Posts Tagged ‘economics’

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The appointment in England of Noreena Hertz as ITV’s economics editor has raised the issue of whether or not a Marxist (which she has been accused of but denies she is) can do an effective and fair job in reporting the news.

I certainly don’t see why not. Nor does Chris Dillow:

First, some of us Marxists – unlike many of our opponents – are not spittle-flecked fanatics. Instead, our Marxism arises from a cool-headed scepticism about whether capitalism really can maximally advance living standards and real freedom for all. Such scepticism is a virtue in any proper journalist. And it’s surely a vast improvement on the churnalism and unthinking deference to the rich and powerful that passes for most of journalism today.

Secondly, we Marxists know that we are in a minority, so we know which of our opinions aren’t mainstream. This makes us much more aware of potential biases in our own thinking, and so able to slough them off when necessary. By contrast, “mainstream” reporters might be more prone to groupthink and so pass off their own opinions as impartial fact.

I’ve made much the same argument in teaching economics. In both cases, Marxists are forced into the position of knowing both the mainstream stuff and the Marxian critique, which those firmly ensconced within mainstream thought simply aren’t equipped to handle. It isn’t impartiality but it is a kind of openness to alternative perspectives.

And then, of course, there’s the example of Marx himself, who served as a journalist—both to earn a living and to disseminate his analysis of the world—for much of his life, most famously for Horace Greeley’s New York Daily Tribune.

This is from an interview with Jim Ledbetter, who edited Dispatches for the New York Tribune: Selected Journalism of Karl Marx:

Q: Can you talk a little about Marx’s approach to journalism?

A: The dispatches that Marx published don’t greatly resemble most of what gets published as journalism today, and in many respects they don’t greatly resemble what was published as Anglo-American journalism in the 19th century, either.

That is to say: they contain essentially nothing that would today be called”reporting”: no first-hand accounts of events, large or small; no interviews with sources, official or otherwise. They are critical essays constructed, as so much of Marx’s work was, out of the research materials available to him in the British Library.

This isn’t to say that Marx’s dispatches were not timely. Indeed, he was quite fastidious about making his pieces as up-to-date as possible, including last-minute tidbits he got from personal correspondence or that day’s newspaper (which seems quaintly ironic today, given that the articles traveled by steamship to New York , and thus would typically be published some 10-15 days after they were written).

But the basic Marx approach to his New York Tribune column was to take an event that was in the news — an election, an uprising, the second Opium War, the outbreak of the American Civil War — and sift through it until he could boil it down to some fundamental questions of politics or economics. And then on those questions he would make his judgment. In this sense, Marx’s journalism does resemble some of the writing that is published today in journals of opinion, and it’s not hard to see a direct line between Marx’s journalistic writing and the kind of tendentious writing on public affairs that characterized much political journalism (especially in Europe) in the twentieth century.

A good example is Marx’s 14 October 1861 article on the British cotton trade, in which he analyses the specific effects of the rise in prices of raw cotton on British textile factories and the more general role of the British empire in the rise of capitalist industry in England:

The consumption of Indian cotton is rapidly growing, and with a further rise in prices, the Indian supply will come forward at increasing ratios; but still it remains impossible to change, at a few months’ notice, all the conditions of production and turn the current of commerce. England pays now, in fact, the penalty for her protracted misrule of that vast Indian empire. The two main obstacles she has now to grapple with in her attempts at supplanting American cotton by Indian cotton, is the want of means of communication and transport throughout India, and the miserable state of the Indian peasant, disabling him from improving favorable circumstances. Both these difficulties the English have themselves to thank for. English modern industry, in general, relied upon two pivots equally monstrous. The one was the potato as the only means of feeding Ireland and a great part of the English working class. This pivot was swept away by the potato disease and the subsequent Irish catastrophe. A larger basis for the reproduction and maintenance of the toiling millions had then to be adopted. The second pivot of English industry was the slave-grown cotton of the United States. The present American crisis forces them to enlarge their field of supply and emancipate cotton from slave-breeding and slave-consuming oligarchies. As long as the English cotton manufactures depended on slave-grown cotton, it could be truthfully asserted that they rested on a twofold slavery, the indirect slavery of the white man in England and the direct slavery of the black men on the other side of the Atlantic.

