Robert Vienneau — Marx Versus Classical Economics — and more

Robert Vienneau approaches thinking about Marx in relation to previous economists from the perspective of the different distinctions that Marx drew. This is entirely consistent with Marx's training in philosophy, since a cardinal principle of philosophical method is overcoming apparent difficulties in expression by drawing distinctions. This involves changing the grain of the model. A grainy model has the advantage of simplicity but risks the disadvantage of being too simplistic an account.

Importantly, Vienneau notices the purpose for which classical economics was constructed.

The spokesmen for the emerging and progressive capitalist class sought for a theory justifying their opposition to aristocrats and the and the ancien régime. And classical economics was that theory.

The result was what Marx viewed as "bourgeois liberalism," in which capitalists replaced the landed gentry as the beneficiaries of economic rent.

Some argue that neoclassical economics played a similar part as classical economics aimed at the ancien régime in being aimed at rising socialism, e.g., Marx and Engels, and Henry George.

Thoughts On Economics
Marx Versus Classical Economics
Robert Vienneau

See also

Short review of Tim Rogen's The Moral Economists.

The Enlightened Economist
Morals and economics
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporationlso

See also

Marginal Revolution
*Enlightenment Now*, the new Steven Pinker book
Tyler Cowen | Holbert C. Harris Chair of Economics at George Mason University and serves as chairman and general director of the Mercatus Center
also

Real-World Economics Review Blog
Polanyi’s six points

Zaman Assad

also

J. W. Mason's
The Class Struggle on Wall Street: A Footnote
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

Rishabh Kumar — Not just r > g but r + q >> g: Piketty meets Ricardo in the long run of Indian history

Many assets have the potential to become valuable without actual accumulation. Writing in the initial stages of capitalism, Ricardo recognized the unusual position which landlords occupy: they control a non-reproducible asset, which generates rents under expanded capital accumulation. These rents extract away from surplus value and get capitalized into higher land prices. His vision was partially invalidated by gains in agrarian productivity but the history of wealth-income ratios testifies to the strength of the underlying principle. A monopolization of resources has the potential to drive up the magnitude of wealth as much as the accumulation process (if not more) – think of real estate prices in Manhattan, San Francisco, London, Shanghai, Mumbai and Bangalore. For any rate of capital gains (1+q) on existing assets, if q > g then wealth rises relative to income due to the divergence of asset prices and consumer price inflation. This inequality (q > g) is critical to deciphering large swings in wealth-income ratios. Over the long run, capitalists may steadily accumulate reproducible capital but in the medium run there can be strong redistributions of wealth towards the rentier class....

Echoes Michael Hudson's conclusion:

Conclusion
The rise of wealth is not simply a matter of accumulation but the designation of control under the institution of private property. Whether for the production of agricultural commodities or the provision of housing services, gaining property rights to land can redistribute wealth very rapidly. Demographic dividends and urbanization create tremendous pressure on space and have the potential to rapidly drive up wealth-income ratios. These effects can be very strong when growth creates competition for such limited assets or when lack of growth empowers those who already possess them. For example, even in rich countries like the UK and the US, modern trends seem to be a capital gains phenomena related to real estate. The demand for such an important property right residing with rentiers is as much a driver of wealth today as the steady accumulation of capital by capitalists. Today both capital and land values are rising faster than national income. As long as such private wealth grows faster than income, workers will remain excluded from any notion of shared prosperity. This is one of the reasons why Smith, Ricardo, Malthus and Marx spoke about class dynamics in rigorous terms. Much may still be learned from taking these classical political economists seriously.

Developing Economics — A Critical Perspective On Development Economics

Not just r > g but r + q >> g: Piketty meets Ricardo in the long run of Indian history

Rishabh Kumar | Assistant Professor of Economics at California State University. @Kumar_EconIneq.

Brad DeLong — John Maynard Keynes: Essays In Biography

Brad rates this as a should-read. For anyone interested in Keynesianism, Post Keynesianism and MMT, the history of economics, or economic theory, it is a must-read.

Conventional economists have apparently concluded that they don't need to read it if they even thought about, which most probably haven't, being under the spell of the "normal paradigm" in spite of its poor results empirically.

