Capital Theory: An Austrian-Marxian Synthesis

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Readers of this blog will know that I am not generally very sympathetic to Austrian economics. There is one point on which the early Austrians did contribute an interesting idea to the world of economics: namely, their theory of capital. This does not mean that the Austrian theory of capital is valid — as I shall show in a moment it is deeply flawed — but there is an idea that can be salvaged from the wreckage that is Austrian capital theory.

To my mind there are only two coherent theories of capital — and the mainstream possess neither. The first is what might be called the Ricardian or the Marxian. This is what might be called the ‘labour theory of capital’. The idea is that capital is effectively embodied labour or, to use Marx’s colourful phrase, ‘dead labour’. Marx unfortunately contaminated this concept with moral judgements, as he so typically did. In Das Kapital he wrote:

Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks. The time during which the labourer works, is the time during which the capitalist consumes the labour-power he has purchased of him.

But it is perfectly possible to extract the interesting point being made here: capital is accumulated labour. That is, when a machine is built it is built using human labour and in that regard it ‘stores up’ this labour. To the extent that it is built using previously accumulated capital, it is also effectively using previously accumulated labour time.

The second approach to capital is the Austrian one. In the Austrian theory capital is effectively embodied time, in the sense that it is time spent on the production of one good or service rather than another. G.L.S. Shackle provides an interesting gloss on this in his book Economics for Pleasure. He writes:

[Böhm-Bawerk] gathered ‘produced means of production’ of every kind under the heading of capital. And capital, he said in effect, is the visible symptom of the part played in the productive process by the lapse of time between the putting-in of services of labour and land, the ‘original means of production’, and the enjoyment of the fruits of that process at a later date. How can we say that ‘time’ is productive? Because given quantities of human effort and of ‘land’ can yield a larger quantity or better quality of product if we are willing to wait longer for it. (pp212-213 — Emphasis Original)

Do you see the slight inversion taking place here? What Böhm-Bawerk did was to change the emphasis. Rather than saying that capital was embodied labour, he said that it was embodied labour time that could have been spent on something else. The emphasis was laid less on the ‘labour’ and more on the ‘time’.

The idea here is that we as a society could work to produce consumption goods in lesser quantity/quality now or we could use our efforts to produce investment goods that will in turn produce consumption goods in greater quantity/quality in the future. While this is not a bad way of looking at the problem it quickly runs into problems when Böhm-Bawerk and the Austrians try to turn it into a theory of the interest rate.

This was because they were pre-Keynesian and the Austrians did not understand that real capital — machines etc. — must be firmly distinguished from financial capital and that the market for the latter operated in an unusual way. They assumed, implicitly, some sort of perfect knowledge on the part of the market. So, left to itself the interest rate would tend to equality with the profit rate on investment goods. Thus, the rate of profit would come to represent the ‘reward for waiting’, as Alfred Marshall would put it. Of course, after Keynes we came to know that what determined the interest rate was actually the liquidity preference of the market.

This is because financial actors — that is, savers and their investment managers — are faced with an uncertain future. They thus evaluate various investments not so much by their real return but rather by their prospective liquidity. When people feel pessimistic about the future they increase their holding of liquid assets, causing interest rates to rise, while if they feel optimistic about the future they increase their holding of non-liquid assets, causing interest rates to fall.

Another way to think about this was that the Austrians and the other marginalists confused stocks with flows. They assumed that the interest rate was reflective of savings flows. So, savings would flow into a pool of investment at a given rate. This rate of savings would determine the interest rate which would in turn determine the profit rate and thus the investment rate. But the way this really works is that there is already in existence a big pool of accumulated savings. There is also the ability for financial investors to borrow and thus create additional financial savings. When sentiments change this pool of investments may suddenly shift. For example, if people become pessimistic more people will hold more liquid assets and interest rates on everything else will rise. The financial markets are thus a bit like that scene in Alice in Wonderland where the Mad Hatter tells everyone at the tea party to change places.

There is also a disconnect between the interest rate and investment. The Austrians and the other marginalists assume that there is some sort of linear relationship here. But there is not. The rate of investment in real capital is dependent on the state of confidence. This, in turn, is mostly dependent on the level of effective demand that is present in the economy at any given moment in time. You can see that there is no relationship in the graphs below which plot the rate of investment against the real interest rate.

