Sunday, March 30, 2014

Sandwichman — Inequality and Sabotage: Piketty, Veblen and Kalecki (for anne at Economist's View)

Veblen and Kalecki explain Piketty a century ago (Veblen) and a half century ago (Kalecki). Great quotes.

Inequality and Sabotage: Piketty, Veblen and Kalecki (for anne at Economist's View)

For some reason, the page is now not available. Here are the quotes.

UPDATE: link is now working. I'll leave the quotes up anyway.

Veblen in The Engineers and the Price System:
The mechanical industry of the new order is inordinately productive. So the rate and volume of output have to be regulated with a view to what the traffic will bear — that is to say,what will yield the largest net return in terms of price to the business men who manage the country's industrial system. Otherwise there will be “overproduction,” business depression, and consequent hard times all around. Overproduction means production in excess of what the market will carry off at a sufficiently profitable price. So it appears that the continued prosperity of the country from day to day hangs on a “conscientious withdrawal of efficiency” by the business men who control the country's industrial output. They control it all for their own use, of course, and their own use means always a profitable price. In any community that is organized on the price system, with investment and business enterprise, habitual unemployment of the available industrial plant and workmen, in whole or in part, appears to be the indispensable condition without which tolerable conditions of life cannot be maintained. That is to say, in no such community can the industrial system be allowed to work at full capacity for any appreciable interval of time, on pain of business stagnation and consequent privation for all classes and conditions of men. The requirements of profitable business will not tolerate it. So the rate and volume of output must be adjusted to the needs of the market, not to the working capacity of the available resources, equipment and man power, nor to the community's need of consumable goods. Therefore there must always be a certain variable margin of unemployment of plant and man power. Rate and volume of output can, of course, not be adjusted by exceeding the productive capacity of the industrial system. So it has to be regulated by keeping short of maximum production by more or less as the condition of the market may require. It is always a question of more or less unemployment of plant and man power, and a shrewd moderation in the unemployment of these available resources, a “conscientious withdrawal of efficiency,” therefore, is the beginning of wisdom in all sound workday business enterprise that has to do with industry. [emphasis added]

Should the business men in charge, by any chance aberration, stray from this straight and narrow path of business integrity, and allow the community's needs unduly to influence their management of the community's industry, they would presently find themselves discredited and would probably face insolvency. Their only salvation is a conscientious withdrawal of efficiency.
Kalecki in "The Political Aspects of Full Employment":
Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter's profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them?
Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence.


Dan Kervick said...

I really don't think Veblen is talking about the same phenomenon Piketty has been studying.

Dan Kervick said...

Nor is Kalecki. Neither one is proposing reasons for the return to capital to increase over time.

Clonal said...

Also, James Galbraith on Picketty - original here

Although Thomas Piketty, a professor at the Paris School of Economics, has written a massive book entitled Capital in the Twenty-First Century, he explicitly (and rather caustically) rejects the Marxist view. He is in some respects a skeptic of modern mainstream economics, but he sees capital (in principle) as an agglomeration of physical objects, in line with the neoclassical theory. And so he must face the question of how to count up capital-as-a-quantity.

His approach is in two parts. First, he conflates physical capital equipment with all forms of money-valued wealth, including land and housing, whether that wealth is in productive use or not. He excludes only what neoclassical economists call “human capital,” presumably because it can’t be bought and sold. Then he estimates the market value of that wealth. His measure of capital is not physical but financial.

Unknown said...

Veblen is discussing the dangers of overproduction and its effect on employment and economic stability, while Piketty is going on about financial over-accumulation and the redistribution of social power which accompanies it.

Two different things.

Matt Franko said...


That is sort of the way I look at 'capital' though I am a few years older than Picketty...

I dont think the younger generation has much use for Marx's concept of 'capitalism'... its for "old people"....


Clonal said...

Matt, I was already in Grad school when Picketty was born - so I can relate to your thoughts.