Washington Center for Equitable Growth
John Maynard Keynes: Essays In Biography

Brad DeLong

Here is a link to download Keynes's Essays in Biography (1933) as a PDF.

Another must-read from Brad.

 I think the very smart Jeffrey Friedman gets this… not quite right. The case for the empirical benefits of capitalism is very strong—but only if one is willing to remove libertarian blinders and focus on eliminating the market failures (in distributions, in aggregate demand, in externalities, in information, etc.) that keep the function the market maximizes from being a good proxy for societal well-being. And once one has the market properly supported and disciplined, the philosophical discussion can commence: Jeffrey Friedman: What’s Wrong with Libertarianism: “Libertarian arguments about the empirical benefits of capitalism are, as yet, inadequate…

From the Marxian and Institutionalist points of view,  economic liberalism, of which contemporary Libertarianism is a variant, provides the philosophical framework for bourgeois capitalism. Its fundamental weakness is prioritizing economic liberalism over social and political liberalism, which gives rise to many paradoxes of liberalism that result in illiberality such as have been pointed out many time here at MNE.

Brad also provides another keeper Keynes quote.

Here is an excerpt:

But, above all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice.

Individualism as the pursuit of self-interest does not lead to the greatest good for the greatest number the spontaneous emergence of natural order, unless "natural order" is conceived as the outcome of social Darwinism. This result is so grossly unfair that overtime it becomes unstable politically.

Keynes is saying here that individualism only works as a guiding principle of liberalism if collective consciousness is sufficiently high, which is manifested in a society's culture and institutions. The fact that civil and criminal law are needed goes to show that collective consciousness alone is not that high presently. In addition, the level of social and political dysfunctionality in liberal countries shows that the culture and institutions of the society are insufficient to bridle narrow self-interest to the degree necessary to generate a harmonious society and balanced social, political and economic conditions.

This is a design problem.

Jeffrey Friedman: What’s Wrong with Libertarianism

More from BDL:

Three Books for 2017: Economics for the Common Good, Janesville, Economism

Weekend Reading: Richard Thaler: Behavioral Economics

Cloth for Wine: The Principle of Comparative Advantage 200 years on: Introducing a new free eBook

Two hundred years ago, with a simple yet profound example about England trading cloth for Portuguese wine, David Ricardo introduced the Principle of Comparative Advantage. In this eBook, leading trade policy analysts examine whether Ricardo’s insights remain valid in a world where services as well as good cross borders as does data and technology, where there is a rising China whose growth is heavily dependent on exports, and in the face of a backlash against globalisation.

PDF Download (free with free registration)

vox.eu
Cloth for Wine: The Principle of Comparative Advantage 200 years on: Introducing a new eBook
Simon Evenett | Professor of International Trade, University of St. Gallen; Research Fellow, CEPR

Brad DeLong — Ricardo’s Big Idea, and Its Vicissitudes

Brad DeLong shows how Ricardo's version of economic liberalism based on free trade explained by comparative advantage is bourgeois liberalism that enriches the ownership class.

Washington Center for Equitable Growth

Ricardo’s Big Idea, and Its Vicissitudes

Brad DeLong | Professor of Economics at the University of California, Berkeley

Lars P. Syll — Abba Lerner and functional finance

Must-read for anyone interested in MMT.

Lars P. Syll’s Blog
Abba Lerner and functional finance
Lars P. Syll | Professor, Malmo University

Robert Wade — The market paradigm versus the production paradigm

As Ricardo is the source of the market paradigm, Charles Babbage is the source of the production paradigm, in the form of his 1832 book, On the Economy of Machinery and Manufacturers.[8] His successors included Alfred Marshall, Allyn Young, Edith Penrose and George Richardson. It is a fair bet that most economics PhD students in Anglo universities have never heard of these people, let alone read them.

