Moseley’s macro-monetary Marx – a review and partial critique

FMoseley Money and TotalityMarxist Professor Fred Moseley’s recent work Money and Totality was 20 years in the making. A couple of weeks ago, in the midst of reading it, I remarked on this blog that it was thoroughly engaging, at least for those interested in Marxist economic theory and its application to the analysis of capitalism. I also promised further comment, once I had finished it, so here goes.

Moseley’s interpretation of Marx’s theory is ‘macro’ ie macroeconomic, in that it begins logically with the operation of the economy as a whole, and then proceeds to the ‘micro’ or the operation of the individual parts of the economy in question.

The interpretation is ‘monetary’ in that it argues that Marx’s theory uses values or prices quantified in terms of money. Capitalism is a money-using system, and in fact Marx defines capital itself as money which is used to make more money, or ‘self-expanding value’.

The title of the book is thus explained: ‘money and totality’, the latter as describing the importance of the macroeconomic system as a whole. Continue reading

Competition and growth under capitalism: does Marx trump Keynes?

9780199390632“Capital is a particular form of social wealth driven by the profit motive. With this incentive comes a corresponding drive for expansion, for the conversion of capital into more capital, of profit into more profit. Each individual capital operates under this imperative, colliding with others trying to do the same, sometimes succeeding, sometimes just surviving, and sometimes failing altogether. This is real competition, antagonistic by nature and turbulent in operation. It is as different form so-called perfect competition as war is from ballet.

…Real competition is the central regulating mechanism under capitalism. Competition within an industry forces individual producers to set prices with an eye on the market, just as it forces them continually to try to cut costs so that they can cut prices and expand market share. Cost-cutting can take place through wage reduction, increases in the length or intensity of the working day, and through technical change. The latter becomes the central means over the long run [my emphasis].

…The notion of competition as a form of warfare has important implications. Tactics, strategy, and resulting prospects for growth are central concerns of the competitive firm…In the battle of real competition, the mobility of capital is the movement from one terrain to another, the development and adoption of technology is the arms race, and the struggle for profit growth and market share is the battle itself.”

Anwar Shaikh (2016), Capitalism: Competition, Conflict, Crises, p.259-260

Continue reading

The irrelevance of perfection and imperfection in economics

9780199390632“Many of the central propositions of economic analysis can be derived without any reference to hyperrationality, optimization, perfect competition, perfect information, representative agents, or so-called rational expectations. These include the laws of demand and supply, the determination of wage and profit rates, technological change, relative prices, interest rates, bond and equity prices, exchange rates, terms and balance of trade, growth, unemployment, inflation, and long booms culminating in recurrent general crises…

…I propose that we reject the claim that perfect competition was ever appropriate and refuse the notion that observed outcomes should be attributed to historically arisen imperfections. The economic dynamics of capitalism arise from competition itself. There was never any Garden of Eden, and our current condition does not stem from its loss.”

Anwar Shaikh (2016), Capitalism – Competition, Conflict, Crises

These passages come from the opening paragraphs of the conclusion to Shaikh’s magisterial work. Drawing on the classical political economists such as Smith and Ricardo, as well as Marx, Keynes and many others, he sets out to construct a comprehensive approach to the economics of capitalism which goes beyond theories of perfection and imperfection. This is very appealing to me. Continue reading

A sustainable labour market: what kind of structure?

A sustainable labour market structure, at industry-wide and national levels, should enable the productive efficiency of the economy to grow over time, and promote at the same time high levels of employment and low levels of unemployment. In a modern democracy, mass unemployment is unsustainable because it represents a tremendous level of waste, and also because it is likely to create social unrest and can undermine the very foundations of such a democracy. Governments may not always be able to ‘control’ the economy such that mass unemployment is banished for ever, as the current economic crisis has made clear, but they can pursue policies which banish it for considerable periods of time, and should do so.

Measures of economic growth record the increase in the production of goods and services in an economy over time. But growth is a complex process and involves a change in the structure of production over time as well. Companies and industries fail and can disappear altogether while new ones start up and develop. Jobs likewise ‘disappear’ both within such companies and industries, as well as within growing companies. New jobs are at the same time created across the economy. The balance between the two over time determines whether employment levels rise or fall.

As Geoff Harcourt has argued, in theory a ‘rigid’ labour market with industry-wide wage setting behaviour by trade unions is not incompatible with a dynamic economy. If wages are set at some uniform rate across an industry, those (less successful) firms with inferior techniques and low and declining profits will be forced out of business quicker without being able to cut their workers’ wages, while those more successful firms with superior techniques of production and higher profits will be able to sustain and expand investment and output without being hindered by flexible wage-setting behaviour forcing wages higher. Inferior techniques will be scrapped more quickly and resources will be re-allocated towards superior techniques of production. Economic growth and structural change can in this theory proceed apace.