INVESTinterestLagging the investment rate by a quarter to allow for time for the interest rate to transmit to increased investment makes basically no difference. The R-squared remains basically the same. This can be seen intuitively from the chart anyway.

If we detach Austrian capital theory from the Austrian theory of the interest rate, however, we get something far more usable. We can also easily couple Austrian capital theory with Ricardian/Marxian capital theory. Once an economy reaches full employment — which we need not assume as some sort of ridiculous teleological end-point — the main constraint on production is labour. We then recognise that the question becomes for society where they want to allocate its labour time. Here we can emphasise either the Austrian time component or the Ricardian/Marxian labour component. It really makes no difference. If the amount of labour time is constrained then we have to decide how much is channeled into consumption and how much is channeled into investment for future consumption.

There is one more point, however, that needs to be stressed and which is not contained in either theory: namely, that of technology. How do we conceive of technology in this framework? We cannot, after all, consider it like land; an ‘original’ or ‘given’ means of production. Rather we must see it as a product of a type of labour; namely, intellectual labour.

Now this where another approach might be interesting to supplement the above mentioned ones. This is actually a neo-Marxian approach that has recently been developed in philosophy by the French philosopher Bernard Stiegler in his three volume work Technics and Time. Stiegler draws on the work of the phenomenological philosophers to argue that technology is actually a physical embodiment of human memory. Think of it this way: all technology is the embodiment of human intellectual labour. In other words: all technology is the embodiment of human thought. Technology is then a sort of ‘deposit’ of human thought. In this sense it is very similar to memory.

Thought of in this sense capital becomes a number of things. It becomes, first and foremost, embodied labour time — whether we want to emphasise the time aspect or the labour aspect is completely arbitrary. But it also becomes embodied memory or embodied human knowledge.

Ultimately though these are all just metaphors. And really capital theory is a very secondary, perhaps even tertiary, part of macroeconomic theory. We really cannot say a great deal about it. We can tell stories and create metaphors but beyond that we can say little else. Trying to understand the interest rate, for example, in terms of the theory of capital is a total dead-end. But also trying to come up with some ‘objective’ theory of distribution as Marx did is also a dead-end.

This shows us something interesting: any economic theory that gets overly bogged down in the theory of capital is probably not a very interesting or useful economic theory. Thankfully, since the 1970s Post-Keynesians have moved away from capital theory. Indeed, Joan Robinson said it was a dead-end after the capital debates in the 1970s — something that Nicholas Kaldor recognised in the 1960s while everyone else was obsessed.

The Austrians and the Marxians are still obsessed. But all they are doing is weaving ideological narratives out of metaphors and in doing so thinking they are doing something scientific. What they are really doing is engaging in storytelling that justifies their a priori political belief systems. As we have seen above we can tell very nice stories and deploy very nice metaphors. But they are just stories and metaphors.

Interesting work is being done on capital accumulation, however, by the Schumpeterian school. The most popular of these is Mariana Mazzucato. They eschew the model-oriented approach and instead go out and look at how technology and knowledge become embodied empirically. Their results are very interesting. In a later volume of Review of Keynesian Economics (ROKE) I will be publishing a review of Mazzucato’s book (see early draft here) where I tie what they are doing back to Post-Keynesian economics using the old, and still very flexible, Harrod-Domar growth model.

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About pilkingtonphil

Philip Pilkington is a London-based economist and member of the Political Economy Research Group (PERG) at Kingston University. You can follow him on Twitter at @pilkingtonphil.
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30 Responses to Capital Theory: An Austrian-Marxian Synthesis

  1. LK says:

    This is a fascinating post.

    Two points:

    (1) “They assumed, implicitly, some sort of perfect knowledge on the part of the market. So, left to itself the interest rate would tend to equality with the profit rate on investment goods.”

    Which the Austrians took from Wicksell as the unique natural rate of interest, right?

    (2) what are your views on the Austrian classification of capital goods into orders, i.e., consumer goods are “first order goods,” and capital goods are classified into various successive “higher order” goods as removed from final consumer goods output?