The production paradigm says that the core mechanism of how economies transform (or not) lies in the combination of production capabilities, business organization, and economic governance; or what Michael Best calls the “capability triad”. Economies with high capability pivot on a sufficient density of “entrepreneurial” firms which pull basic and applied R&D or production and marketing ideas from MNCs [Multi-National Corporations] with branches in the economy in question, into innovation in products, processes, organizations, and marketing. These entrepreneurial firms do not emerge by themselves as a natural result of a well-working market. Their own internal capacity development requires a larger ecosystem of finance, skills and S&T partnerships; which depends on trust in social interactions, and therefore physical and/or cultural proximity. The government (national or regional) is the organizer, the steward of the infrastructure needed to support this ecosystem....

Real-World Economics Review Blog
The market paradigm versus the production paradigm

Robert Wade | Professor of Political Economy and Development at the London School of Economics

Ingrid Harvold Kvangraven — 200 Years of Ricardian Trade Theory: How Is This Still A Thing?

On Saturday, April 19th 1817, David Ricardo published The Principles of Political Economy and Taxation, where he laid out the theory of comparative advantage, which since has become the foundation of neoclassical, ‘mainstream’ international trade theory. 200 years – and lots of theoretical and empirical criticism later – it’s appropriate to ask, how is this still a thing?

This week we saw lots of praise of Ricardo, by the likes of The Economist, CNN, Forbes and Vox. Mainstream economists today tend to see the rejections of free trade implicit in Trump and Brexit as populist nonsense by people who don’t understand the complicated theory of comparative advantage (“Ricardo’s Difficult Idea”, as Paul Krugman once called it in his explanation of why non-economists seem to not understand comparative advantage). However, there are fundamental problems with the assumptions embedded in Ricardo’s theory and there’s little evidence, if any, to back up the Ricardian claim that free trade leads to benefits for all. On this bicentenary, I therefore think it’s timely to revisit some of the fundamental assumptions behind Ricardo’s theory of comparative advantage, that should have led us to consider alternative trade theories a long time ago....

Good summary backgrounder. "It's more complicated than that," the "that" being what is assumed.

The following quote contains an important lesson about logic and epistemology.

Rather than accept that there is something wrong with the exchange rate theory itself, empirical discrepancies are explained by measurement problems and/or imperfections in the market because of currency ‘manipulation’ (see for example Eichengreen 2013 or Gagnon 2012). In fact, neoclassical trade theory is so highly regarded that economists, almost across the board, cannot imagine any reason for China’s trade surplus with the US other than the Chinese manipulating their exchange rate in order to stimulate their exports.

What has happened here is that the theoretical model become the criterion for assessing truth rather than a model to be compared with observation in measurement.

Take probability theory. Probability theory shows the outcome of a long run roll of a coin toss, regardless of whether it is an ensemble of 1000 coins tossed at once or a single coin tossed a 1000 times. If the outcome does not converge on 0.50, then the fairness of the coin becomes suspect and not the theory.

This is not necessarily the case with a scientific theory. In the case of an anomaly scientists check the experiment but after checking and finding no errors, the theory becomes suspect. Repeated failures result in re-thinking the theory.

Because it is difficult to impossible to run controlled experiments in economics in many cases, trade being one of them, the dominant theory is never questioned. It serves as a criterion of truth whose truth is privileged from question.

Developing Economics

200 Years of Ricardian Trade Theory: How Is This Still A Thing?
Ingrid Harvold Kvangraven | PhD student in Economics at the New School for Social Research

Lord Keynes — The Cult of Free Trade in a Nutshell

Debunking another economic myth.

You might wish to save these sources for future reference and citation.

Social Democracy For The 21St Century: A Post Keynesian Perspective
The Cult of Free Trade in a Nutshell
Lord Keynes

Amy Farber — Historical Echoes: Who Wants to Be the Richest Economist?

You might think that, given the extreme levels of wealth that exist today, the richest economist would be someone who was still alive. But you’d be wrong.

Mark Skousen explains in a 2010 Daily Reckoning post how David Ricardo (1772-1823) became the richest economist in history….

Who was the second richest? None other than John Maynard Keynes.

FRBNY— Liberty Street Economics
Historical Echoes: Who Wants to Be the Richest Economist?
Amy Farber

Simon Johnson and Andrei Levchenko — The Trans-Pacific Partnership (TPP): This Is Not About Ricardo

The administration and its supporters on this issue, including leading Republicans, argue that the case for TPP rests on basic economic principles and is only strengthened by the findings of modern research. On both counts their claims are greatly exaggerated – particularly with regard to the notion that more trade, on these terms, is necessarily better for the United States. 

