Showing papers in "Cambridge Journal of Economics in 1978"

Notes on consumption, investment and effective demand: II

Abstract: In Part I we looked for the premises from which traditional theory derived the assertion that aggregate demand would adjust to productive capacity. These premises were found to lie ultimately in the conception of capital as a 'factor of production' em ployable in increasing proportion to other factors as the rate of interest falls—the basis, as we argued, of the idea of a demand schedule for 'saving' determining the rate of interest in conjunction with the supply schedule of full employment saving. The deficiencies of that conception of capital led us to the conclusion that, contrary to what is often argued, an analysis conducted in 'real' and 'static' terms provides no basis for the belief that investment decisions can, in the long period, adjust to decisions to save. In this second Part of the paper, the problem will be approached in terms of the 'monetary' analysis of Keynes' General Theory and the subsequent controversy. In section 1, we shall use Wicksell's theory of the price level as an example of how traditional theories would link their 'real' analysis of distribution with their analysis of the money rate of interest. We shall then argue, in section 2, that Keynes's different conclusions

Political economy and capitalism: notes on Dobb's theory of crisis

Abstract: I began the formal study of economics in the late 1960s, when the cry for 'relevance' was sweeping the US. Though at the time we were frequently unclear about just what our demand for 'relevance' implied, we were certain of one thing: it did not imply any further meditation on the arcane mysteries of perfect competition, perfect knowledge and perfect greed. Not surprisingly, many of us turned elsewhere to acquire the knowledge which was so conspicuously absent from our education. And as we did so, we came to realise that 'relevance' meant much more than just focusing on the concrete history and existence of our world: it meant having a practice which made such a study necessary, and a theoretical structure which made its results intelligible. Maurice Dobb had such a practice and theory-Marxism-and he illuminated it with a guiding intelligence which makes his work 'relevant' in the precise sense of the word: it continues to be important to our understanding of the conditions in which we live. In these few pages, it is obviously impossible to do justice to the scope and depth ofDobb's contribution to Marxist economic theory. I do not intend even to try. Instead, what I would like to do is to try to focus on one particularly important work of his, Political Economy and Capitalism. On re-reading this book, which was written in 1937, I was especially struck by the timeliness of Dobb's discussion of the contradictions in capitalist accumulation. The current crisis in world capitalism has made crisis theory respectable once again, thus giving rise to a fresh round of debates on many of the very same issues which Dobb analysed almost 40 years ago. Of course, to a certain extent Maurice Dobb's contributions are already incorporated into the current discussions; nonetheless, there are still many lessons to be learned from this book alone. One of the most important points Dobb makes in his analysis of crises is to emphasise that, within Marxist analysis, a crisis is not to be viewed as a departure from equilibrium; instead, a crisis is the equilibrating mechanism itself. It 'appears as catharsis as well as retribution: as the sole mechanism by which, in [the capitalist system], equilibrium can be enforced' (Dobb, 1937, pp. 102-103); to 'study crises [is] ipso facto to study the dynamics of the system', for they are its 'dominant form of movement' (p. 80). This is a crucial point to make, for otherwise Marxist analysis is saddled with a notion of 'equilibrium' which is imported wholesale from orthodox economics. Marx's own

Dobb on the transition from feudalism to capitalism

Abstract: After some three decades Maurice Dobb's Studies in the Development of Capitalism (1946) continues to be a starting point for discussion of European economic development. It does so because it remains a powerful statement of the proposition that the problem of economic development must be approached historically, that any theory of economic development must be constructed in historically specific terms. Dobb thus follows Marx in rejecting any attempt to grasp economic transformations in terms of what might be called transhistorical economic laws based for example on the postulates of orthodox economic theory. It is the burden of his position that economic development, the growth of labour productivity and of per capita output, must be comprehended in terms of the limits and possibilities opened up by historically developed systems of social-productive relations specific to a given epoch, that the key therefore to the rise of new patterns of economic evolution is to be found in the emergence of new social relations of production. The Marxist idea of the mode of production thus provides the point of departure for Dobb's analysis. It is perhaps his central contribution that through developing the mode of production conception in relation to the long-term trends of the European feudal economy, he is able to begin to lay bare its inherent developmental tendencies or 'laws of motion'. Dobb argues that the formative impact of feudal surplus extraction relations characterised by extra-economic compulsion by feudal lords, in relationship to the potentialities and limits of its peasant forces of production, determined a distinctive pattern of economic evolution. In this way, he provides a basis in both method and historical analysis for surpassing the unilineal view of development, hitherto widespread among Marxists, in which the transition to capitalism is conceived as the gestation of an embryonic self-developing mode of production, alongside and external to a feudal agricultural mode—an approach characteristically bound up with techno-functionalist premises. In this classic conception, a trading bourgeoisie develops within the interstices of an essentially immobile feudal agrarian society on the foundations of technically dynamic productive forces. The needs of new, self-propelling productive forces impel the construction of new, more suitable (capitalist) class relations, and bring about the destruction of outmoded (feudal) ones. In contrast, Dobb is able in the first place to provide a powerful critique of the notion that economic development took place through the progressive and dissolving effects of trade and merchant capital upon feudal social productive relations, originating from outside it, by showing the way in which class relations themselves structured a distinctively feudal and non-capitalist development of