    Do you think Marshall more or less had it right?:

    http://socialdemocracy21stcentury.blogspot.com/2013/06/marshall-on-mengers-orders-of-capital.html

    • (1) Yes. You can make the assumption that savings flows translate into stocks only if we assume a static, unchanging interest rate equilibrium. This is the same assumption as the natural rate and, ultimately, in a more dynamic conception, the EMH.

      (2) I think you are right. Keynes makes a loose distinction in the Treatise on Money. I think that a basic distinction is somewhat useful. But when you get too ‘into the weeds’ on this it soon becomes storytelling with little or no real value.

      The fact is that in the national accounts we do distinguish these things. C is spent on consumption goods and I on investment goods. That is a useful distinction. For example, we see substantial fluctuations in I that drive the boom-bust, while we don’t see a huge amount of fluctuation in C.

      But to start dividing these over and over again becomes weird and not at all useful. It becomes a bit obsessive, to be frank. And it appears to me that the real motivation is to avoid looking at interesting empirical relationships and instead get bogged down in semantics. The Austrians do this, as you note, but so do the neo-Ricardians/Sraffians. Did you ever notice that Bob Murphy was fascinated by this Sraffian point? It’s because his mind works in the same way. It’s just storytelling with a slightly crankish and obsessional flavour.

  2. Miguel says:

    BTW, Piketty made the same mistake than neoclassical: interste rate = rate of profit

  3. Aidan Conlon says:

    “There is one more point, however, that needs to be stressed and which is not contained in either theory: namely, that of technology…… We cannot, after all, consider it like land; an ‘original’ or ‘given’ means of production. Rather we must see it as a product of a type of labour; namely, intellectual labour………..Technology is then a sort of ‘deposit’ of human thought.”

    “Human thought” is not sufficient to give technology the important role in our sophisticated , high economic growth world. Technology needs lots of cheap and readily available energy to give us our exceptional economic growth. Buried stored solar energy in the form of oil, gas and coal has been the critical capital asset that our “intellectual labour “ has harvested. It is argued that each year we harvest the equivalent of 400 years worth of solar energy, as embedded in plants through photosynthesis. This abundant harvest also happened within a specific institutional setting which protected the massive and continuous investment necessary to extract the main fossil fuels we use. Accommodating legal and administrative system, linked with strong military back-up have usually been the guarantors of the uninterrupted harvest of ancient solar energy in the form of oil, gas and coal.

    In my view, a discussion on capital without reference to our reliance on fossil fuels is like missing the , admittedly shrinking, elephant in the room.

  4. philippe101 says:

    “When people feel pessimistic about the future they increase their holding of liquid assets, causing interest rates to rise”

    but the interest rate on safe liquid assets, such as government bonds is likely to fall…

  5. Major.Freedom says:

    Lots of misunderstandings concerning Austrian theory in this blogpost. This seems to be a universal truth for criticisms of it.

    ” They assumed, implicitly, some sort of perfect knowledge on the part of the market. So, left to itself the interest rate would tend to equality with the profit rate on investment goods. Thus, the rate of profit would come to represent the ‘reward for waiting’, as Alfred Marshall would put it. Of course, after Keynes we came to know that what determined the interest rate was actually the liquidity preference of the market.”

    There is absolutely no implicit or explicit assumption of “perfect knowledge” in Austrian theory. In fact, Austrianism is one of the most vocal critics of perfect information assumptions used to judge and understand real world markets. Partial ignorance is a core component of Austrian theory.

    Sort of perfect knowledge? That is quite a sloppy argument. There either is or there isn’t. What you are likely doing when you think that is taking your prejudice and preconceptions of Austrian theory, and shoehorning it into your analysis of Austrian capital theory. A little bit of self-reflection would have enabled you to see that the certainty with which you present the liquidity preference theory of interest rates, would, using your same bias, lead to concluding there is an “implicit” assumption of perfection in social life. Cash preference rises, and interest rates “left to themselves” are claimed as forced upwards.