Now, that’s the kind of honest, serious, and critical economic journalism one would be hard to find these days on either side of the Atlantic.

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Blood-sucking vampires are, of course, ubiquitous in contemporary film—from Werner Herzog’s Nosferatu the Vampyre to Jim Jarmusch’s Only Lovers Left Alive (the most recent in a long line that stretches back through Christopher Lee’s various portrayals of the Transylvanian vampire to the 1909 silent film Vampire of the Coast).

Vampires are also, as it turns out, familiar as a critical trope within economics.

Terrell Carver (in Postmodern Marx) notes that Marx used the vampire motif three times in Capital—in the chapter on the working day:

“Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks.”

“The prolongation of the working-day beyond the limits of the natural day, into the night, only acts as a palliative. It quenches only in a slight degree the vampire thirst for the living blood of labour.”

“The bargain concluded, it is discovered that he was no ‘free agent,’ that the time for which he is free to sell his labour-power is the time for which he is forced to sell it, that in fact the vampire will not lose its hold on him ‘so long as there is a muscle, a nerve, a drop of blood to be exploited’.”

As Carver explains, “Marx did not accept a commonplace distinction between literal and figurative language, and he did not attempt to avoid the latter in what is taken to be his most scientific work.” Why?

Marx’s critique takes political economy as a textual surface, and by means of a thorough, and thoroughly linguistic analysis he refigures, in a parodic text, a supposedly familiar and uncontentious world as strange (requiring explanation) and problematic (requiring political action).

A more recent example is Matt Taibbi’s reference to Goldman Sachs as “A great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

And now we have Pope Francis calling the people who take advantage of the poor “true bloodsuckers” who “live by spilling the blood of the people who they make slaves of labour.”*

When riches are created by exploiting the people, by those rich people who exploit [others], they take advantage of the work of the people, and those poor people become slaves. We think of the here and now, the same thing happens all over the world. “I want to work.” “Good, they’ll make you a contract, from September to June.” Without a pension, without health care… Then they suspend it, and in July and August they have to eat air. And in September, they laugh at you about it. Those who do that are true bloodsuckers, and they live by spilling the blood of the people who they make slaves of labour.

Vampires are central, then, to the ruthless criticism of mainstream economics, a critique that makes the supposedly common-sense world in which we live—the world of capitalist commodities and wage-slavery—both strange and ripe for fundamental change.

 

*The pope’s reference is to the reading for 19 May 2016, from James 5:

Come now, you rich, weep and wail over your impending miseries.
Your wealth has rotted away, your clothes have become moth-eaten,
your gold and silver have corroded,
and that corrosion will be a testimony against you;
it will devour your flesh like a fire.
You have stored up treasure for the last days.
Behold, the wages you withheld from the workers
who harvested your fields are crying aloud;
and the cries of the harvesters
have reached the ears of the Lord of hosts.
You have lived on earth in luxury and pleasure;
you have fattened your hearts for the day of slaughter.
You have condemned;
you have murdered the righteous one;
he offers you no resistance.

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Mark Tansey, “Triumph Over Mastery” (1986)

Reading the current debate about how we should approach the teaching of introductory economics, it’s clear the participants actually need to go back and take Epistemology 101.

Now, I’m the first to argue we need to change how we approach Econ 101 (as readers of this blog know). It’s a key course, because it’s the only economics course most college and university students will ever take: it’s where they’re introduced to the kinds of approaches and policies academic economists work with; it’s also a space to discuss the economic dimensions of individual and social life, both historically and in the contemporary world. Given the hundreds of thousands of students who every year are exposed to economics through such a course, its content is crucial.

The course, however, is also often badly taught. That’s in part because the material is many times presented in a mind-numbing manner, as a set of ideas and facts that need to be memorized in order to pass quizzes and exams. But, even more important, it’s because many of those ideas and facts—from the effects of minimum wages to the patterns of international trade—serve to naturalize both mainstream economic theory and the economic and social system celebrated by mainstream economists. In other words, students are generally taught that the limits of debate are defined by the parameters of mainstream economics.

I know, then, I should welcome a debate about what we should teach in Econ 101—but, as it turns out, not this one. Michael R. Strain wants to keep things pretty much as they are:

An economics 101 textbook is a treasure. The information therein captures the leaps forward in intellectual history, in our understanding of society — indeed, in our understanding of daily life. . .