The subversion of classical analysis: Alfred Marshall's early writing on value

Abstract: With the publication of Alfred Marshall's Early Writings {1867-90)\ it is now possible, with greater confidence, to place his ideas in the historical perspective of the develop ment of economic doctrines ; in particular, the Early Writings shed further light on the vexed and debated question as to whether Marshall should be counted amongst the progenitors of the marginalist school. The enigma surrounding this question had been magnified by his own elusiveness and reticence—his constant attempts to suppress overt manifestations of his originality, dressing up his ideas in traditional garb and stressing continuity with the Smith-Ricardo-Mill tradition, on the one hand; while, on the other, giving numerous hints in private correspondence J as well as in print § that many of the 'Jevonian' ideas which were claimed as a revolutionary break with the past were but 'familiar truths' to him, already propounded in his lectures and early unpublished work. Marshall's friends and disciples II claimed with confidence that he had already ad vanced considerably towards the new marginalist theory in the 1870s, concurrently with Jevons and Walras. But there appears to be a sharp division of opinion, even among

Military expenditure and capitalism: a reply

Abstract: The comments by Hartley and McLean (HM the definitions of the variables; the sample chosen; and the estimation technique used. Even on the well trodden Monetarist Keynesian battlefield, econometric evidence has been largely unsuccessful in discriminat ing between hypotheses. These problems should be kept in mind when reviewing the evidence below.

The Mezzogiorno in the Italian economy

Abstract: The official view Government documents regard the development of the Mezzogiorno as a key objective of economic policy, emphasising social and humanitarian motives (Ministero del Bilancio, 1972; ISPE, 1975). The different phases of intervention are seen as successive attempts to stimulate self-sustaining industrial development in a continually changing situation. Success is measured by the fact that rates of growth of output and consumption in the Mezzogiorno have been brought up to the mean for other regions, implying that, at least with respect to the main macroeconomic aggregates, its relative position is no longer deteriorating. Problems within the Mezzogiorno, such as the contrast between zones of industrial development and depressed areas, continuing emigration and rising unemployment, are treated as serious but inevitable, and only capable of being eliminated through the passage of time and the disappearance of the factors which cause them. The main link between the situation in the Mezzogiorno and that of Italy as a whole is the fact that the national economy provides the resources necessary for development of the Mezzogiorno, implying that only in the context of fast and sustained growth of the national economy is it possible to implement adequate policies in favour of the Mezzogiorno.

Labour accumulation in rural China and its role since the cultural revolution

Abstract: (see, e.g., Dandekar, 1962). The collective system of the People's Republic of China has been linked in a mutually reinforcing manner to such utilisation of wintertime labour in the creation of land-augmenting fixed capital ('farmland and water con servancy capital construction'-—hereinafter, FWCf). The Chinese call this process of capital formation 'labour accumulation'. Section 1 of this paper briefly reviews Chinese FWC activity before the Great Prole tarian Cultural Revolution (GPCR). Section 2 summarises the 1965-66 theoretical discussions of labour accumulation. Section 3 investigates labour accumulation in practice, with a rough estimate of the amount of mobilisable labour and of that actually mobilised, and with an analysis of recent FWC activity.