    Before continuing, I’ll point out that the liquidity preference theory of interest is a false theory that contradicts real world facts. We can know the liquidity preference theory is false by considering conditions of high, or hyper-, inflation. When there is hyperinflation, interest rates rise substantially. The desire to part with liquidity is very high, which is to say liquidity preference is low. And yet the liquidity preference theory claims that when liquidity preference is low, interest rates should be low. By the same token, if and when the high or hyper-inflation declines back down to “normal”, the desire to hold cash rises, which is to say liquidity preference rises. Interest rates fall back down as well. And yet the liquidity preference theory claims that as liquidity preference rises, interest rates should also rise.

    The liquidity preference theory is untenable.

    Moving on…

    You then wrote:

    “Another way to think about this was that the Austrians and the other marginalists confused stocks with flows. They assumed that the interest rate was reflective of savings flows. So, savings would flow into a pool of investment at a given rate. This rate of savings would determine the interest rate which would in turn determine the profit rate and thus the investment rate. But the way this really works is that there is already in existence a big pool of accumulated savings.”

    This is quite frankly a deeply flawed description of the Austrian theory of interest. As Menger and Mises explain, the concept of interest is not, as you assume, the rate of return or yield on borrowed funds. The Austrian theory of interest is a short hand for the Austrian theory of ORIGINARY interest. Originary interest is the difference in value placed on future goods vis a vis those same goods in the present. In a monetary economy, as explained by Austrian theorists, this difference is actually most closely associated with the rate of profit. The way this works can be gleaned from assuming extremes. At the one end, if we assume maximal preference for present goods, and minimal preference for future goods, in a monetary economy this will lead to total spending going maximally to consumer goods, and minimally to capital goods and labor, the latter of which are acts of investment and “delaying” one’s own consumption. With 1000 spending going mostly to final goods and minimally to capital goods and labor, the difference between final goods spending and factor spending is maximized. This will, mathematically, lead to maximum rate of profit. Since after all profit is the difference between revenues and costs.

    The opposite extreme is total spending going maximally to capital and labor, and minimally to final goods spending, which leads of course to a lower rate of profit.

    This is what Austrians mean by “originary interest” in a monetary economy. In a barter economy, originary interest would be manifested with things like 2 present apples trading for 3 future apples, or whatever.

    The way the savings rate “determines” the profit rate according to Austrian theory is not a way that assumes “perfect knowledge.”. It is just a logical deduction. In dollar spending terms, originary interest is determined ultimately by the ratio of investment to consumption. It is just a mathematical ratio. If the ratio of investment to consumption rises, then profits fall. Oppositely, they rise. This is an accounting certainty. It is not up for falsification. It is what profits MEAN.

    The rest of your post is just substanceless hostility and vitriol.

    • In a hyperinflation liquidity preference would quite obviously fall as money loses its value and hence its liquidity. The central bank will typically raise the interest rate, however, to keep the real interest rate stable. This is why you typically see interest rates rise in hyperinflations. In the Keynesian theory we would expect risky assets to become more popular as inflation climbs. In real world hyperinflations we often see the stock market boom as people try to protect themselves against the erosion of the value of their money by investing in stocks.

      As to the perfect knowledge assumption it is implicitly required for a ‘natural rate of interest’. In this regard Austrians pretend to criticise perfect knowledge and then assume it in their business cycle theory.

      You also clearly have no grasp of macro accounting. If the ratio of investment to consumption rises but the overall spending remains the same then profits will also remain the same. Profits (in a closed economy with no government sector) are the result of investment spending plus consumption spending. You really need to go and have a look at how the accounting is done before coming on here saying such silly things.

      Finally, this is one of the funniest quotes I’ve had on my blog:

      A little bit of self-reflection would have enabled you to see that the certainty with which you present the liquidity preference theory of interest rates, would, using your same bias, lead to concluding there is an “implicit” assumption of perfection in social life.

      So, let’s get that straight: the certainty with which I present the liquidity preference theory of interest rates would lead to an implicit assumption of… perfection in social life? HAHAHAHAHAHAHA! What on earth are you ranting about? That is one of those logical non-sequiters that you would only find on the internet… or in a madhouse.

      • LK says:

        oh, god, Philip, I see you’ve starting attracting the Rothbardians from FreeAdvice.

        Just some quick background for you: “Major.Freedom” is one of the biggest Austrian trolls on the internet.

        Over the years, he has posted under a vast number of different names/handles, including Captain_Freedom, Sage_Advice, Waaah, George, Pete, David, Christof, Pete PetePete, or Private_Freedom.