Look. Understanding society and the economy is tough business. Economics 101 textbooks have a large responsibility to do that right and well. Does the theory of comparative advantage presented in 101 tell you most of what you need to know to understand the Trans-Pacific Partnership trade agreement? Nope. But that’s a ridiculous standard to hold for an intro class. Are economics 101 textbooks perfect? Of course not, and they can and should be improved. But existing 101 textbooks are one of the best tools society has to prepare young people for responsible and informed citizenship.

James Kwak, following Noah Smith, argues Econ 101 should be based on a combination of the mainstream theoretical models Strain wants to focus on (which, in Kwak’s view, provide “some incredibly useful analytical tools”) with empirical studies.

A friend and labor economist said to me that when thinking about the impact of a minimum wage, the natural starting point is the supply-and-demand diagram, because it’s so powerful—but you don’t stop there. The model is incomplete, like all models, and if you don’t realize that you will make mistakes.

Professional economists know all this, and hence many think that models need to be balanced by empirical research, even in first-year classes. Strain doesn’t buy this because “economists’ empirical studies don’t agree on many important policy issues.” I don’t understand this argument. The minimum wage may or may not increase unemployment, depending on a host of other factors. The fact that economists don’t agree reflects the messiness of the world. That’s a feature, not a bug.

Here’s the problem: both sides of the current debate (Strain as well as Kwak and Smith) treat theory and facts radically separate from one another. Thus, for them, there is one theory (separate from the facts) and one set of facts (separate from the theory).

This is where Epistemology 101 comes in. If the participants in the current debate took such a course, they’d learn that the idea of separate theories and facts forms the basis of only one theory of knowledge (which comes in two forms, rationalism and empiricism). But they’d also learn there’s an alternative theory of knowledge, according to which there are different theories and different sets of facts. Each theory has its own set of facts (and, of course, its own validity criterion). And, of course, these different theories and sets of facts interact and change over time.

From the perspective of the second theory of knowledge, then, the professors of Econ 101 would introduce students to different economic theories (neoclassical supply and demand, to be sure, but also other theories that serve as criticisms of and alternatives to neoclassical economics) and different sets of facts (including wages that are equal to the marginal productivity of labor as well as wages that are equal to the value of labor power, after which there is exploitation). And they would include the complex, discontinuous history of those theories and facts, including the debates amongst and between them.

Now, that would be an introductory economics course worthy of the name—and one that is consistent with Epistemology 101.

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No matter how many stories I tell them about thought control in economics, students and colleagues in other disciplines simply don’t believe me.

They don’t understand the restrictions on the professors who are hired in many economics departments, the narrow range of methods and perspectives published in the leading economics journals, the limits on economics research projects that actually receive funding, and even the strict surveillance of what can be taught to students in basic undergraduate and graduate economics classes. It’s beyond their imagination that mainstream economists do all they can—within their departments and in the wider discipline—to make sure other approaches (often referred to as heterodox economics and, often, noneconomics) are displaced to (and, in many cases, beyond) the margins.

So, it comes as no surprise to me—but it probably does to everyone outside of economics—that a senior lecture rat the University of Glasgow, Alberto Paloni [ht: sm], an expert in post-Keynesian theory, has been stopped from teaching a core degree module on macroeconomics.

This, after an essay in the Royal Economic Society newsletter specifically cited Paloni’s course as introducing a necessary pluralism into the teaching of economics:

Examples of courses that successfully incorporate pluralist approaches to teaching economics already exist. For instance, the second year macroeconomics course at Glasgow University acknowledges the existence of alternative perspectives within economics and gives students the tools to contrast the standard macroeconomic theory with post-Keynesian economics. Students are made aware of how different perspectives employ different approaches and reach different conclusions, and asks them to evaluate critically how well theories explain empirical evidence. . .In contrast to Glasgow, most macroeconomics courses teach from a single textbook and teach students to solve problems within models as opposed to comparing different types of models and seeing which generate more credible conclusions.