I have been wondering about the more orthodox view that regards flexible wages across the economy as important facilitators of structural change and growth. In this theory, less successful and failing firms will be forced and able to cut wages to maintain profit levels, while more successful and profitable firms will be able to raise wages. In fact, they will want to raise wages to attract more labour as they invest and expand output. Workers are likely to respond to the different wage levels as a market signal, and apply for jobs at the firm which offers higher wages. Competition will prevent the failing firms from cutting wages too far, for fear that they will lose their workforce to rival firms, or even firms in a different and more successful industry. In a way similar to the ‘rigid’ wage-setting behaviour outlined in the paragraph above, the dispersion of wage levels across an industry and even the whole economy will have limits set in this case however by the forces of competition in the labour market as well as the market for firms’ output. In the first case, wage-setting is more institutionalised by trade unions, in the second it is market-driven. But the outcome of both cases does not seem too dissimilar in theory.

In theoretical terms then, institutionalised wage-setting in a market economy need not imply a stagnation of output caused by inhibited structural change. It is highly simplistic to argue that trade unions by themselves and in all cases cause unemployment and slow economic growth. Cross-country case studies would seem to suggest this. The Scandinavian economies have in general been successful in recent years, while maintaining strong welfare states and, I believe, trade union movements of significance. The large economies of France, Germany and Italy have to varying degrees suffered from high unemployment for decades now, and many economists have come to accept that labour and product market ‘rigidities’ have been the cause of this. Personally I would add restrictive monetary and fiscal policies maintained over long periods, and the costs, both static and dynamic, of German reunification. Economists need to take a subtle approach to recommending structural ‘reform’ to these governments. And these governments need to be bolder, in the face of economic crisis, with their macroeconomic policies, to prevent unemployment rising more than it needs to in the medium and longer term.

A sustainable labour market structure then, can be compatible with the presence of trade unions, especially those that accept that structural change is part of the dynamic of economic growth and development. Other ‘rigidities’ may or may not be compatible with this dynamic and labour market regulations and structures require close study before recommendations are made for blanket reforms which could sweep away those institutions that sustain social cohesion and also promote the very dynamism that economies need to grow.

Corporate Responsibility and Competitive Advantage

Can the application of Corporate Social Responsibility (CSR) to a business model create competitive advantage for the firm? Or is it a luxury that can only be promoted when times are good and profits high? It could all depend on social expectations.

CSR, also called ‘Corporate Responsibility’ or ‘Responsible Business’ can be described as ‘business doing good’ for the wider society of which it is part. But by adding value, making profits and generating wealth, it is clear that much business does create widespread benefits for at least some of their stakeholders: customers, employees and shareholders. They make products, create jobs and provide investors with returns. CSR seems to become important when morals and ethics become a major part of doing business. The scope of CSR is broadened further when one considers the natural environment: the degradation of nature and climate change are two huge issues which are entering increasingly into the public consciousness. With this heightened awareness comes a desire for change and improvement in behaviour, where possible. Stakeholders increasingly demand more from firms; and firms want to be seen to be ‘doing good’. Those with a conscience know that their company image has to communicate the ‘good’ that they really are doing. The effects of CSR need to run deep or customers could take their business elsewhere. This is where CSR can offer a competitive advantage.

Competitive advantage can be described as a position that a firm holds in the markeplace vis-a-vis its competitors. It could be ‘ahead of the game’ in terms of cost advantage or through differentiated products. If firm A realizes before its competitors that employing and communicating more effective CSR (for example giving out stronger reusable carrier bags) can differientiate its products and/or services from its rivals and bring in more customers, it can act to win an increased market share and total revenues. Such tactics will cost money, and eat into any projected increase in profits that come from the rise in market share. So there is a degree of risk in the strategy. If it works to raise profits at the expense of other firms in the market, the latter have an incentive to catch up and in so doing could make the form of CSR an industry standard, potentially reducing the profit rate of firm A and restoring their own profit rates. The process of competition thereby generates benefits to society that could be widespread, in this case reducing waste. Alternatively, if other firms in the market are slower-moving, firm A’s increased profit rate could be used to fund more investment in improved CSR, potentially further increasing its market share to the point where it becomes a monopoly. Whether it would still have the incentive to improve CSR without some intervention by government is another issue. For the moment, let us assume that the market remains competitive. But what drives firm A to become more responsible in the first place?

The prospective benefits to the individual firm from improving their CSR strategy derive from changing social expectations. When a large enough group of customers or other stakeholders begin to make demands on the firm to behave differently they can affect that change. Customers can buy from the firm they deem more responsible and take their custom away from firms that are less so, stimulating the competitive process outlined above. Shareholders that deem a firm to be acting unsustainably (admittedly a broad concept) can sell and drive the share price down.

As more and more space is taken up in the media, on the part of governments, NGOs and other organisations with issues surrounding CSR, the social consciousness of moral, ethical and environmentally friendly behaviour by firms is heightened. The trend is already with us, but does not yet seem particularly widespread. Blytt & Co have a small part to play in raising the social consciousness of sustainability and CSR. I will write more on sustainability in future blog entries.