Friday, September 12, 2008

The Economics of Kapital and the Capital of Economics

I am preparing a talk to give in China in a few months. I have an initial draft & would very much appreciate feedback. Warning: it is a first draft.

The Economics of Kapital and the Capital of Economics (doc)


jsalvati said...

Isn't your carrier pigeon example sort of a text book example of a public good problem? Why would you not point that out, your discussion seems very roundabout.

"A coordinated economy in which producers and technologists communicated among each other directly, rather than indirectly through prices, could avoid some of these inefficiencies."
This seems like a weird suggestion since you don't really talk about communication problems at all before this sentence. If you had said something here about how uncertainty means that some resources will be poorly used (in hindsight of course).

"The background to this observation is the idea that the core of capitalist production was cost minimization, which was accomplished by cutting back on labor costs, either through holding wages down or driving workers harder.... etc."
This seems like a good point. My impression is that some companies do focus too much on reducing labor costs (perhaps because they are very visible). However, it is easy to be biased about this. I see it mostly when companies try to cut down on their engineering staff (since I am an engineer) even though engineers are often mostly concerned with reducing other costs. However, it may be that engineers overestimate their marginal product (we certainly overestimate other things).

Myrtle Blackwood said...

Hi Michael
Thanks for posting this. In its totality I found your article very helpful.

Some observations:

You said:
"... the economic dogma that markets are efficient is highly questionable. ... economics has never bothered to produce a serious theory of capital. Instead, the discipline takes care not to develop a serious theory of capital by making unrealistic assumptions that presume that business has knowledge of the future or that investment lasts only one period or, in the case of resources, that some new backstop technology will provide an adequeate substitute.
Without such assumptions, capitalist investment could not be portrayed as the engine of a process of efficient utilization of resources, but rather would be exposed as a relatively uninformed bet on the future.
A coordinated economy in which producers and technologists communicated among each other directly, rather than indirectly through prices, could avoid some of these inefficiencies. Unlike business, economics can avoid such problems by assuming them away...

Isn't it the 'power elite' that has ensured that 'economics' or 'the discipline' hasn't produced a serious theory of capital? The people who oversee the formulation of textbook economics? The 'conventional wisdom' appears to reflect the political unnacceptability of realistic (so-called 'radical) formulations of economic theory.

Is the problem an 'academic' one, or is it 'political' and 'ethical' in nature?

You said: "the strongest argument that proponents of markets offer is that capitalism is efficient because it ensures that investment goes to the most ‘productive’ activities....

I feel that economists and others are falling into a trap here by drawing on the erroneous assumption of today's 'market in action'.

The 'market' does not appear to be the dynamic that explains the dominant forces in our economies today. Natural and other resources are being allocated by governments in league (or in consultation with large corporate oligopolies). Certain Government policies (monetary and fiscal policies) may be based on market theories but they don't work anymore because big business can simply pass on costs of higher interest rates to consumers. Tax incentives don't necessarily result in increased business output, etc.

We do appear to already have a 'co-ordinated economy'. The sole participants are a powerful and tiny minority. Is it 'capitalism' or 'corporatism'?

The following sentence in your article is missing a word, btw:

"Reproduction costs complicate the analysis because, at the time of an investment, nobody .... the future."

Michael Perelman said...

Thank you, both Brenda and JSavalti, for your comments. I will go back to the drawing board this afternoon.