There is a strong theoretical and empirical case – dating back to David Ricardo in 1817 – that freer trade should make countries better off. However, modern-day trade agreements, including those currently being negotiated, are very different from earlier experiences with trade liberalization. 

The TPP is not only – perhaps not even mostly – about freer trade, and thus who gains and who loses is very much dependent on what exactly are the details of the agreement. The exact nature of the provisions matters and at this point, because the TPP text is not available to the public, we cannot be sure whom this trade agreement will help or hurt within the United States or elsewhere.

The Baseline Scenario
The Trans-Pacific Partnership (TPP): This Is Not About Ricardo

Simon Johnson, Ronald A. Kurtz Professor of Entrepreneurship at MIT Sloan, and Andrei Levchenko, Associate Professor of Economics at the University of Michigan

David F. Ruccio — Noah’s (free trade) ark

David Ricardo's (bogus) argument for free trade is repeated ad infinitum by the ownership class that Ricardo designed it for. Recall the economic history. 

Classical economics was aimed at freeing the growing bourgeois class of developing capitalism from the grip of the landed class that governed under feudalism. The chief means of production in the Agricultural Age was cultivation of land and the surplus went to the owners of the land — the monarch, along with the aristocracy, and the landed gentry to whom the monarch had granted titles that could be rescinded. When that began to shift toward owners of capital with the onset of the Industrial Age, there was a conflict over power and control between the owners of land and the owners of the capital, the haute bourgeoisie. Property rights came into play legally, for instance, and international trade became much more significant as factories churned out product in excess of domestic needs and wants.

This also created a new subclass of finance and commerce involved in distribution of the capitalist production, which unlike agricultural goods where generally imperishable. Some of these like financiers and ship owners were haute bourgeoisie, but there were also many minor owners who worked but were also owners of their means of production. These were the petite bourgeoisie that aspired to becoming haute bourgeoisie if they became extremely successful. 

As a result, production increased domestically, and foreign trade grew with the need to import natural resources for production and to distribute surplus production internationally. This also gave further impetus to imperialism and colonialism., as well as the rise of mercantilism, the counter to which was protectionism.

So-called free trade under Ricardo's theory of comparative advantage all but guaranteed that colonies would be frozen into providing resources and being provided with the output of capitalist production without ever developing an industrial base built on technological innovation. American leaders recognized this and adopted the American System to protect their infant industries, instead of adopting the British system based British classical economics. 

Now that the US is a developed country it is playing the part toward less developed countries that Britain played while the US was developing. Surprise! Not.

Free markets are free to the degree that barriers to entry are lowered, artificial scarcity reduced, and  governments don't intervene, in order to prevent asymmetric economic power. Free trade is free to the degree that countries can compete not only economically, which may still benefit some countries more than others and some within a country more than others, but also politically with respect to national interests as a whole based on national sovereignty.

Contemporary trade agreement are largely about imposing asymmetric economic power on lucrative markets based on intellectual property rights, for example, and reducing the ability of sovereigns to take their national interests as whole into account through legally privileging transnational commercial interests by treaty.

Occasional Links & Commentary
Noah’s (free trade) ark
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Ramanan — Free Trade? Heterodox Dissent

Useful quotes from Joan Robinson and Wynne Godley. Definitely keepers.

The Case For Concerted Action
Free Trade? Heterodox Dissent
Ramanan

David F. Ruccio — The principal problem of Political Economy

Piketty without mentioning Piketty. Actually, as Professor Ruccio points out, David Ricardo nailed it. It's capital versus labor share, stupid. But now we have to throw in the top 1% of labor in with capital (as I have been arguing).

Occasional Links & Commentary
The principal problem of Political Economy
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Here is the other side.