All Paloni did was teach students some Post Keynesian macroeconomics. Post Keynesian theory, for those who are unfamiliar with the term, focuses on elements of the economic approach inspired by John Maynard Keynes (such as time, radical uncertainty, financial fragility, and so on) that are often domesticated by or simply removed from modern mainstream macroeconomics. Nothing too radical, then—just one among many alternatives to the theory that prevails in economics and, as we now know, the set of approaches and policies got us into the current mess.

Fortunately, the students in the Glasgow University Real World Economics Society decided not to take the decision lying down. So, they initiated a petition that received over 150 signatures and was then passed on to the heads of the Department of Economics and the Adam Smith Business School, respectively, as well as to the Principal of the University of Glasgow.

Here are some excerpts from their petition:

It is with great dismay that we are writing this.

It has recently been decided by the Economics Department at our university to remove Dr Alberto Paloni from teaching the course Economics 2B. . .

Economics 2B is compulsory for undergraduate economists at the University of Glasgow and attended by around 400 students each year. Paloni’s part of the course introduces students to heterodox economics with a focus on post-Keynesian economics. This is often the first, if not only, time that economics students engage with heterodox economics in their academic life. The course receives extraordinary student feedback.

The content of the course will, for now at least, remain unchanged. The teaching of it will be resumed by mainstream economists. Next year, more specifically, it will be taught by Prof Tatiana Kirsanova.

With mainstream economists for half a semester teaching perspectives that are highly critical of what they do, we sincerely fear that the content will be completely removed from the course sooner rather than later. Furthermore, until a potential removal, we fear that the heterodox content will be taught with the attitude that it is irrelevant and/or outright wrong.

The removal of Paloni’s teaching has been decided in the name of promoting research-led teaching. The department wants to (A) have Professors teaching Level 1 and 2 and (B) have the Macroeconomics Research Cluster involved in the course. Paloni belongs to the Finance Research Cluster.

We find these reasons dubious. Firstly, we do not think that it is the case that a professorship leads to a higher teaching quality. Secondly, we do not think that it is necessary to hold a professorship in order to teach the fairly basic content in Economics Level 1 and 2. Thirdly, we think that removing the only post-Keynesian economist in the department from teaching post-Keynesian economics is antithetical to the aim of promoting research-led teaching.

This is another story about thought control in economics I’ll tell in the future—and students and colleagues outside of economics again probably won’t believe me.

 

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Mark Tansey, Recourse (2011)

One of the great advantages of economics graduate programs outside the mainstream (like the University of Massachusetts Amherst, where I did my Ph.D.) is we were encouraged to read, listen to, and explore ideas outside the mainstream—especially the liberal mainstream.

The liberal mainstream at the time, not unlike today, consisted of neoclassical microeconomics (with market imperfections) and a version of Keynesian macroeconomics (which was, in the usual IS-LM models, best characterized as hydraulic or bastard Keynesianism). Essentially, what liberal economists offered was a theory of a “mixed economy” that could be made to work—both premised on and promising “just deserts” and stable growth—with an appropriate mix of private property, markets, and government intervention.

For many of us, liberal mainstream economics was a dead end—uninspired and uninspiring both theoretically and politically. Theoretically, it marginalized history (both economic history and the history of economic thought) and ignored the exciting methodological debates taking place in other disciplines (from discussions of paradigms and scientific revolutions through criticisms of essentialism and determinism to fallibilist mathematics and posthumanism). And politically, it ignored many of the features of real capitalism (such as poverty, inequality, and class exploitation) and rejected any and all alternatives to capitalism (in a liberal version of Margaret Thatcher’s “there is no alternative”).

Then as now, what liberal economists offer was, as Gerald Friedman has recently pointed out, a “political economy of despair.”

The reaction to my paper — the casual and precipitous conclusion that it must be wrong because it projects a sharply higher rate of GDP growth — comes from the assumption that the economy is already at full employment and capacity output. It is assumed that were output significantly below full employment, then prices would fall to equilibrate the two. This is the political counsel of despair. It is based on classical economic theory and the underlying acceptance of Say’s Law of Markets (named for the great Classical economist Jean-Baptiste Say), which says that total supply of goods and services and the total demand for goods and services will always be equal. The shoe market creates the right amount of demand for shoes — it works out so neatly that the true measure of the supply of shoes, of potential output, can be taken by measuring actual output. This concept is used as a justification for laissez-faire economics, and the view that the market mechanism finds a harmonious equilibrium. . .

