think you can best see that from your own literature by taking a look at Schumpeter’s Theory of Economic Development (yes, I know Schumpeter is an Austrian that most Austrians prefer to disown, but his argument stems from considering what happens to Neoclassical theory once one allows for entrepreneurial profit in a distinctly if not explicitly M–C–M+ framework). In my opinion, it transforms Austrian thought completely–and makes Schumpeter the ultimate Austrian.
Finally, on the nature of the M–C–M+ insight. There are at least three aspects to it: individual behaviour, characterisation of the nature of industry, and the role of money and whether a credit economy is just a modified barter system.
On the individual behaviour front, it’s sensible to characterist capitalist behaviour as predominantly M–C–M+, and worker as C–M–C–even though capitalists of course consume and workers of course save (sometimes, anyway!). I’ve heard people try to characterise the behaviour of capitalists as primarily driven by consumption (as Say does), and even rationalise away the fact that mega-capitalists like Bill Gates could never consume what they have accumulated in their lifetime by suggesting that they’re actually saving so that their children can consume.
That’s nonsense. Propose that to one of these people when they’re not in danger of being quoted, or to people who know them well. and they’ll laugh in your face. As an old professor of mine put it, “The Golden Rule is that He Who Dies With The Most Gold Wins”. The primary motivation of capitalists is the accumulation of wealth (and the power that comes with it), not consumption–though of course an opulent level of consumption is a nice side-effect of accumulation.
On the industry front, it’s a reasonable way to characterise some industries as primarily concerned with consumption, and others as primarily with investment. This was the basis of Keynes’s own clumsy critique of Say’s Law in The General Theory. Of course, in both industry classifications, profit will be earned.
On the monetary front, it raises the issue of what is aggregate demand and how is it financed in a growing economy. 100% Say’s Law says that supply is demand; 99% or less Say’s Law says that demand is supply plus the change in debt. This monetary vision sees it as possible to have profit in an economy with a constant level of output, but in an economy that is growing through time, there must also be growing debt. It doesn’t have to grow disproportionately to income–though it clearly has in the financial crisis that capitalism is now engulfed by–but it does have to grow. The scale of the change in debt is thus one indicator of what percentage score should be put in front of your Say’s Law theory.
Say’s law explains that the real demand for ‘shoes’ is limited to being somewhere between zero and the sum of all the other economic goods currently existant (the supply). how does 'debt ’ come into this?
or to put it another way, as a shoemaker with a stock of produced shoes, and other personal effects accumulated over a lifetime, the demand the shoe maker can make for products produced by others in the market could be no-more than these such things. what about this needs critiquing exactly?
I’m not sure how M-C-M type analysis is even relevant.
Can you substantiate this assertion with more than cliches from an old leftist professor?
To claim that you know the primary motivation of capitalists is very insincere. That you claim that it is accumulation of power, one might counter that it is the accumulation of prosperity, in a praxeological sense the increase of personal satisfaction, defined subjectively by each individual.
Opulent consumption is value laden. If the consumption is paid for by voluntary free trade, then how it is consumed is of no concern to any third party, except where one wants to perpetuate a stereotype.
Shame you had to take an otherwise decent post and rubbish it up with this.
Good grief, as Charlie Brown might say. Of course I can substantiate at it with more than that.
But I saw no need to go name dropping about the capitalists about whom I have heard such reactions to naive attempts to describe their behaviour as motivated by the desire to consume rather than to accumulate wealth and power.
I was also not so much criticising their individual consumption (talk about reading into my post what you wanted to perceive) as pointing out that it alone couldn’t explain the level of wealth they accumulate.
And if you can’t cope with a bit of humour being thrown into an exposition of an intellectual argument mate, then you should get out more often.
This was really shoddy argumentation. Correct it by specifying names.
No, you were making a backhanded criticism of all capitalists as being motivated by a hunger for power. It was cheap.
Personalizing your response to me won’t help your unbacked assertions. First it was anecdotal. Then you refrained from being specific. Then you were misunderstood, and now it was a bit of humour that’s beyond my capacity to understand.
