Classical Theories of Accumulation and Growth
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Smith: specialization  virtuous circle
Ricardo: diminishing returns  misery
Mill: enlightened intervention  progress
Marx: contradictions  crises
 revolution
Accumulate, accumulate!
This is Moses and the Prophets.
Capitalist must continuously expand his capital
in order to preserve it.
St. Joan’s Put-downs
Cambridge England v. Cambridge Massachusetts
Fundamental differences between orthodox & Marxian economics:
Capitalism as part of the eternal order of Nature vs. Capitalism as a passing phase
Harmony of interests vs. Conflict between owners who do not work & workers who do not own
…The academics did not even pretend to understand Marx
[whose] metaphysical habits of thought are alien to a
generation brought up to inquire into the meaning of meaning.
…the questions [Marx] posed are still relevant today, while the
academics continue to erect elegant elaborations on trivial
topics…[T]he development of abstract argument has run far
ahead of any possibility of empirical verification.
…The orthodox economists…identified themselves with the
system and assumed the role of its apologists, while Marx set
out to understand…capitalism in order to hasten its overthrow.
…they preach only the gloomy doctrine that all is for the best in
the best of all possible worlds.
Joan Robinson, An Essay on Marxian Economics
Manchester's Factory Children Committee, 1836
Campaign for the Ten-Hour Day
http://www.rhapsody.com/peteseeger/greatesthits/talkingunion/lyrics.html
Karl Kautsky, 1854 – 1938
Karl Marx, 1818 – 1883
Frederick Engels, 1820 – 1895
The boss won’t listen
if one guy squaws,
But he’s gotta listen
if the union talks.
Workers of the world unite!
You have nothing to lose but your chains.
Manifesto of the Communist Party, 1848
Das Kapital, volume 1, 1868
Das Kapital, volumes 2 and 3, 1893, 1894
Theories of Surplus Value, 1905 - 1910
Marx’s Biography
•Law  Philosophy Ph.D. (Jena by mail)  Hegelian Left
Unemployed  Editor, Rheinische Zeitung  Unemployed
•Marrried Jenny von Westphalen  7 children/4 survived
•Paris/Brussels revolutionary  1848 Communist Manifesto
1849 London exile
•British Museum Library/Das Kapital
•Engels collaboration and support
•Communist politics/feuds
In the Communist Manifesto, Marx and Engels put forth a bold proposition
about the inexorable collapse of capitalism. As ideology, the Manifesto was
brilliant. As economics, it fell far short of scientific analysis. Marx needed to
provide a scientific proof for what he and Engels had so boldly proclaimed.
His response was Das Kapital (3 volumes, 2,100 pages).
Jürg Niehans, A History of Economic Theory
The Communist Manifesto, 1848
• A spectre is haunting Europe — the spectre of communism.
• The history of all hitherto existing society is the history of class
struggles. Freeman and slave, patrician and plebeian, lord and
serf, guild-master and journeyman, in a word, oppressor and
oppressed, stood in constant opposition to one another…
• The bourgeoisie, historically, has played a most revolutionary
part … The bourgeoisie cannot exist without constantly
revolutionising the instruments of production …The need of a
constantly expanding market for its products chases the
bourgeoisie over the entire surface of the globe …The
bourgeoisie, by the rapid improvement of all instruments of
production, by the immensely facilitated means of
communication, draws all, even the most barbarian, nations into
civilisation …The bourgeoisie has subjected the country to the
rule of the towns. It has created enormous cities… It has
agglomerated population, centralised the means of
production, and has concentrated property in a few hands.
• The bourgeoisie, during its rule of scarce one hundred
years, has created more massive and more colossal
productive forces than have all preceding generations
together. Subjection of Nature’s forces to man, machinery,
application of chemistry to industry and agriculture, steamnavigation, railways, electric telegraphs, clearing of whole
continents for cultivation, canalisation of rivers, whole
populations conjured out of the ground — what earlier
century had even a presentiment that such productive
forces slumbered in the lap of social labour?
• Modern bourgeois society…is like the sorcerer who is no
longer able to control the powers of the nether world whom
he has called up by his spells.
• The essential conditions for the existence and for the sway
of the bourgeois class is the formation and augmentation
of capital; the condition for capital is wage-labour. The
advance of industry…replaces the isolation of the
labourers… What the bourgeoisie therefore
produces… are its own grave-diggers.
Some Marxian Vocabulary
…As for the technical jargon of the
Communists, it is as far removed
from common speech as the language
of a mathematical textbook.
George Orwell
The Road to Wigan Pier
• Historical materialism
• Dialectic: thesis,
antithesis, synthesis
• Productive forces
• Surplus value
• Transformation problem
• Mode of production
• Ideological
superstructure
• Inherent contradictions
Historical Materialism: Progress and Revolution
• History as sequence of economic revolutions
Internal Contradictions
Tension and Revolution
•Schumpeter: Innovation/Cycles
•Olson: Vested Interests
•Kuhn: Scientific Revolution/
Paradigm Shifts
Revolution!  New Economic System
Ideological Superstructure
Initial Economic System
(Mode of Production)
•Class structure
•Property rights
•Distribution of income
•Ownership of capital
•Government, Laws
•Religion
•Culture Perpetuate ruling class dominance.
•Suppress change!
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Some Marxian Vocabulary
• Rate of exploitation
Historical materialism
• Rate of profit
Dialectic: thesis, antithesis,
• Reserve army of
synthesis
unemployed
Productive forces
• Accumulation
Surplus Value
• Immiserization
Transformation problem
• Liquidation crisis (hoard SV)
Mode of production
• Realization crises
Ideological superstructure
• Underconsumption crisis
• Overproduction crisis
Inherent contradictions
• Disproportion crisis
Class struggle
• Organic composition
• Bourgeoisie
• Proletariat
• Capitalism: M – C – M’
• Profit maximization rules
Debts to
•Quesnay…balanced growth
•Smith…growth dynamics
•Ricardo…labor theory of value
… but not diminishing returns
Flavors of Crisis
Invention
Investment
Capital
Widening
Capital
Deepening
Reserve
Increased
Employment
Decreased
Employment
Army
Decreased
Wage Bill
Rising Wages
Profit
Squeeze
Overproduction
Crisis
Too much capital
Equilibrium
Cycles
Worker-capitalist
ecosystem
Contradiction
& Collapse
Increased
Organic
Composition
Falling
Rate
of Profit
Expropriators
are
expropriated
Underconsumption
Crisis
Decreased
Demand
Too little demand
A Summation (Jürg Niehans, A History of Economic Theory)
• As a prophet, Marx was a failure…The predictions of the immiserization of
the working class, of the progressive deepening of economic crises (?), and
of the imminent collapse of capitalism were patently falsified by
events…capitalism appears to be capable of virtually infinite development,
transformation, and variation without a revolutionary collapse. The dialectic
model of history has failed.
• Marx did make a contribution to [economic science] that was mediocre. His
most fundamental contribution was the clear formulation of the question of
how political and social institutions interact with economic processes.
• For example, how does legislation affect income distribution and how do the
consequent changes in income distribution, in turn, affect legislation?
» {Smith, Lectures on Jurisprudence, has precedence}
• Marx’s foremost contribution to economic theory was his model of
(balanced) growth…His exposition was clumsy, fragmentary, and almost
unintelligible but the basic notions are there.
• The sad truth was that his training had not equipped him for effective
scientific research and he was constantly frustrated by his propensity
to pose ambitious problems that he could not solve.