anwar shaikh, why classical political economy (lecture 01 - 08/30)

classical economists asked this question: how can we have patterns of recurrence? how can g. depressions recur?

the surprising answer, though, is that capitalism does not work through individuals' intentions. it runs 'behind their backs.'

the market possesses powerful internal structural patterns that emerge from the centrality of the 'profit motive'

what happened in the 1930's?

the system broke because the profit motive led it to that outcome.

the key point is that the classical tradition sees the system in these terms, in terms of a pattern (boom + bust)

classical economists do not mean the same thing as the modern orthodox economists by 'equilibrium'. they see boombs past it, and busts below it--whereas the orthodoxy is content to understand the economy at equilibrium.

neo-classical position--the idea is that equilibrium is a state of rest ("attained and held state"). a gravitational attractor. you're entitled to view equilibrium as a pretty good approximator of reality (analogy to a pendulum)

classical position--the equilibrium point is itself not fixed, and the system can itself move around it. we want to talk about equilibrium points, then, but as 'turbulent regulation.' order in and through disorder. the pattern occurs through overshooting and undershooting.

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what is it specifically about classical economists that distinguishes them from neo-classicals?

neo-classicals

1. self-interest as the primary human motive--rational economic man makes all decisions.
   
2. utility maximization--not just as a principle for understanding firm-level decisions, but also as a principle of behavior
3. firms are price-takers, they all take a common price. competition forces firms to produce at a common price (a competitive economy)
4. profits, wages, and technology is all equal between firms. everything is studied at equilibrium.
   
5. full employment is a stable and regular outcome. if there's unemployment, wages will be bid down, and workers will be hired (unemployment is a feature of government intervention, distortions, etc.) [remember, neo-classicals aren't worried about demand]

keynes and post-keynes

arose in a post-depression context. central argument is that economy can get stuck in a state of persistent unemployment, if there's a lack of demand. unemployment, in other words, is a feasible equilibrium state.

in this context you need the state. the state becomes an important complement to the market. to 'push' it up to a full employment state of existence, which can be a 'higher-level' equilibrium

classical

the inventors of modern economics, and in search of a deeper answer to these questions. unemployment, for example, can be sustained easily, if there aren't profits to be made.

you can't re-open factories if private profit is the dominant law, even if it's socially desirable.

a better understanding of the world we live in is offered by the classicals.

key features of classical political economy

1. economic acts are embedded in a social context. not abstract agents/firms, but embedded (this opens up possibility of thinking about race, gender, etc.)
2. focus is on industrial capitalism (not merchang capitalism, etc.)
3. emphasis is on the 'laws of motion'--patterns produced by capitalism. system is always 'changing and moving'
4. emphasis is also on competition, which has its own hierarchies and forms (amongst workers, between nations. the dominant form is between firms)
5. order in and through disorder
6. expansion and growth are inherent. the system is always moving.
   
7. incentive to mechanize is inherent in the system
8. conflict between private aims/incentives and social goals.
   
9. the state now appears in a very different light, as compared to both the neo-classical and keynesian models. classical economists are more likely to see the State as a State of the 'system.' a conflict between the profit motive and State intervention.
   

the main point--the purpose of the course is not to study dead economists, but about an alternative vision of the system we (today) inhabit.