Rethinking Capitalist Development

Tracy Mott, Nina Shapiro, Tracy Mott, Nina Shapiro

• Editorial: Routledge
• Año: 2004
• ISBN:
  9781134722716
• Edición: 1
• Categoría: Business
• Categoría: Business General

This collection honours the work of the eminent economist Josef Steindl. Steindl's work is illuminated through a critical appraisal of its central constructs with a focus on its relevance to current economic conditions. This collection charts the thinking of one of the leading economic theorists of the twentieth century.

Part I
Concentration and development

1
Reproduction and transformation in the theory of the market

Observations on Josef Steindl’s theory of capitalist dynamics
David P.Levine

Introduction

Theories of the market take it more or less for granted that their work remains incomplete so long as they fail to arrive at theoretically determinate relative prices. This means that they must show how prices vary quantitatively with the magnitudes of specified parameters. This approach to price theory has the important characteristic that it begins with a fixed structure. For neoclassical theory this is a structure of resource constraints and preference orderings, each capable of specification in quantitative terms. For the classical theory, in its modern versions, the structure is one of reproduction, also specified in quantitative terms. Here I will be concerned only with the classical theory, and the potential impact the approach suggested by Josef Steindl’s work might have on it. Thinking about price theory along the lines suggested above creates difficulties for the classical theory. I begin by indicating what those difficulties are, then briefly outline an alternative way of approaching the problem, one that treats price determination as an element of structural transformation rather than reproduction. I take this shift in perspective to be implied in Steindl’s analysis of capitalist dynamics.

The core of the classical theory

Modern accounts of the classical conception of the economy focus on the reproduction and expansion of a production structure (Sraffa 1960; Walsh and Gram 1980). In this view, a system of technical interdependence constitutes the core of the economic process. A market economy consists of a set of legally independent private producers, each dependent on others for production of inputs necessary to their own reproduction, and each providing labor, means of production, or means of consumption needed by others.

The most elementary account of the logic of the classical theory assumes that the system of needs and technical conditions (or methods) of production does not change. This makes the economic process one of reproduction in the strong sense since it replicates a fixed structure. Piero Sraffa uses the term self-replacement to depict reproduction in this strong sense. The classical theory, in its most elementary form, is a theory of an economy in a self-replacing state.

While the concept of a self-replacing state constitutes the analytical backbone of the classical idea, when used as the basis for the determination of a system of prices, it lacks one crucial element. The theory provides a method for valuing products in commodity (or numeraire) units, but it provides no reason for doing so. If, indeed, the system merely reproduces itself at a fixed level, the peculiar concerns of a market disappear (Hayek 1945; Levine 1981, Ch. 7).

Value becomes significant due to the necessity of measuring output independently of those units relevant to its use (or use value in the classical terminology). This necessity arises when the value and not the use of output is the end of production. It only makes sense, however, to make value the end if we need to measure it relative to something else expressed in the same units. The ideas of profit-making and capital accumulation do just that; they require measuring the value of capital and output today against their value in the past (or possibly in the future).

The classical theory assumes that the production structure yields output exceeding that just adequate to replace used up inputs and necessary consumption. This excess has come to be termed the “surplus”. When a production structure enables an economy to produce at a level that both replaces used up inputs (including “necessary” consumption) and generates a surplus, that production structure has a potential for growth.

A problem arises in determining this potential due to the inclusion of labor as an input. Unless we can specify the necessary costs of producing labor, the labor input makes reproduction costs ambiguous. As important as it is, I will not explore this matter here.

In the classical theory, the economy produces a surplus to make possible its own expansion. Since the economy has the capacity to produce more output than it needs to reproduce itself at a given level, it can increase the level of production each period by reinvesting (or productively consuming) the surplus. The classical treatment of accumulation begins with a theory of expanded reproduction. Expanded reproduction differs from reproduction only in magnitude. The structure of production remains fixed, while its components increase.

Fixity of the structure of production in the context of growth means that (1) the additional workers who enter the production process do so with the same needs as those of the original group; and (2) the technical rules for transforming inputs into outputs apply for varying levels of production (as would be assured by constant returns to scale). The assumption that the technical rules for transforming inputs into outputs do not change when we change the scale of production invokes the idea of a period of time long enough to make expanded reproduction possible but short enough that “changes in technical knowledge can normally be neglected” (Pasinetti 1977, p. 69).¹

For the classical theory the (expanded) reproduction of a fixed structure is the logical core of the economic process. All analysis of structural change treats the logic of self-replacement as its foundation (Marx 1967, Vol. I, p. 566; Pasinetti 1981, p. 29). The logical core of the classical theory provides an initial formulation for the historical mission of capitalist accumulation: the extensive growth of the production structure. Through extensive growth, the capitalist economy exploits opportunities available to increase what Marx refers to as society’s material base.

What, from the standpoint of social progress, does extensive growth accomplish? Classical theory provides two answers to this question. First, extensive accumulation transforms labor into wage labor. Second, extensive accumulation assures the full exploitation of labor’s productive potential under given (technical) conditions. The first answer comes to us from Adam Smith, who saw capital accumulation as the transformation of unproductive into productive labor. The second comes from Ricardo, who saw capital accumulation as the process of exhausting available fertile soil. The classical theory of extensive growth depicts a process of transition by which all labor becomes wage labor and all available fertile land is brought under cultivation. In doing so, the analysis incorporates two important inconsistencies.