S. Bowles and H. Gintis on the Marxian theory of value and heterogeneous labour

Abstract: Assuming that there are m kinds of labour, Bowles and Gintis (1977) have developed a novel idea to express the value of a commodity by a vector of the direct and indirect labour hours of each of the m kinds embodied in a unit of that commodity. On the basis of this new value system they have also extended Marx's theory of exploitation so that it may be applied to economies with heterogeneous labour. Furthermore they criticise, from their new point of view, related works by their predecessors which include my Marx's Economics (1973). However, as will be shown in section 2 below, their mathematical arguments are not all satisfactory. More important is the fact that once the heterogeneity of labour is allowed for, we cannot say anything definite about exploitation; in fact, as section 3 shows, all propositions which we may derive concerning exploitation are relative to the assumed ratios of conversion of different types of labour into common labour. Bowles and Gintis' multi-dimensional theory does not, therefore, convince me that I should give up the conclusion which they have criticised. I must still conclude that Marx's theory of exploitation has a firm foundation only in the abstract world of homogeneous labour. Section 4 includes other comments.

Military expenditure and capitalism: a comment

Abstract: Dr Smith's article on 'Military expenditure and capitalism' concluded that, 'although the simple underconsumption argument is inadequate, it remains true that military expenditure is necessary for the maintenance of capitalism as a viable international system' (Smith, 1977, p. 76). It is not at all obvious that this conclusion follows from either the analytical framework or the empirical results presented by Dr Smith. Our purpose is to seek clarification and to suggest an alternative paradigm and some pre liminary empirical results for the UK.f The aim is to contribute to a constructive debate on a subject which has been relatively neglected by UK economists. As liberals, we use a different vocabulary. Terms such as 'the balance of class forces', 'the real decision-makers', 'the ruling class', 'workers' and 'capitalists' are concepts which need defining, with the author showing how they relate to the estimating equa tions used in the article. Nor does it follow that having shown the inadequacy of the underconsumption argument, this confirms that 'military expenditure is necessary for . . . capitalism'. Dr Smith's methodology requires the specification of a set of distinct Marxist predictions which are capable of being refuted. Otherwise, there is a danger that he will derive non-testable hypotheses (beliefs) or even accounting identities consistent with a variety of explanations. For example, it is maintained that balance of-payments deficits can be 'remedied by some combination of reductions in military expenditure, reductions in utilisation by other means or direct state intervention' (pp. 73-74). What does the Marxist view predict about the specific mix of policies and especially the extent of reductions in military expenditure? In the UK substantial defence cuts have occurred under both political parties, which creates doubts about any unique power of the military to maintain budgets (this is not to deny that any monopoly bureau might be 'too large'). Moreover, as Dr Smith admits, time series data show a negative association between GDP and the shares of military expenditure (p. 66 fn). If we are trying to explain military expenditure using a theory of the state, how does Dr Smith's approach explain such expenditures by non-capitalist states? One possi bility is that UK and USSR defence expenditures are positively associated, although, as Dr Smith recognises, this prediction is not specific to Marxist models. In addition

Maurice Dobb's critique of theories of value and distribution

Abstract: The economic writings of Maurice Dobb cover a remarkably wide range, cutting across the narrow boundaries that professional specialisation has evolved. This article addresses itself to a segment of his work, namely the critique of economic theory that Dobb presents through his review of economic thought. The task is by no means easy, because Dobb was engaged continuously in such a review over a long period of creative writing. Unavoidably, we have to concentrate here on only a few central issues; we have chosen those concerning the alternative theories of value and distribution. The main sources drawn up for our purposes are his Wages (first published in 1927), Political Economy and Capitalism (first published in 1937, hereafter PEC), On Economic Theory and Socialism (first published in 1955, being a collection of earlier articles, hereafter ETS), and his last major work, Theories of Value and Distribution (1973, hereafter Theories).

Professor Morishima on heterogeneous labour and Marxian value theory

Abstract: In our paper, 'The Marxian theory of value and heterogeneous labour' (1977), we have shown that the heterogeneity of the labour force in capitalist society is a necessary and integral aspect of the reproduction of capitalism. Hence the assumption of the reduci bility of heterogeneous labour to common labour is fatal to the labour theory of value. However, we have also shown that this reduction is unnecessary, and indeed in many cases occludes our understanding of social processes. Professor Morishima (1978) has taken issue with two aspects of our paper: its mathe matics and its economics. His comments on our mathematics are indeed helpful in rectifying certain deficiencies in our proofs, though they vitiate none of our theorems, nor do they alter any of the substantive propositions outlined at the end of the article and the beginning of the appendix. We are grateful for Morishima's criticism. By con trast, his comments on our economics constitute an attempt to defend a theoretical framework whose fundamental inadequacy we sought to demonstrate in our article. Consider first the mathematics. We shall show that, contrary to Morishima's asser tion, Lemma 6 is correct, and for this reason his objection to our Theorems 2 and 4 cannot be sustained. As Professor Morishima confirms in footnote 1 to his remarks on our paper, his counter-example to Lemma 6 violates one of the conditions of the model—namely the 'condition of reproducibility', FT^O, expressed in equation (1) on page 186 of the original article. Indeed, the data used in Morishoma's attempted counter-example together with F7&0 imply a rather severe restriction on the values of x. For values of x such that x2/x1 = 9, and only for these values, F is non-negative (indeed F1 = F2 = 0). The reader may readily confirm that for these values of x, a, and tr2 are both zero. Thus Lemma 6 is not contradicted. Indeed, Morishima concedes this point in his footnote 1. Morishima is correct, however, in noting that Lemma 6 is incorrectly proved. In particular, the assumption that F>0 is nowhere employed. The correct proof is as follows :