There is, of course, a politics as well as a psychology to this economic theory. If nothing much can be done, if things are as good as they can be, it is irresponsible even to suggest to the general public that we try to do something about our economic ills. The role of economists and other policy elites (Paul Krugman is fond of the term “wonks”) is to explain to the general public why they should be reconciled with stagnant incomes, and to rebuke those, like myself, who say otherwise before we raise false hopes that can only be disappointed.

Fortunately, back in graduate school and continuing after we received our degrees, we were encouraged to look beyond liberal economics—both outside the discipline of economics (in philosophy, history, anthropology, and so on) and within the discipline (to strains or traditions of thought that developed criticisms of and alternatives to liberal mainstream economics).

Marx was, of course, central to our theoretical explorations. But so were other thinkers, such as Axel Leijonhufvud (whose work I’ve discussed before). He—along with others, such as Robert Clower and Hyman Minsky—challenged the orthodox interpretation of Keynes, especially the commitment to equilibrium. Leijonhufvud was particularly interested in what happens within a commodity-producing economy when exchanges take place outside of equilibrium.

The orthodox Keynesianism of the time did have a theoretical explanation for recessions and depressions. Proponents saw the economy as a self-regulating machine in which individual decisions typically lead to a situation of full employment and healthy growth. The primary reason for periods of recession and depression was because wages did not fall quickly enough. If wages could fall rapidly and extensively enough, then the economy would absorb the unemployed. Orthodox Keynesians also took Keynes’ approach to monetary economics to be similar to the classical economists.

Leijonhufvud got something entirely different from reading the General Theory. The more he looked at his footnotes, originally written in puzzlement at the disparity between what he took to be the Keynesian message and the orthodox Keynesianism of his time, the confident he felt. The implications were amazing. Had the whole discipline catastrophically misunderstood Keynes’ deeply revolutionary ideas? Was the dominant economics paradigm deeply flawed and a fatally wrong turn in macroeconomic thinking? And if this was the case, what was Keynes actually proposing?

Leijonhufvud’s “Keynesian Economics and the Economics of Keynes” exploded onto the academic stage the following year; no mean feat for an economics book that did not contain a single equation. The book took no prisoners and aimed squarely at the prevailing metaphor about the self-regulating economy and the economics of the orthodoxy. He forcefully argued that the free movement of wages and prices can sometimes be destabilizing and could move the economy away from full employment.

That helped understand the Great Depression. At that period, wages [were] highly flexible and all that seemed to occur as they fell was further devastating unemployment. Being true to Keynes’ own insights, he argued, would require an overhaul of macroeconomic theory to place the problems of coordination and information front and center. Rather than simply assuming that price and wage adjustments would cause the economy to restore an appropriate level of output and employment, he suggested a careful analysis of the actual adjustment process in different economies and how the economy might evolve given these processes. As such, he was proposing a biological or cybernetic approach to economics that saw the economy more as an organism groping forward through time, without a clear destination, rather than a machine that only occasionally needed greasing.

That “path not taken” might also have helped us understand the Second Great Depression and the uneven—and spectacularly unequalizing—recovery that liberal mainstream economists have supervised and celebrated in recent years.

Meanwhile, the rest of us continue to look elsewhere, beyond the liberal political economy of despair, for economic and political ideas that create the possibility of a better future.

 

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In my experience, most mainstream economists have never heard of much less read a word written by Thorstein Veblen, the author of “the most considerable and creative body of social thought that America has produced.”

But my students (e.g., in Topics in Political Economy) and regular readers of this blog certainly know about Veblen.

Why is Veblen relevant today? Certainly because of his analysis and critique of conspicuous consumption, which is precisely one of the effects of the obscene levels of inequality we’re witnessing.

Veblen is also relevant because, as Adam Davidson explains, Bernie Sanders’s economic ideas are, like Veblen’s, both ruthlessly critical of the mainstream and profoundly optimistic:

Sanders believes that raising the minimum wage, spending a trillion dollars on infrastructure and offering free college will fundamentally shift the structure of our economy toward the poor and middle class. It will inspire such enthusiasm and determination that more people will work harder and invest more, and the country will easily generate the tax income to pay for it. Hence, Sanders’s plans won’t cost money; they’llraise money. Like Veblen, Sanders spends much of his time denouncing the excesses of others, but at heart he is one of the world’s greatest optimists. Sanders obviously understands that his vision of the economy is at odds with the existing way of seeing things. His website and his stump speeches ask his followers whether they’re ready to start a “revolution.”. . .