The first of these has to do with the wage. On one side, because of its impact on the demand for labor, capital accumulation implies a higher wage. Assuming that capital intensity is more or less constant, and the supply of labor inelastic, the demand for labor grows with the accumulation of capital and eventually encounters a limit in the supply of labor. As the economy approaches this limit, wages tend to rise. While the classical analysis of this problem is not as secure as we would like, the major classical theorists all assumed that rapid accumulation would imply a tightening of the labor market and rise in wages.²

Rapid accumulation increases demand for labor, tightens conditions in the labor market, and presses up the wage. On the other side, capital accumulation implies a lower wage because the worker must, in Smith’s word, “share” his product with the capitalist in order to finance the accumulation process (Smith 1937, p. 65). So long as accumulation proceeds on the basis of fixed technical know-how, labor productivity remains the same (or deteriorates in the face of diminishing fertility of the soil), and investment requires a lower level of consumption than would be possible in its absence.

The second important inconsistency has to do with the underlying purpose or historical mission of the growth process. Accumulation leads to no improvement in per capita consumption. It is hard, then, to see what social purpose is served by organizing our economic lives around markets and private ownership of the means of production.³

The two inconsistencies in the classical argument call into question the fundamental claim of the classical project that reproduction constitutes the core of the growth process of capitalist economy. Marx’s apparently innocent claim that “every social process of production is, at the same time, a process of reproduction” (1967, Vol. I, p. 566) in fact requires us to reconcile the logic of capitalist accumulation with that of self-replacement. Doing so turns out to raise some difficulties.

The classical analysis of structural change

Important features of the classical argument were left out of the foregoing discussion, in part to identify its logical core, in part to link up with modern versions of that theory. These features have to do with structural change. The classical economists do conceive of structural change. At a minimum, they consider increasing productivity due to the extension of the division of labor. Beyond this, Smith and Marx consider the emergence of modern forms of economic organization and some of their implications. Does the classical analysis confirm the claim that reproduction sets the foundation for structural change? To answer this question, I begin by briefly summarizing the classical account of structural change.

To make labor produce profit, the capitalist reorganizes the production process. This reorganization proceeds in three steps: (1) The capitalist brings workers together in a single place of work. Marx refers to this as cooperation; it is a simple concentration of labor implied by the original division of society into workers and capitalists. (2) Because the workers now work together in a single location, the labor they do can be allocated more efficiently among them. Specialization through division of labor increases productivity. (3) Concentration and division of labor set the foundation for mechanization to reduce the part played by labor, and increase profitability.

We can interpret concentration and division of labor as changes in form. Smith’s famous example of the division of labor in the production of pins interprets the division of labor as an organizational change. As Smith describes it, division of labor leaves the component parts of the production process unaltered, changing only the allocation of those parts among the workmen. Marx tends to treat mechanization as a logical extension of division of labor from the distribution of work originally done by a single workman among a group to its further distribution between workers and machines. The original division of labor suggests this further division, since it eliminates the necessity for a unifying intelligence in the form of a craftsman, while transforming a complex labor process into a series of simple tasks appropriate to the use of machinery. Again the components and product of the process remain unaltered.

This quality of the production process continues a basic theme of the classical conception of economic growth. For this reason, we are not surprised to find it reappearing in those modern classical theories seeking to incorporate technical change (Pasinetti 1981, pp. 206, 231). While the classical theory may no longer treat growth as a purely extensive process, since it brings with it a change in the productivity of labor, growth still means the expansion of a structure that remains fixed in certain of its essentials. The wealth produced as a result of the division of labor and technical change can be treated as if it consists of the same things produced before any change in the production process.

The division of labor does help account for the surplus that makes growth possible. It also helps establish a rationale for valuing output and thus for the price system. By attaching values to the components of the social product, we can calculate productivity at the level of the individual unit of production. By so doing, we make it possible to define a goal for the unit other than reproduction: its own expansion as measured by its ability to produce more value than it needs for reproduction.

In the elementary model of reproduction, wages, profits, output, and employment remain constant. In the model of extensive growth, wages rise temporarily to a level above subsistence due to tightness in the labor market. In the model of accumulation with technical change, the net product tends to increase with the growth of capital and productivity. The disposition of a growing net product poses a problem which, while at the heart of classical theory, is not explicitly addressed by classical theorists.

Two strategies allow classical thinkers to avoid explicitly dealing with the tendency for the surplus to rise. The first defines the temporal structure of the process so as to suppress the problem altogether. The second introduces counter-forces that limit the growth in the net product as accumulation proceeds. Smith adopts the first strategy, Ricardo and Marx the second. It is in developing a strategy for dealing with the rising surplus that Kalecki and Steindl help resolve a core problem of the classical theory.

Smith does not directly pose or address the question how a growing economy deals with increasing productivity. Instead, he addresses a different question. Smith treats the increase in productivity due to division of labor as a part of the transition from barbarism to civilized society, from poverty to wealth. Rather than acting as a determinant of the magnitude of profit, the division of labor helps to explain the origin of profit. In effect, Smith avoids the problem of a growing surplus by defining the temporal framework in a way that leaves it out of account. When we consider the contrast between two states of society, the process that takes us from one to the other becomes an event. When we treat capital accumulation as an event, its importance stems from the difference it creates between the state of society before and after. This difference has to do with the distribution of property rights in society’s capital stock and with the productivity of labor. As Marx puts it, it is “the effect of capital and its process…to conquer all of production and to develop and complete the divorce between labor and property” (1973, pp. 511– 512). The redistribution of property establishes the basis for the true mission of capitalist accumulation as Marx conceives it, to act as “a historical means of developing the material forces of production and creating an appropriate world market” (1967,...