Marxian models of reproduction and accumulation

Abstract: This paper presents three formal Marxian models of reproduction, each an elaboration of the previous one. The first is a model of price formation in which the scale and com position of goods output play no role. The second introduces the output side of the economy, in a classical Marxian model of simple reproduction, where there is no accumu lation. The third allows expanded reproduction—that is, accumulation. Most discussions of Marxian reproduction schemes employ aggregates in terms of labour values (C, V and S) to trace out the equilibrium conditions of the system. This, indeed, has often been taken to be the hallmark of a Marxian general equilibrium discussion. Here, the models are denominated in prices (not values) and hence the familiar Marxian equations are not visible. What, then, allows one to call these models Marxian? The barometer of a Marxian analysis is the role given to class struggle and the concept of exploitation : these elements, it is hoped, will be brought to the fore here. The use of labour values does enter into the definition of the rate of exploitation, and that is the only way labour values appear in these models. In particular, labour values are not used in any capacity to describe exchange. Indeed, the author believes this is precisely the proper scope for the use of labour values; this issue, however, is peripheral here, and is discussed elsewhere (see Roemer, 1977). Some concepts will appear differently here than readers of Marx are perhaps accustomed to. The concept of a worker's subsistence bundle of consumption goods is re placed by a variable consumption bundle which emerges as a consequence of class struggle, in a sense which will be made clear. Another modification of classical analysis is the provision of a welfare state in the model of extended reproduction: profits are taxed to feed the unemployed. (The unemployed, however, will still exert a downward pressure on the real wage, in their capacity as industrial reserve army.) These two specifications are attempts to make the models conform more closely to present capitalist reality, and to show that a Marxian theory of reproduction does not depend on the notion of a sub sistence wage.

In review of Keynes

Abstract: the theoretical structure and scholarly worth of the General Theory. In this short review of Keynes' book Patinkin first develops a version of that maddeningly elusive and not well understood model of aggregate supply and demand which Keynes hid somewhere in the early pages of his General Theory. He next examines that old, highly important, but apparently still unsettled question as to the effect a reduction in the money wage rate will have on the level of employment. Patinkin concludes his three-chapter dis cussion with some original and valuable observations concerning what he calls 'The conceptual framework of the General Theory'.\ Despite the fact that the whole of Patinkin's book contributes much to our under standing of the development of Keynes' monetary thinking, his brief discussion of the General Theory is not fully satisfactory. The reason for this is that it fails in two major respects to uncover the full importance of those aspects of the General Theory he chose to investigate. Specifically, the model of aggregate supply and demand which Patinkin puts forward in his Chapter 9 captures only a small part of the rich analytical structure Keynes formulated early on in the General Theory. Secondly, perhaps because of Patinkin's inadequate account of Keynes' model of supply and demand, his discussion of the effects of money wage rate reductions on the level of economic activity misses both the main line of Keynes' reasoning and the importance of his conclusions on this subject. This paper will investigate more fully the short-run dynamic disequilibrium model of employment which Keynes developed in Chapters 3 and 5 of the General Theory. To do this, I shall first render a sketch of Patinkin's somewhat conventional interpre tation, and then construct a more extended version of the same material. Following this, two distinct but complementary lines of thought which Keynes explored, having to do with the question of flexible money wages, will be considered. The two lines of

Labour as risk-bearer

Abstract: The employee's right to co-determination and a share in the company's profitsf is usually justified by reference to equality and redistribution of income. For example, what is known in Sweden as the Meidner Fund proposal* was given this kind of support. As is shown below, the right to co-determination and profit-sharing can, however, be justified by reference to that part of the contractual approach to the company's activities which is based on Knight's theory of risk-bearing (Knight, 1921).