        Years ago he was already notorious on Reddit:

        http://www.reddit.com/r/TrollAlert/comments/cexi6/captain_freedom_aka_sage_advice_private

        http://www.reddit.com/r/TrollAlert/comments/dsy9z/waaah_was_a_successful_investor_for_50_years_was/

        ——————-
        He main tactics will be:

        (1) pathological lying;
        (2) actually saying that you agree with him;
        (3) being a serial abuser of the fallacy of equivocation: he will arbitrarily redefine words contrary to the sense you use them and say you are wrong.

        E.g., to give you an example of (3), a long time ago he debated Say’s law with me. When he was losing the argument about a passage by J. B. Say, he declared — seriously, mind you — that the word “immediately” (as used by Say) can mean any time whatsoever:

        “Other than the misleading word “immediately”, which can be taken to mean any time at all, since the standard for “short” and “long” periods of time is not objective but subjective, how is that statement idiotic?”

        http://socialdemocracy21stcentury.blogspot.com/2011/12/say-repudiated-says-law.html?showComment=1322756770135#c6195980368215469925

      • Well, he thinks that if consumption rises and investment falls then profits decline. Then he says that this is an ‘accounting identity’. Of course some basic accounting would show he is wrong.

        Assume a closed economy with no government.

        I = S

        Break the savings down into household savings and firm savings (i.e. profits):

        I = Sh + Sf

        Manipulate:

        I – Sh = Sf

        Recall that household savings is the flip-side of household consumption. So, anything that is not saved by households is consumed. Thus we can replace -Sh with +C. So:

        I + C = Sf

        Well, I’ll be damned! Capitalist firms obtain their profits from investment spending and consumption spending. Isn’t that fascinating? When I spend money on baked beans… wait for it LK… the baked beans company accrues profits!

        Do you feel like you’ve had a revelation? :-D

      • LK says:

        And P.S. If he starts appearing regularly here, he will try and hijack your comments section with ridiculously long posts, using all the tactics above.

      • LK says:

        haha — but seriously, rational debate with Major.Freedom is not possible.

  6. Darius1295 says:

    “Recall that household savings is the flip-side of household consumption. So, anything that is not saved by households is consumed. Thus we can replace -Sh with +C. So:

    I + C = Sf

    Well, I’ll be damned! Capitalist firms obtain their profits from investment spending and consumption spending. Isn’t that fascinating? When I spend money on baked beans… wait for it LK… the baked beans company accrues profits!”

    One tiny problem, consumption is not the negative of saving; household consumption is household income minus household saving. According to your theory that
    I = Sh + Sf and
    I + C = Sf,
    Sh + Sf + C = Sf
    therefore Sh + C = 0 !

    Yet you people have the cheek to call other people idiots and cultists!

    • Darius1295 says:

      * household saving should say CHANGE in household saving (i.e. ∆Sh).

    • Totally incoherent. I never said that Sh + Sf + C = Sf. That is a stupid equation because the Sfs cancel and you’ve dropped I.

      I could probably have expressed it better (but I certainly didn’t do as poor a job as you, you poor soul) but household savings detract from profits. Consumption — which is the flipside of savings — increases profits. Look at the numbers

      Your response was even worse than ‘Major Freedom’s’. Austrian economists don’t know basic macro identities.

      • Darius1295 says:

        You don’t even understand basic mathematics.
        You said I = Sh + Sf
        Therefore I + C = Sh + Sf + C
        This is known as substitution, something I learnt when I was 11 years old. (Adding C to both sides has the same effect in this case).
        So if I + C = Sf, Sh + Sf + C = Sf
        Then we do something known as cancelling, which I also learnt when I was 11. Everything you do on one side you do on the other, so for example, if 2=2, 2+1=2+1.
        Therefore, the Sfs must cancel out, if we add -Sf to both sides.
        Therefore, Sh + C = 0.

        However, I can reach the result another way.
        You said: “Thus we can replace -Sh with +C.”
        This implies that -Sh = +C
        Which, by adding Sh to both sides, implies that C + Sh = 0

        Oh and by the way, I do Physics at University, so I know far more Maths than you do.