You’re going to wear out those dancing shoes.
Kerry Packer and Rupert Murdoch.
You name two oligarchs as representing capitalists? People who have likely collaborated with the state, made and bought politicians to gain regulatory monopoly and advantage, and in any moral society would have been imprisoned for fraud and coercion? And do you really expect me to believe that out of a potential 6 billion capitalists on this planet, two make the rule?
Are you the Steve Keen with the Debt blog? If so, I was under the impression that you were a professor, and thus would know that capitalists are anyone engaging in capital accumulation (savings) in a system where there is some semblance of private property rights. A property rights system that necessarily includes competition, and a legal framework to stop violence and fraud (theft).
I am a capitalist. I produce, under consume, save (accumulate capital) which I reinvest in more production or productive gains, to produce, under consume and save again. My ultimate goal is not power, it is to satisfy my future needs and wants, whether it be to send my kids to college, or to travel the world in my retirement. How ever I choose to spend my gains from market activity (aka voluntary trade, aka satisfying the wants/needs of my fellow man) is my business, regardless if you feel it is appropriate or not, it is acquired honestly, legally and morally.
Why you would stereotype all capitalists big and small with claims about power fetishes and opulence are beyond me. I find it terribly disappointing.
I can understand a leftist Humanities professor saying things like this about capitalism, they are institutional socialists (which is why we hide them away from the people who actually make things and produce value), we don’t expect them to understand economics. Sort of like the old chap who gave you the nonsense about the Golden Rule, inferring that capitalism and profit are synonymous with violence and coercion when we know full well that statism and socialism kill millions more people than free trade.
saying that capitalists are out to get the most wealth and that it is irrelevant that the wealth is ‘consumable or not’ is about as absurd as any statement could be. wealth that can not be consumed hardly meets the standard of wealth. if it was true they would have spent their lives through telescopes buying up ‘gold planets’ in the fartherst reaches of the galaxy and died happy knowing that their miserable lives living in mudhuts with their starving children was worth it because they had found and claimed considerably more space-gold that was inconsumable than most of the other 6 billion on the planet.
Can you substantiate this assertion with more than cliches from an old leftist professor?
I understand that you wish to save time, but could you expand upon this. As essentially I see as doing the following: person A makes claim X, claim X is similar to group C, group C is wrong, therefore claim X is wrong. Is this a correct interpretation or am I missing something? Furthermore can someone still make a similar claim, which resembles a particular political group and yet not be politically motivated, or politically apathetic and therefore not ‘tainted’?
“You name two oligarchs as representing capitalists? People who have likely collaborated with the state, made and bought politicians to gain regulatory monopoly and advantage, and in any moral society would have been imprisoned for fraud and coercion? And do you really expect me to believe that out of a potential 6 billion capitalists on this planet, two make the rule?”
As I understand it, we can distinguish between Oligarchs and Capitalists. Whilst both may be motivated to satisfy future needs and wants. The former do so outside the confines of ‘voluntary’ exchange and therefore cannot be capitalists as their behaviour is outside your definition of what the capitalist system is? I may have misinterpreted you, but this is what I understood. A question I have from is, is given your definition of capitalists (agents who produce, under consumer, save, reinvest etc within a property rights system), is it not possible to further distinguish the degrees to which they are motivated to produce, save, reinvest etc.? If this is true, then I fail to understand how this disproves Keen. As essentially we have a capitalist who places a higher emphasis on saving and reinvesting, with the ultimate aims of further savings/accumulation (as the M-C-M+ circuit suggests).
Regarding capitalists as having the ultimate goal of satisfying their future needs and wants, don’t you find this definition as being so general that it is essentially useless. It is similar to saying agents are motivated by self interest or to maximise utility. It doesn’t add anything new. An economic joke I’ve heard is “why did the chicken cross the road? To maximise its utility, Why didn’t the chicken cross the road? To maximise its utility”. Utility maximisation doesn’t add anything new, and by extension neither does suggesting that agents ultimate goal is to satisfy needs and wants.