Random biographical notes

Abstract: These notes, written in 1965for Tadeusz Kowalik, provide an apt introduction to this issue of the Cambridge Journal of Economics which is dedicated to the memory of Maurice Dobb, for they reveal the political commitment and humanity of a modest but essentially courageous man. The essays which follow examine a variety of aspects of the wide range of Maurice Dobb's contributions to economic knowledge. All display a spirit of constructive criticism which is appropriate in approach ing the work of such a major figure.

On the political economy of technological choice and development

Abstract: Dobb's contribution to the debate on choice of technologies introduced a time perspec tive and brought out clearly the necessity for choosing between different time profiles of consumption over time. As extended by Mathur, the Dobb-Sen framework can also accommodate heterogeneity of consumer and capital goods. However, it will be argued below that the whole problematic is incorrect because the choice of technology is not effected once for all, but has to be made continuously, so that the same problematic must also accommodate technological development. Furthermore, because the Dobb Sen-Mathur framework excludes considerations of class relations, totally misleading prescriptions for choice can be derived in class societies. A review of the damage caused to technology structures and to the processes of technological innovation by the phenomenon of underdevelopment can provide a warning about what not to do. The practice of the Chinese in eradicating many of the characteristics of underdevelopment, particularly as regards choice of technology and technical development, can contrariwise serve as guide-posts—but no more than guide-posts—to other societies which are prepared to bring about fundamental social changes which are egalitarian in direction.

Economic development in Meiji Japan and contemporary China: a comparative study

Abstract: Many distinctive features of early Chinese and Japanese development can be under stood most readily in terms of the dominant class interest in their respective eras of modernisation. The main aim of this essay is to show that the basic pattern of economic development in Meiji Japan (1868-1912) was shaped by the interests of the property owning classes—mainly landowners and capitalists—while that of China since libera tion (1949) has been shaped by the interests of the direct producers—mainly poor peasants and workers. Reflecting the composition of its dominant classes, the Japanese case is marked by the sacrifice of the welfare of the majority of the population, growing inequality in the distribution of income and wealth, and a strongly elitist orientation, with the Chinese case contrasting in each respect. Yet, in China, this orientation of development gains towards the majority of the population was achieved simultaneously with a highly respectable macroeconomic growth performance over the post-1949 period as a whole—a performance which, incidentally, was far superior to that of Meiji Japan (though, for methodological reasons, no simple comparison is legitimate here). After a comparison in section 2 of the initial economic conditions in China and Japan, section 3 provides an analysis of the relations between class structure and development characteristics in each of the two countries. Section 4 compares their overall achieve ments with respect to national income growth and capital accumulation, followed in section 5 by a brief summary of the entire argument. The relevant data on the two countries' agricultural and industrial performances are presented in the Appendix.

The institutional framework of Dobb's economics

Abstract: This paper is concerned with the institutional aspects of Maurice Dobb's economic analysis. I have adopted a broad definition of 'institutions'—these include not only the components of the superstructure, but also the forms of ownership and production— and I refer to the instrumental or formal-model aspect of Dobb's work only insofar as it is indispensable for an understanding of his socio-economic views. Throughout the paper I compare the views of Dobb with those of another famous economist, Oskar Lange. This comparison is partly motivated by a sense of personal affinity, f but the decisive factor is that both authors are well known as pioneers of the economic theory of socialism, and, as such, as proponents of two opposite concepts of the functioning of socialist economies. In the 1930s Oskar Lange, with his model of 'market' or 'competitive' socialism, and Maurice Dobb, with his 'centralist' model, outlined the research domain of a new economic discipline which, in later years, was to become the object of inquiry of many economists. And during these later years the two authors were continually modifying their views, and approaching each other along what was anything but a straight path. The differences between Dobb and Lange will be discussed later, but for the moment let us indicate some of their similarities.

Linking wages to prices without causing inflation: deferred income in theory and practice

Abstract: 'a demand on the part of the Trade Unions for an increase in money rates of wages to compensate for every increase in the cost of living is futile, and greatly to the dis advantage of the working class. Like the dog in the fable, they lose the substance in gaping at the shadow. It is true that the better organised sections might benefit at the expense of other consumers. But except as an effort at group selfishness, as a means of hustling someone else out of the queue, it is a mug's game to play. In their minds and hearts the leaders of the Trade Unions know this as well as anyone else. They do not want what they ask. But they dare not abate their demands until they know what alternative policy is offered. This is legitimate. No coherent plan has yet been put up to them.'