anwar shaikh, growth (lecture 14 – 12/7)
to begin with, when you talk about theories of growth, you have to distinguish between
exogenous theories of growth
endogenous theories of growth
what drives growth in the neoclassical theory, as actually growth in the labour supply. the supply of labour is the restriction, provided for full employment (this is all in the absence of technical change, remember—through the assumption that technical change is exogenous; as is population)
in neoclassical theory, supply determines growth rate at the most abstract level.
technical change can change this limit, yes – but it's still linked to the growth rate of the labour supply. the growth rate of capital is 'exogenously' determined (not 'contingent,' per se – it would have to do with slow-changing attitudes toward reproduction, etc.)
the key point that Malthus erred in, according to Marx, was this one – it's not the case that labour is the limit to the growth rate of capital.
in Keynesian theory, 'aggregate demand' is the critical variable.
Y = Consumption + Investment
Consumption = f(Output)
Investment = exogenous in the short run
Thus, Y = Investment / (1 – Consumption) ['the paradox of thrift' : if you save less, you get a larger multiplier]
Investment is exogenous in the short-run. The growth of output will be the result of the growth of investment.
Investment, in Keynes' argument, is dependent on the expectations of future profitability. This is why it's volatile, etc. This is getting closer to a classical model, insofar as your long-term expectations will be driven by your current profitability.
this is a point that Joan Robinson makes about Keynes, arguing that he's part of the tradition that argues that profitability is central.
in one sense, then, Keynesian theory is similar to the neoclassical story – possible to understand 'expectations of future profitability' as exogenous (the growth of the system depends on 'how capitalists feel,' on their animal spirits). many many Keynesians follow this line.
on the other hand, Joan Robinson insists that this can be assimilated to an 'endogenous' theory of growth.
(mentioning Soros and the 'valium cycle' theory of crisis: Soros is not suggesting that expectations determine fundamentals entirely – that would mean that there could be no such thing as bubbles – he's arguing, instead, that expectations can affect fundamentals without entirely determining them).
the third school – the 'classical' school – agrees that growth is driven by investment, but this, in turn, is centrally determined by profitability. therefore the laws of profitability are crucial to understanding accumulation.
at that level, in the abstract, we could skip over much of the concrete discussion of 'aggregate demand', etc., etc.
in neoclassical theory, there is an assumption that supply and demand match each other – the supply is full employment, and demand has to adjust to supply. the formal mechanism for this bringing into equality is the interest rate, which determines the level of investment, etc. (a Say's law type argument)
Keynesian theory flips it – supply adapts to demand. you get the story of the multiplier.
Marx doesn't have either argument – Marx's answer is that both supply and demand are regulated by profitability. this is the whole point of the schemes of reproduction.
(important to remember that Marx didn't write Volume II of Capital – schemes of reproduction come from 1870 and also from 1878)
Marx begins, of course, with a putatitive puzzle: every capitalist throws in a certain amount of money, which they use to buy labour-power and means of production, in order to produce more commodities and ultimately acquire more money. how is it possible for every capitalist to sell at more than they put it? where does that 'extra demand' come from? who buys the surplus product?
Malthus' answer was the 'unproductive consumers' (the landlords)
Luxemburg's answer was that this 'demand' has to come from the non-capitalist sphere of production. if that argument is correct, than the suggestion would have to be that capitalism cannot grow after it has become generalized.
Marx wants to show us that it doesn't come from outside the system, but inside it.
the broad answer is that the demand comes from the interaction between the circuit of capital and the circuit of revenue.
the argument, of course, is that it is possible to have balance (see attached sheet). he is NOT saying that any supply creates its own demand – that if I double my supply I will automatically get demand. this second proposition is Say's Law.
he cannot, at the level of the schemes of reproduction, give us an answer about what happens when you stray from balance.
(there is a dynamic solution to this adjustment process – John Hicks)
if it's true that you can show an adjustment process, then it's possible to have fluctuations around a growth path. so you can have a turbulent adjustment process around a growth path. demand and supply can mutually adjust to each other, despite overshooting, etc.
remember Marx has not had to incorporate credit into this argument, at all – all you need is an expanding money supply (some argue that you need 'credit' to make this work; Duncan Foley, for example).
remember, this only establishes that 'balanced growth' is algebraically possible (Kalecki and Luxemburg would stress the necessity of imbalance, in this way – Shaikh arguing they were mistaken). nor does it tell us what the level of the growth rate will be.
you have to answer the (a) adjustment to equilibrium question, and (b) the level of investment question (profitability) – and this will take you toward crisis theory.
any system which has available labour, etc., can't possibly grow faster than the profit rate (the rate at which it produces surplus). that is the upper limit of growth.
this, Shaikh is adding, also suggests that this is the root of a theory of 'inflation.' the third theory for the 70s – if profitability is following, and the growth rate was not falling, then you're getting closer to this 'limit' ('the throughput'). Shaikh's argument is that this explains excellently the fluctuations in the rate of inflation.
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