        Your mistake was to think that C=-Sh when in reality (if we define Sh as money added to savings from wages so Sh=W*MPS, where W is wages and MPS is marginal propensity to save) C = W – Sh.

      • As I said, it could have been better expressed. Look here is the issue: Major Freedom said that if savings decrease (i.e. if consumption increases) and investment falls then profits will also fall.

        Do you agree with this statement or not? That is the issue. So either say that you agree or say that you disagree and hence that you’re just being pedantic.

  7. Darius1295 says:

    “As I said, it could have been better expressed.”

    Basically, you were wrong. Oh, and here’s some general advice, if you’re going to be cocky, don’t be wrong at the same time, otherwise, you risk making an arse of yourself.

    “Look here is the issue: Major Freedom said that if savings decrease (i.e. if consumption increases) and investment falls then profits will also fall.

    Do you agree with this statement or not? That is the issue.”

    He said: ” If the ratio of investment to consumption rises, then profits fall.” That’s the opposite of what you imply, although he should have really said rate of return not profit, since, strictly speaking, profit is just one component of the rate of return, a component which is not a fixed proportion. This can be illustrated by the Hayekian triangle, where the rate of return is the slope of the triangle: http://www.auburn.edu/~garriro/fig52.jpg

    • Haha! So, if investment increases and consumption falls, then profits fall? And this is an ‘identity’?

      Are you serious? Do you actually believe that?

      Now we’ll really see who the arse is… perhaps you should take your own advice before you write the next comment.

  8. I usually agree with your posts but this time I won’t.

    Marxist political economy handles capital as a social relation, as self-expanded value. It’s not a thing, nor a machine. It’s a social process, where value expands itself by accumulating surplus value that is created in the production sphere. In my opinion, you would better describe what capital is in Marxist political economy, by using a Marxist scheme of reproduction.

    Also, as far as it concerns interest rates, there are two main Marxian theories regarding financial capital (that I am aware of).
    1) At first Marx assumed that there are capitalists that have money, and capitalists that are willing to invest but do not have sufficient money. Thus, interest rate must be the reward that money-capitalists receive for lending their money to the entrepreneurs. Also, since money is used as capital, the reward of money (interest rate) should be equal in the long term with the general rate of profit.

    A problematic theory for several reasons, no question about that.

    2) He then, thought that idle (at first) money that is accumulated out of the circulation process (for several reasons eg, uncertainty, various payments, etc) is socially organized by the financial system. Therefore, idle-money is transformed to financial capital and can re-enter the circulation process, increasing the utilization of capital, increasing the general rate of profit, etc.
    Marx himself admitted that theorization of the interest rate is not possible and accepted that the laws of demand and supply determine its value (usually the general rate of profit is the upper limit of the interest rate even though in certain periods during the business cycle, interest rate can be greater than the general rate of profit). Concluding, interest rate redistributes the surplus value between financial and productive capital.
    Imo, his 2nd theory is superior to liquidity preference since it focuses on objective factors/ class analysis rather than focusing on subjective preferences.

    “The rate of investment in real capital is dependent on the state of confidence.”

    From a Marxist perspective, capital investment is determined by the net profit it creates. Periods of high profitability coexist with periods of high investments and vice versa. (R-squared for Greece, period 1960-2014 is 0,84). Therefore, it’s 100% predictable that correlation between interest rate- investment is so low. When profitability is low, even with near zero interest rates, investment will be low as well.
    Of course, confidence, institutional framework, etc also determine investments but since capitalism is based on profits, it would be safe to abstract the other factors, at least for this conversation.

    PS Some comments on the technology issue. Classical analysis (Marxist political economy included) is based on 3 assumptions: 1) Long Period Method of Analysis 2) Given Output 3) Given Technique (technology) 4) Given Real Wage.
    Technological change is taken into account (mechanization is a crucial concept for Marx) but it is a long term process. Indeed, in terms of input-output factors, technological change is important only after a (pretty much) long period (eg 5 years).

    • (1) Nothing in the above is inconsistent with saying that capital is a social relation. Nothing in the Austrian analysis is inconsistent with this either.

      (2) I wrote a paper on Marx’s theory of the interest rate a while ago. I found it — being his mature articulation in Volume III — to be entirely inconsistent with his theory of surplus value. Anyway, that is another day’s discussion.