On needs and wants. I am unfamiliar with Praxeology, so perhaps you can clear up the following: Are preferences (needs) required for an action to occur? Are a number of means consciously selected for, or does a large part of action fall into the ‘habit’ framework. In which agents do not consciously select amongst competing means, but largely rely on previous learnt behaviour.
This might also provide me with greater insight as to how market activity can be characterised by ‘voluntary action’. I do not wish to invoke the old determinism, vs free will vs Compatibilism debate but I am sceptical of ‘voluntary trade’. I am largely within the compatibilist camp or more specifically I am seduced by methodological holism/collectivism and therefore see such claims of ‘voluntary action’ as being baseless as, there are to certain extents causes and effects but also degrees of free will, which would suggest that something ‘voluntary’ can only be held if we ignore deterministic influences on our actions.
“I can understand a leftist Humanities professor saying things like this about capitalism, they are institutional socialists (which is why we hide them away from the people who actually make things and produce value), we don’t expect them to understand economics. Sort of like the old chap who gave you the nonsense about the Golden Rule, inferring that capitalism and profit are synonymous with violence and coercion when we know full well that statism and socialism kill millions more people than free trade”
I would love some further explanation on the claim that socialism is statism and secondly that they have killed millions more than free trade. I have assumed here that by free trade you mean, the free market, but I was under the impression that we haven’t had a free market?
One last point, I hope that we can partake in a civil discussion. My posting is a genuine attempt to further my understanding of a perspective that I am unfamiliar with.
Hi mash, you have lots of questions, and they dont seem to fit the thread which has a specific purpose…, why dont you post your questions one at a time in order of urgency in the newbie forum. You are more likely to get positive responses.
Mr. Keen,
You forward several points which require careful investigation and analysis to address. I will do my best to respond to your post, however this will take time. For now, here’s my reply to your specific characterization of Joseph Schumpeter as being an Austrian school economist.
I myself hold but a passing familiarity with the work of Mr. Schumpeter. Thus, here I must rely upon and refer you to the work of Murray Rothbard (i.e. Mr. Rothbard being one of the intellectual pillars of Austrian economics, and himself steeped in economic intellectual history). In short, Mr. Rothbard argues that Mr. Schumpeter was decidedly NOT an Austrian economist:
“Joseph Schumpeter’s valuable and monumental History of Economic Analysis (New York: Oxford University Press, 1954), has sometimes been referred to as ‘Austrian’. But while Schumpeter was raised in Austria and studied under the great Austrian Bohm-Bawerk, he himself was a dedicated Walrasian…”
(Rothbard, Classical Economics: An Austrian Perspective on the History of Economic Thought, Volume II, p. xiii)
And
"Most mainstream economic theorists are content to spend their time elaborating on the general equilibrium state, and simply to assume that this state is an accurate presentation of real world activity. But some economists have not been content with contemplating general equilibrium; they have been eager to apply this theory to the real world of dynamic change. For change clearly exists, and for some Walrasians it has not sufficed to simply translate general equilibrium analysis to the real world and to let the chips fall where they may.
As someone who has proclaimed that Leon Walras was the greatest economist who ever lived, Joseph A. Schumpeter (1883-1950) faced this very problem. As a Walrasian, Schumpeter believed that general equilibrium is an overriding reality; and yet, since change, entrepreneurship, profits, and losses clearly exist in the real world, Schumpeter set himself the problem of integrating a theoretical explanation of such change into the Walrasian system. It was a formidable problem indeed, since Schumpeter, unlike the Austrians, could not dismiss general equilibrium as a long-run tendency that is never reached in the real world. For Schumpeter, general equilibrium had to be the overriding reality: the realistic starting point as well as the end point of his attempt to explain economic change."
(Rothbard, “Breaking Out of the Walrasian Box: The Cases of Schumpeter and Hansen”, Review of Austrian Economics, Vol.1 Num.1, pp. 97-98)