Sunday, July 19, 2009

An Idiosyncratic Road to Crisis Theory

An Idiosyncratic Road to Crisis Theory

As an undergraduate, introductory microeconomics didn't make any sense. After a few weeks, I realized that it was easy to get a good grade until by working backwards. Since the goal was to show that everything worked out perfectly, all you have to do on an exam is to start with the answer that the market creates the best outcome, then work backward to figure out what would make it occur. Economics soon became my easiest class. Although I do not follow that procedure anymore, I am convinced that much of the economics profession still does.

Eventually, some seemingly obvious questions began to trouble me. Economics, which purports to explain the nature of a capitalist system motivated by profit maximization, lacks a theory of capital as well as any coherent explanation of the determination profits. One of reasons is simple: economics generally deals with a static conception of the world, yet fixed capital, which becomes increasingly important with the maturation of capitalism, calls out for a dynamic analysis, even with a static conception of the world.

Read the rest here


Brenda Rosser said...

"I can say, with some
degree of confidence, that those in authority are preparing the seeds of the next great crisis.

Certainly the Rudd Labor Government in Australia is doing just that by artificially propping up house prices in the outer suburbs of the major cities. It is doing this by doubling the first home buyer's grant and loosening restrictions on foreign investment in housing.

The industrial ecocide in Tasmania's forests continues apace as well. Immensely aided by the complete dismantling of legislative environmental commitments in the Federal EPBC Act. The Rupert Murdoch and Fairfax media conglomerations stand to benefit considerably by this continued rape.

Robert said...

The capital-intensive machinery necessary to operate in the rigged economic environment certainly does turn a hectare of forest into an almost valueless commodity. It is worth more as firewood or as a public common than woodchips. And the product of the woodchips is likely to be worth less than the chips themselves (cardboard wrapper for a transformer toy vs garden mulch.)

The whole system seems crazy ... to where will the woodchippers grow, if all the available land and water have been taken and harvest machinery is robotic - I just dont see how growth-oriented economics can work ... competitive or cartelled, with or without inherent contradictions of deflation and fictitious capital.

What is the paradigm that judges this currently "rational" behaviour as unethical? Who can we imbue with the authority of this unknown paradigm to say "No!"?
Certainly not the Rudd government.

[Next Rudd Government stimulus policy : subsidised transformer toys for empoverished woodchip robots?]

john c. halasz said...

Though I'd agree that the scope of the public goods argument is much broader than allowed for in the neo-classical textbooks, what you're calling the quasi-public-goods character of output is usually referred to as the increasing commoditization of output. And, yes, neo-classical economics fallaciously tends to attribute economic growth to the vaunted efficiency of markets, when the main source is actually technical improvements in the capital stocks of production systems, which may be stimulated and promulgated by markets, but are not reducible to "pareto-improvements" through market exchanges, while such technical improvements do, indeed, tend toward the concentration of capital in market-dominant oligopolies and their strategic rent-seeking organizational behaviors, which further remove production from the supposed competitive efficiency induced by markets. But such concentrated large-scale production really does conduce to increases in the real distributable surplus-product, which partly "justifies" such rents, so the key question is how exactly such large-scale organization of production is to be regulated to deal not just with their obvious social and environmental externalities, but to conserve the further potential for technical innovations in processes and products that do, indeed, tend to devalue capital goods in their realization as profits, even as they displace gainful employment, as a public good. Not exactly an easy question to answer, as it involves at once uncertainties and unforeseeable technical developments, rooted asymmetries in distribution and the problem of ascertaining and implementing collective ends.

Eleanor said...

I think I follow your article. Interesting as always.

I am now going off on a bit of tangent. My problem, doing accounting for nonprofits, was how to value the often odd bits of capital which nonprofits own. My last job owned a lot of antique printing equipment, which was in use and essential for the working of the organization. How does one value a 100+ year old printing press? It's fully depreciated, yet probably has an increasing market value, as such presses become more rare. We got a lot of our presses for free from people who wanted to get rid stuff in the barn. But we had no guarantee that someone would show up with an old press when we needed it. I wanted to establish a replacement value. What if one of the presses broke and we couldn't fix it and we needed a replacement right now? The only thing I could think of was getting a value off Ebay.

In the end, what many nonprofits do is value the stuff that's easy to value -- the computers in the office -- and ignore everything else, since it will not show on the balance sheet, which only pays attention to objects that can be depreciated.