      (3) Keynes also emphasises the fact that the interest rate redistributes income to rentiers. This is not inconsistent with the liquidity preference theory. And Marx’s theory was actually that the rate of interest was set by ‘convention’ which is a very weak theory in the final scheme of things.

      (4) Your analysis of what determines the rate of investment is not Marxist. It is a Keynesian accelerator/supermultiplier theory. I do not believe that Marx anywhere articulated the accelerator. Although I would be open to being proved wrong on this point.

  9. 1) The key characteristic of capital is not just that it is dead labour but that it is self expanded value. Each commodity produced and exchanged contains labour (or better, labour time), that doesn’t make it capital. What distinguishes capital from other commodities is its relentless search for accumulation. In my view, this is the key element of capital on Marxist political economy. An element I failed to recognize while reading your post. I didn’t say that your post is in any way inconsistent, I’m trying to say that the key characteristic of capital is its motion for accumulation of new value, not just the fact that the commodities that are being used during the process are made of labour time.

    2) I’d like to read more on that. Please do post something basted on your research when you can.

    3) Keynes emphasizes on emotions and instincts (‘animal spirits’). Marx emphasizes on social structure/ objective factors. Don’t let me be misunderstood, Marxist political economy can be benefited from Keynesianism, for sure; I just tend to believe that classical political economy is a totally scientific theory, still useful and perceptive.
    I once tried to formalize Marx’s arguments on interest rate by using a discrete time model of capital circulation. I guess that my undergraduate level doesn’t let me be very insightful on that.

    4) I just applied the conventional mechanism behind the theory of falling rate of profit/ Kondratiev waves. I’ve never heard of any Keynesian arguing that profitability in the sphere of production determines the level of investment. I neither can find it on the pdf you kindly uploaded (btw, thnx for it).

    • (1) I think the Austrian theory recognises that capital tends to accumulate too. But it would probably assume no non-normal profits in the so-called ‘long run’. Whether Marx thought this or not is controversial.

      (2) I might post it tomorrow.

      (3) Marx emphaises what he thinks to be objective factors until he articulate his interest rate theory. Then it appears totally intersubjective even in his own terms.

      (4) That’s what the supermultiplier says. Investment is determined by income/profits. Then you can expand that to the Cambridge equation for a total run through. Post-Keynesian models are typically profit-led accumulation models.

      Do you live in London by the way. I see that one of your FB photos is of St. Paul’s.

  10. Patrick Trombly says:

    Re: time, I think that Bergson was right and Einstein wrong about “philosopher’s time” and that the Austrians saw “investor’s time” before Wall Street (actually, probably midtown) coined the term “investment horizon.”

    Liquidity preference is not at odds with the interest rate as the value of time – - CAPM equation clarifies this. “Cash” just means you don’t want to wait, or risk. Different savers have different risk tolerances and time horizons – they are inputs to the interest rate. You reference uncertainty as to the markets and one’s future – yes but WACC includes a Beta factor, and much of the uncertainty does stem from the distorted signals sent by the Fed. They’re also a function of the amount of savings one has, and other personal factors – what are the chances that I will need to dip into the funds, how old am I and can I afford to make up for a loss; am I already so f-ed that I should just bet what little I have on a long-shot cyclical? None of this changes the fact that what we save for is to consume in the future – - the differences between what time means for me and what time means for you do not change the fact that the interest rate is the time value of money – - some people just place a higher value on “now” than others do. I might think a copy of the CD Black Sabbath Master of Reality is worth $50. You might think it’s worth $5. My stepdaughters hate Ozzy. The market price of the CD is the aggregate of those three valuations along with billions of others. Ultimately the market price is the aggregate, and the interest rate is the subjective determination of the time value of money, and distorting that price sends an incorrect signal to both consumers and investors.

    All the ships at sea in 1850 were going to and from different ports, and some were in a bigger hurry than others. Some were pirate ships up to no good, some were military ships, etc…. None of which changes the fact that, if someone could and did change magnetic north by 800 miles, it would have caused a lot of shipwrecks. That someone would be the Fed and would probably then try to regulate shipping, citing the shipwrecks as justification.

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