Of course, for many people who support Sanders, the fact that his ideas run counter to decades of established economics is exactly the point. Some economists, like Dean Baker and Robert Reich, told me they like Sanders not because of his take on any technical debate but because he has forced the profession — and everybody else — to take his issues seriously. No matter what happens in this election, Sanders’s idealism has sent a clear message to traditional economists on the left: They are taking too long to develop answers to the problems of inequality and the corrosive effects of concentrated wealth. It’s a message that institutionalists have been screaming for more than a century. Now, it seems, they are being heard.

Today, Veblen’s most famous book might be reissued (with a foreword by Sanders, certainly one of Vermont’s most controversial figures) and retitled “Theory of the 1 Percent.”

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Mainstream economists (such as Larry Summers and Paul Krugman) are clutching at straws to try to explain capitalism’s poor performance, especially the specter of low investment and slow growth—otherwise known as “secular stagnation.” The latest straw is monopoly power.

Even the Council of Economic Advisers (pdf) is focusing attention on the monopoly straw—although, like others within mainstream economics, they’re not at all clear why it’s happening.

there is evidence of 1) increasing concentration across a number of industries, 2) increasing rents, in the form of higher returns on invested capital, across a number of firms, and 3) decreasing business and labor dynamism. However, the links among these factors are not clear. On the one hand, it could be that a decrease in firm entry is leading to higher levels of concentration, which leads to higher rents. On the other hand, it could be that higher levels of concentration are providing advantages to incumbents which are then used to raise entry barriers, leading to lower entry. Or it might be that some other factor is driving these trends. For example, innovation by a handful of firms in winner-take-all markets could give them a dominant market position in a very profitable market that could be difficult to challenge, discouraging entry. Even though it is not clear whether or how these three factors are linked, these trends are nevertheless troubling because they suggest that competition may be decreasing and could require attention by policymakers and regulators.

While some on the liberal wing of mainstream economics have recently discovered increased concentration within the U.S. economy, they fail to credit the longstanding tradition outside of mainstream economics (e.g., within the Marxian critique of political economy) of analyzing the concentration and centralization of capital and the rise of “monopoly capital.”

Liberal mainstream economists simply have no theory of the contradictory dynamics of capitalism (one that can explain, for example, its recurring boom-and-bust cycles), much less a theory of the firm (other than hanging on to the fantasy of the social benefits of competition). That’s why they don’t have a theory of the causes and consequences of the rise of monopoly capital—nor, for that matter, do they indicate any knowledge of the criticisms of and alternatives to the theory of monopoly capital.

I’m thinking in particular of the work of Bruce Norton who, in a variety of articles, has identified some of the key problems in the theory of monopoly capitalism, especially the presumption that “capitalists always strive to increase their accumulation to the maximum extent possible.”* Norton draws particular attention to the wide variety of distributions of the surplus-value corporate boards of directors appropriate from their workers—not just in the form of dividends, but also “profit taxes, salaries of corporate supervisory managers, lawyers, financial and personnel officers, etc., [which are] equally central to the basic workings of the US economy and particularly aggregate demand.”

Each supports processes shaping in particular ways the social formation, the accumulation process, and the continued appropriation of surplus value, and each is a class process, a distribution of surplus labour. We need accumulation theory which takes pains (1) to identify all these various flows of surplus in a particular social formation and (2) to theorise their variegated inter relationships with other aspects of social life (including the continued extraction of surplus value).

That’s precisely what is missing from mainstream economics, including its liberal wing: a theory of the contradictory class dynamics of capitalist firms and of capitalism as a whole.

 

*See, e.g., his “Epochs and Essences: A Review of Marxist Long-Wave and Stagnation Theories,” published in 1988 in the Cambridge Journal of Economics, and “The Theory of Monopoly Capitalism and Classical Economics,” published in 1995 in History of Political Economy.