Social Fairness and Economics

Lance Taylor, Armon Rezai, Thomas Michl

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136270871
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This volume brings together papers inspired by the work of Duncan Foley, an extraordinarily productive economist who has made seminal contributions to a wide variety of areas. Foley's work cannot be easily classified, but one thread that runs through it is a critical examination (along both ethical and analytical lines) of conventional neoclassical economic theory, particularly involving general equilibrium theories of value and money. Foley was a pioneer of complexity economics as well, which adopts approaches to these questions drawn from natural sciences, so the collection therefore has an interdisciplinary quality that will interest a wide variety of readers.

Some of the chapters are intellectual biographies that contextualize and identify Foley's contributions to Keynesian macroeconomics, Marxian value theory, and complexity theory in economics. The topics covered include the economics of complexity; the ethics of general equilibrium theory; the economics of climate change; applications of Keynesian, Marxian and Ricardian political economy; and money and financial crises.

The collection should be useful to scholars who work in various economic traditions critical of the currently dominant free-market approach, but it also speaks to scholars of critical theory in various disciplines beyond economics such as the mathematicians, physicists, and other natural scientists who are interested in understanding the complexity of social processes using their analytical frameworks. This book should also appeal to graduate students in economics who are working in these traditions, as well as scholars (including current graduate students in orthodox programs) who are dissatisfied with the current state of economic theory and would like to satisfy their intellectual curiosity by sampling the contributions of critical theorists.

Part III

Classical political economy

Growth and distribution

10	Rate of profit and crisis in the US economy
	A class perspective
	Simon Mohun

Introduction

In Understanding Capital (Foley, 1986), Duncan Foley proposed a way of thinking about Marx’s categories that developed the approach of his earlier article (Foley, 1982; see also Duménil, 1983; Mohun, 1994). Marx had built his analysis in Capital Volume 1 on the basis of the labour theory of value, which postulated that the price of each commodity p_i was its labour value λ_i divided by the value of the money commodity λ_mc. For (the typical) commodity i at unit level,

(1)

His subsequent Volume 3 analysis showed that such value-price relations could not in general hold because of the different compositions of capital (ratios of labour to non-labour input) involved in the production of commodities. Competition tendentially equalized the rate of profit, and entailed price-value deviations for individual commodities. Notwithstanding individual price-value deviations, Marx tried to show that the labour theory of value continued to hold at an aggregate level. Subsequent commentary on and evaluation of Marx’s demonstration has become known as “the transformation problem”, and a huge literature has established positions along a spectrum varying from praise of Marx’s complete success to condemnation of his complete failure.

Foley’s approach sidestepped this debate, by proposing that Marx be interpreted as saying that, in the aggregate, hours of productive labour (H_p) and money value added (Y) are essentially the same thing; the one is always equal to the other, with the value of money λ_m relating the different dimensions.¹ That is, whatever the individual price-value deviations,

(2)

Money is no longer a commodity such as gold, but is a composite whose value is defined by equation (2). Further, while labour-power is commodified under capitalist relations of production, it is not a produced commodity. With neither composition of capital nor profit to consider, the tendential equalization of profit rates through competition has no relevance, so that at this level of abstraction, the relation between the value of labour-power and its price is unaffected by price-value deviations. Therefore equation (1) applies and the price of labour-power per hour of productive labour hired (the hourly wage rate w_p) is simply its value per hour of labour hired (λ_z) divided by the value of money, or

(3)

Equations (2) and (3) obviously hold in a world in which equation (1) holds for all commodities. But Foley’s proposal that equations (2) and (3) also hold in a world of unequal or non-equivalent exchange (in which equation (1) does not generally hold) provided a powerful way of using the labour theory of value empirically. For, since total value added in hours (H_p), is the sum of variable capital (V) and surplus value (S), and since total money value added is the sum of total wages (W_p) and surplus value in money terms (MSV), then it is easy to show that

(4)

(5)

and

(6)

In particular, surplus-value in money terms remains proportional to surplus-value in (socially necessary) labour hours, and therefore unequal exchange makes no difference to the fundamentals of the analysis of exploitation and profit. In the course of his argument, Foley made reference to the applicability of the categories to the US economy, using real (rounded) numbers (Foley, 1986, pp. 14–15, 46, 122–124). While his purpose was to illustrate the theoretical concepts and provide plausible orders of magnitude, his approach raised the possibility of a more sustained empirical analysis on this value-theoretic basis.

This chapter investigates data for the US economy within this framework. It begins by relating the 1982 Foley approach to the forces and relations of production in order to develop a focus on capital productivity (the ratio of money value added to the fixed capital stock) as encapsulating the forces of production, and the money surplus value share as encapsulating the relations of production. Combining the two generates the overall rate of profit for the economy as a whole, whose long run development is then explored.

There are a number of substantial and influential analyses which have proposed a long run Marxist analysis of the US economy. Representative analyses include Brenner (1998, 2002), Duménil and Lévy (1993, 2004, 2011), Gillman (1957), Moseley (1991), Shaikh (1999, 2010), Shaikh and Tonak (1994) and Weisskopf (1979). This chapter proposes that the profit share and consequently the rate of profit have not been sufficiently well-specified in the Marxist literature. Profits are by definition the residual from money value added once wages have been paid. But little attention has been given to how to measure wages.² Generally wages are taken to be employee compensation (possibly together with some estimate of the wage component of self-employed income). But in class terms this includes both working-class labour income and non-working-class labour income. Conventionally defined wages and profits are not class categories, and if class is to be the primary category of analysis, this makes a substantial difference to how the data have to be constructed. This recognition problematizes the conventionally defined rate of profit as the key indicator of the development of capitalism. Constructing a “class rate of profit” requires that the labour income accruing to those who are not members of the working class be explicitly considered, and this in turn requires both a specification of how the non-working-class might be empirically identified, and a specification of how to measure their labour income.³

In short, class matters. This chapter therefore focuses particularly on the relations of production. Using annual data beginning in 1909, it finds that a class-defined rate of profit (with a numerator comprising profits plus the labour income that does not accrue to the working class) is generally rising through time; that is, there is a marked long run tendency of this class rate of profit to rise. That rise is punctuated by short run stagnation of profitability that precedes serious crises in 1913, 1929, 1979 and 2007–8. Resolutions of the crises which these short run downturns precede more than overcome the preceding stagnation. But processes of crisis resolution require régime change.⁴ In 1913, that change was relatively minor (the formation of a national banking system, whose roots lay in response to the crisis of October 1907). In the second two cases, the changes were major (to a weak form of social democracy after 1929, and to neoliberal finance after 1979). As of 2012, resolution of the crisis of 2007–8 is uncertain and continuing.

Forces and relations of production

Classical Marxism

The forces of production are “material productive forces” (Marx, 1987 [1859], p. 263) and concern the appropriation of the natural world to human ends. They describe the knowledge of science and technology, and how this is put to practical effect in the organization of production. For most of human history, such knowledge has increased only slowly, but after about 1500 this began to change. In the modern era (from about 177...

Table of contents

• Cover
• Half Title
• Full Title
• Copyright
• Contents
• List of figures
• List of tables
• List of contributors
• Introduction
• Personal remarks: Festschrift conference, April 21, 2012
• PARTI Socio-economic ideology and methodology
• PART II Neoclassical economics: dispersed and decentralized exchange
• PART III Classical political economy: growth and distribution
• PART IV Complexity: barriers and bounds to rationality
• Index