Marginal Revolution
Matt Rognlie on Piketty, net capital returns, and housing

Matt Rognlie on Piketty, net capital returns, and housing

by Tyler Cowen

- See more at: http://marginalrevolution.com/marginalrevolution/2015/03/matt-rognlie-on-piketty-net-capital-and-housing.html#sthash.SEPBo4JK.dpuf

Tyler Cowen | Holbert C. Harris Chair of Economics at George Mason University and serves as chairman and general director of the Mercatus Center

Matt Rognlie on Piketty, net capital returns, and housing

by Tyler Cowen

- See more at: http://marginalrevolution.com/marginalrevolution/2015/03/matt-rognlie-on-piketty-net-capital-and-housing.html#sthash.SEPBo4JK.dpuf

Sara Hsu — The Trans-Pacific Partnership and China’s Reality

To sum up, although China’s officials have underscored their openness to the TPP, it is not at the forefront of their agenda, and TPP nations would be naïve to think that China would participate in any pact that would increase its cost of doing business. Whether and when free trade cooperation on both sides of the Pacific will come about is anyone’s guess, but for now, for China, the TPP is a non-starter.

China is pursuing a policy closer to Friedrich List and the National System that the US adopted as the American System rather than than the British System of Adam Smith and David Ricardo. China is following in American footsteps as an emerging nation, and it is not likely to follow America after the US has become an empire itself and adopted the British System.

Will China switch horses after it comes an economic empire?

TripleCrisis
The Trans-Pacific Partnership and China’s Reality
Sara Hsu

Michael Hudson — Piketty vs. the Classical Economic Reformers

The rent is too damn high! Piketty's analysis and model don't capture rent sufficiently, so his proposed reform doesn't address the fundamental issue, which is rent-seeking and rent extraction, which need to be discouraged, versus productive contributions that need to be encouraged.

A byproduct of this value-free view of wealth is that Piketty suggests an equally value-free remedy for inequality: a global estate tax with a progressive wealth and income tax. Not only is this almost impossible to enforce politically, but a general tax on wealth or income does not discriminate between what is earned “productively” and what is squeezed out by rent extraction or obtained by capital gains. 

The advantage of classical economic theory’s focus on rent extraction, financialization and debt-leveraged asset-price (“capital”) gains is that each form of “unearned” wealth and income has a different set of remedies. But to Picketty’s sources – and hence to his analysis – wealth is wealth, income is income, and that is that. He is obliged to make his solution as general as his statistics that define the problem.

Piketty vs. the Classical Economic Reformers
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, and Distinguished Research Professor of Economics at the University of Missouri, Kansas City

Polly Cleveland — Piketty’s Model of Inequality and Growth in Historical Context, Pt 1

The background to Piketty. Must read unless you are a historian of economics or read Michael Hudson. Short summary of what political economy is really all about.

Dollars & Sense Blog
Piketty’s Model of Inequality and Growth in Historical Context, Pt 1
Polly Cleveland | Executive Director of the Association for Georgist Studies

Sandwichman — The Poverty of Marginal Utility

If labour does not possess a "real and fixed value," how is it that one can conclude that introducing labour-saving machinery will diminish the value of the commodities produced? My explanation for this uncanny convergence is no doubt too "simple" and too "obvious" to be believed. A proper exposition would lead the reader on a suspenseful and convoluted excursion to interrogate all the historical opinions, detours, evasions and possible objections.

But why bother? It is this simple: marginal utility theory of value is an embodied-labour theory of value in disguise. The disguise consists of not stating the obvious assumption and getting away with it because the assumption is so obvious as to be taken for granted.

The assumption is that the two parties to an exchange have a legitimate right to conduct that transaction....

Enter John Locke.

EconoSpeak

The Poverty of Marginal Utility

Sandwichman

JW Mason — What Do People Need to Know About International Trade?

Not what most introductory texts teach — more brainwashing for neoliberalism.

The Slack Wire
What Do People Need to Know About International Trade?
JW Mason | Assistant Professor of Economics at Roosevelt University

Andrew Lainton — James Mill’s Annuity Approach to Capital Theory – Why was it Forgotten?

For those interested in the history of economics. Not just about Mill.


Decisions, Decisions, Decisions
James Mill’s Annuity Approach to Capital Theory – Why was it Forgotten?

Andrew Lainton